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A Continued Challenge: The 3-Day Payment Rule Timeline

on Tuesday, 30 April 2013 in Health Law Alert: Erin E. Busch, Editor

The Centers for Medicare and Medicaid Services’ 3-day and 1-day payment rules (the “Payment Rules”) continue to generate many questions among health care providers and suppliers concerning effective dates, changes, and application of the Payment Rules. Under the Payment Rules, a hospital (or an entity that is wholly owned or wholly operated by the hospital) must include on the claim for a beneficiary’s inpatient stay the diagnoses, procedures, and charges for all outpatient diagnostic services and “admission-related” outpatient non-diagnostic services that are furnished to the beneficiary during the 3-day or 1-day window prior to the beneficiary’s inpatient stay. To better understand the application of the Payment Rules and changes in the “admission- related” standards, it is instructive to examine a timeline of the various changes to the Payment Rules:


  1. March 13, 1998 – Payment Rules Effective. In 1998, CMS implemented the Payment Rules. The 1998 final rules state that the Payment Rules apply to diagnostic and “related non-diagnostic” outpatient services furnished by a hospital or an entity wholly owned or wholly operated by a hospital. The comments to the 1998 final rules include a hospital- owned physician practice as an example of a wholly owned or wholly operated entity. Therefore, the Payment Rules have applied to hospitals and wholly owned or wholly operated entities, including physician practices, since 1998. The 1998 rule defined “related” non-diagnostic services as those where there was an exact match between the ICD-9-CM diagnosis code for both the preadmission services and the inpatient stay.
  2. April 4, 2011 – “Related to” Standard for Hospital Outpatient Services. As part of the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 (“PACMBPRA”), CMS implemented changes to the “related” standard as it applies to Hospital outpatient services. Therefore, if a hospital is examining past services subject to the Payment Rules (for example, to calculate a potential overpayment), it is important to pay attention to the dates of service and apply the correct “related to” standard. As of April 4, 2011, there is no longer a requirement for an exact ICD- 9-CM diagnosis code match for hospital non-diagnostic outpatient services. Instead, for services after April 4, 2011, the services are deemed “related” to the inpatient admission, unless the Hospital attests that the non-diagnostic services are unrelated to the inpatient admission by using condition code 51 to the separately billed outpatient non-diagnostic services claim.
  3. July 1, 2012 – “Related to” Standard for Wholly Owned/Operated Physician Practice Services. Following PACMBPRA and questions from providers and suppliers about the applicability of the new “related” rules, CMS published regulations specific to wholly owned or wholly operated physician practices regarding the “related to” standard. Beginning July 1, 2012, an exact ICD-9-CM diagnosis code match is no longer required. Instead, when submitting claims subject to the Payment Rules, a hospital must attest that the outpatient preadmission services provided in the wholly owned or wholly operated physician practice are clinically unrelated. In addition, the physician practice must identify “related” outpatient preadmission services by using the PD modifier.


It is important to remember that even though the specific “related” standards have changed, hospitals and physician practices have been subject to the Payment Rules since 1998. Therefore, any examination of past outpatient preadmission services subject to the Payment Rules could include an analysis under different “related to” standards, depending on the dates. Hospitals and wholly owned and wholly operated entities, including physician practices, should continue to implement proper policies and procedures to coordinate their billing to properly bill for diagnostic and related non- diagnostic services subject to the Payment Rules.


Michael W. Chase


Read the Full Newsletter: Health Law Advisory April 30, 2013

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