Three Day Payment Window

Implementation of New Statutory Provision Pertaining to Medicare 3-Day (1-Day) Payment Window Policy - Outpatient Services Treated As Inpatient

On June 25, 2010, President Obama signed into law the “Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010,”  Pub. L. 111-192.  Section 102 of the law pertains to Medicare's policy for payment of outpatient services provided on either the date of a beneficiary's admission or during the three calendar days immediately preceding the date of a beneficiary's inpatient admission to a “subsection (d) hospital” subject to the inpatient prospective payment system, “IPPS” (or during the one calendar day immediately preceding the date of a beneficiary's inpatient admission to a non-subsection (d) hospital).  This policy is known as the “3-day (or 1-day) payment window.”  Under the payment window policy, 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 nondiagnostic services that are furnished to the beneficiary during the 3-day (or 1-day) payment window.  The new law makes the policy pertaining to admission-related outpatient nondiagnostic services more consistent with common hospital billing practices and makes no changes to the existing policy regarding billing of outpatient diagnostic services.  Section 102 of Pub. L. 111-192 is effective for services furnished on or after the date of enactment, June 25, 2010.

CMS has issued a memorandum to all Medicare providers that serves as notification of the implementation of the 3-day (or 1-day) payment window provision under section 102 of Pub. L. 111-192 and includes instructions on appropriate billing for compliance with the law . (The memorandum can be downloaded in the download section below.)  In addition, CMS adopted conforming regulations in the IPPS final rule, which displayed at the Federal Register on July 30, 2010 (see CMS-1498).  The Medicare Claims Processing Manual (Pub 100-04), Chapter 3, Section 40.3 has been updated to include changes implemented by section 102 of Pub. L. 111-192.

Background

Section 1886(a)(4) of the Act, as amended by the Omnibus Budget Reconciliation Act of 1990 (OBRA 1990, Pub. L. 101-508), defines the operating costs of inpatient hospital services to include certain outpatient services furnished prior to an inpatient admission.  Specifically, the statute requires that the operating costs of inpatient hospital services include diagnostic services (including clinical diagnostic laboratory tests) or other services related to the admission (as defined by the Secretary) furnished by the hospital (or by an entity that is wholly owned or wholly operated by the hospital) to the patient during the 3 days preceding the date of the patient's admission to a subsection (d) hospital subject to the IPPS. For a non-subsection (d) hospital (that is, a hospital not paid under the IPPS: psychiatric hospitals and units, inpatient rehabilitation hospitals and units, long-term care hospitals, children's hospitals, and cancer hospitals), the statutory payment window is 1 day preceding the date of the patient's admission.

While OBRA 1990 expanded upon CMS's longstanding administrative policy requiring outpatient services furnished on the same day of a beneficiary's inpatient admission to be billed as inpatient services, the law also distinguished the circumstances for billing outpatient “diagnostic services” from “other (nondiagnostic) services” as inpatient hospital services. Under the 3-day (or 1-day) payment window policy, all outpatient diagnostic services furnished to a Medicare beneficiary by a hospital (or an entity wholly owned or operated by the hospital), on the date of a beneficiary's admission or during the 3 days (1 day for a non-subsection (d) hospital) immediately preceding the date of a beneficiary's inpatient hospital admission, must be included on the Part A bill for the beneficiary's inpatient stay at the hospital; however, outpatient nondiagnostic services provided during the payment window are to be included on the bill for the beneficiary's inpatient stay at the hospital only when the services are “related” to the beneficiary's admission.

The 3-day and 1-day payment window policy respectively is codified at 42 CFR 412.2(c)(5) for subsection (d) hospitals, 413.40(c)(2) for non-subsection (d) hospitals, and 412.540 for long term care hospitals, with detailed policy guidance included in the Medicare Claims Processing Manual (Pub. 100-4), Chapter 3, section 40.3, “Outpatient Services Treated as Inpatient Services.”