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Hospitals face three-day payment window changes: Facilities look to CMS for instruction

HCPRO Website, June 29, 2010

Hospitals clamoring for guidance from CMS about the three-day payment window must now grapple with legislative changes to the requirements that carry significant revenue implications and could potentially affect the national recovery audit contractor (RAC) program.

President Obama on June 25 signed the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010, which contains a section to clarify the three-day payment window, or three-day rule. The three-day rule previously stipulated that hospitals must bill as part of an inpatient stay all diagnostic services provided within three days of admission, as well as all nondiagnostic services related to the inpatient admission. CMS had previously defined “related” to be an exact diagnosis code match between the inpatient admission and the outpatient therapeutic services. Hospitals had struggled to correctly apply the rule in their billing operations.

“This has been a grey area for a very long time and has caused confusion for both the MACs/FIs and providers,” says Karen Sagen, revenue audit coordinator at Bellin Health in Green Bay, WI. Confusion had recently come to the fore on several of CMS’ Hospital and Hospital Quality Open Door Forum conference calls, during which the provider community posed numerous questions regarding the rule. “Clearly over the last couple of months it has come to light that providers were all doing something different, due to the lack of clarification,” she says.

The statutory change adopts a new definition for “other services related to the admission” that must also be billed as part of the inpatient stay. Under the new definition, effective for services provided on or after June 25, hospitals should bill as part of the inpatient stay all nondiagnostic services provided on the day of admission as well as those in the three days prior to admission, unless they can demonstrate that the services are unrelated to the admission. CMS must now issue instructions specifying how hospitals can meet this requirement. Facilities should continue to bundle all diagnostic services provided during the three-day window prior to the inpatient stay.

CMS implementation, guidance necessary
CMS announced that it will soon issue guidance to hospitals on how to bill for nondiagnostic services provided during the three-day window prior to an inpatient stay. Much will depend on how CMS will specify hospitals can demonstrate that services are unrelated to the inpatient admission, and therefore separately billable.

“Currently, we have a rule that would do this (i.e., based on the diagnosis codes assigned) but it is unclear whether CMS will retain the current rule or adopt a new rule,” says Kimberly Anderwood Hoy, JD, CPC, director of Medicare and compliance for HCPro, in Marblehead, MA.

Hospitals must make difficult decisions until they receive clarification from CMS. According to the CMS release announcing the statutory change:

Until the instruction is issued, hospitals should include charges for all diagnostic services and all non-diagnostic services that it believes meet the requirements of this provision. If a hospital believes that a non-diagnostic service is truly distinct from and unrelated to the inpatient stay, the hospital may separately bill for the service provided that it has documentation to support that the service is unrelated to the admission, consistent with the new provision. Such separately billed service may be subject to subsequent review.

This puts the onus on hospitals to maintain compliance with a requirement that hasn’t yet been fully developed.

Hospitals had complained to CMS that the previous three-day rule was onerous because they did not have the resources to separately code services rendered in the same encounter and compare diagnosis codes to determine related and unrelated services. However, the new rule may require hospitals to have a clinician review all services provided in the three days prior to admission individually, which may in the end be far more time-consuming and resource-intensive, Hoy says. “Hopefully, CMS either retains the old bright line rule or puts in place a new bright line rule that will not require clinicians to individually review services in order to bill correctly,” she says.

Until further clarification from CMS, Hoy advises hospitals to carefully review CMS’ June 25 press release to determine how to appropriately bill services rendered three days prior to an inpatient admission.

Effect on the RAC program unclear
Although part of the spirit of the statutory change seems to have been a desire to protect hospitals from RAC scrutiny regarding nondiagnostic services inappropriately bundled into the inpatient stay, the actual letter of the law may fall short of that, Hoy says.

The statutory language states that claims may not be reopened “for purposes of treating, as unrelated to a patient’s inpatient admission, services provided during the 3 days ... immediately preceding the date of the patient’s inpatient admission.”

However, Hoy points out that RACs thus far have focused on the Part A payment implications rather than the outpatient services themselves. The RACs’ purpose with these claims hasn’t been to treat the outpatient service as unrelated to the inpatient admission, it has been to point out incorrect inpatient coding and DRG assignment, resulting in higher payment to the hospital.

So hospitals looking for strong protection against the RACs related to application of the prior three-day rule will, again, require more information from CMS regarding how the new language will be implemented.

Difficult billing scenarios remain
Hospitals also face confusion in dealing with services provided prior to June 25 that they haven’t yet billed to Medicare.

CMS indicates in its press release that it is prohibited from paying new claims for separately billed outpatient nondiagnostic services rendered prior to June 25, presumably only including those meeting the new definition of “other related services.”

There may be a situation in which a hospital provided an outpatient nondiagnostic service that, under the previous three-day rule requirements, was clearly unrelated to a subsequent inpatient admission. Consider the example of a chemotherapy service for breast cancer provided June 1, followed the same day by an inpatient admission for exacerbation of congestive heart failure. Although the hospital could have billed the chemotherapy separately to Part B prior to June 25, CMS’ press release may imply that if the hospital hasn’t yet submitted a bill then it cannot receive the separate payment—and so must bundle the chemotherapy into the inpatient stay if billed after June 25.

“This seems to imply that the speed with which a hospital billed its outpatient services determines whether they are separately payable or not, in contradiction to long-standing timely filing rules,” says Hoy.

Because the statute applies to services provided after June 25 and services already billed on a Part A claim, it seems that the prior regulatory definition should apply to any services provided prior to June 25 and not already billed, Hoy says. However, hospitals should bear in mind that it seems to be CMS’ position that it cannot pay new claims for services provided prior to June 25 that meet the new definition of “other related services.”

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