New Statute Sheds Light on Three-Day Rule for Hospital Billing

On June 25, 2010, President Barack Obama signed into law the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010. Among other provisions, Section 102 of the legislation broadens the interpretation of what is known as the three-day rule, Medicare's policy for payment for services provided in hospital outpatient departments on either the day of or during the three days prior to an inpatient admission.

Clarification of Services "Related" to Inpatient Admission

Previously, the three-day rule required that hospitals bill all diagnostic services provided within three days of admission and all non-diagnostic services "related" to the inpatient admission as part of the inpatient stay. Federal regulations formerly defined "related" to be an exact match between the diagnosis codes for the inpatient admission and the outpatient non-diagnostic (therapeutic) services.

Effective June 25, the legislation introduces a broader definition for non-diagnostic services "related to the admission" that will likely result in hospitals billing more outpatient non-diagnostic services as part of the inpatient stay. Under the new definition, services "related to the admission" now include outpatient non-diagnostic services (other than ambulance and maintenance renal dialysis services) that are: (1) provided on the date of admission, or (2) provided in the three days prior to admission, unless the hospital can demonstrate that the non-diagnostic services are unrelated to the admission.

This represents a significant change for billing outpatient non-diagnostic services. Now, in lieu of matching diagnosis codes, all non-diagnostic services provided the day of admission must be billed as part of the inpatient stay. In addition, all non-diagnostic services provided in the three-day window prior to inpatient admission must be bundled with the bill for the inpatient stay, and cannot be billed separately, unless the hospital can demonstrate that the services are unrelated.

At the time the statute was signed into law, CMS had not yet established the process for hospitals to attest to an outpatient service as being "unrelated." On July 30, 2010, however, CMS issued the inpatient prospective payment system (IPPS) final rule which clarifies this issue and further explains the related/unrelated distinction. Specifically, the final rule states that all outpatient non-diagnostic services furnished on the date of inpatient admission and all such services furnished within three calendar days preceding admission are "deemed related to the admission and, therefore, must be billed with the inpatient stay." In order to overcome this general assumption, CMS envisions a new process, akin to the current process for same-day readmissions, whereby hospitals will indicate that an outpatient service is "unrelated" using a condition code or modifier on the claim form:

"For example, under Medicare's current policy, when a patient is discharged or transferred from an acute care prospective payment system (PPS) hospital, and is readmitted to the same acute care PPS hospital on the same day for symptoms related to the prior stay, the second stay is bundled into payment for the first stay and not separately paid. However, when a patient is discharged or transferred from an acute care PPS hospital and is readmitted to the same acute care PPS hospital on the same day for symptoms unrelated to the prior stay, hospitals can place condition code (CC) B4 on the inpatient claim that contains an admission date equal to the prior admissions discharge date that would allow the second stay to be paid separately . . . We plan to develop a similar process using a condition code, modifier, or some other indicator for the 3-day (1-day) payment window."

In addition, as part of this process, hospitals will also be required to maintain documentation in the patient's medical record to substantiate the claim that the outpatient non-diagnostic services are unrelated to the inpatient admission.

Claims for Services Provided Prior to June 25

The new legislation also prohibits Medicare from reopening or adjusting certain claims for services provided prior to June 25. Specifically, if an outpatient service that meets the new definition of "services related to the admission" was previously billed on a Part A claim, then Medicare cannot reopen or adjust the claims for the purpose of treating the service as unrelated (i.e., separately billable).

In addition, although the CMS fact sheet states that the provision is effective "for services furnished on or after June 25," the guidance also hints that the new definition of "related" services will apply when processing new hospital claims even for services provided before June 25. Appearing to apply the new standard as opposed to the old diagnosis code standard, the fact sheet states that "[H]ospitals may continue to bill Medicare separately for services provided prior to June 25, 2010 that are unrelated to an inpatient stay provided that…the hospital has supporting documentation that the service is truly unrelated to an inpatient stay."

Conclusion

Hospitals can no longer rely on the bright line rule of mismatched diagnosis codes to determine which outpatient non-diagnostic services are "related" to the inpatient admission. Hospitals must be attune to any updates from the Medicare contractors and CMS regarding the specific coding procedures to be used to demonstrate that a non-diagnostic service is "unrelated," as this will shape the hospital's three-day billing policies and procedures for the foreseeable future.