HCFA issues final three-day payment window rule - Health Care Financing Administration

Healthcare Financial Management, May, 1998 by Richard L. Gundling

HCFA published the final regulations regarding payment for preadmission services under the Medicare program in the February 11, 1998, Federal Register. These long-awaited regulations, commonly called the "three-day payment window rule," "DRG window rule," or "72-hour window rule," provide hospitals with clarification of some key points for applying the bundling requirements included in an interim final rule that has been in effect since 1994. HCFA provides additional guidance on the definition of "services related to the admission" for which billing must be bundled and on the interpretation of "wholly owned or operated" entities. To further complicate matters, though it is called the three-day payment window, for hospitals excluded from Medicare's prospective payment system, the applicable payment window is only one day.

The three-clay payment window rule arose from the contention by HCFA that when the prospective payment system for hospitals was set up in 1983, the costs related to preadmission services were included in the base year costs used to calculate the standardized payment amount and the DRG weighting factors. Therefore, these preadmission services could not be billed separately from the covered inpatient services that follow, since payment for them was included in the DRG payment for the inpatient stay made under Medicare Part A.

Excluded Services

Under the three-day payment window rule, charges for services furnished by home healthcare agencies, skilled nursing facilities, and hospices under Medicare Part A do not need to be bundled with inpatient charges. Services provided by these entities under Medicare Part B, however, could still be subject to the bundling requirements. Ambulance services still are excluded from the bundling requirements, as they were under the interim final rules. Maintenance renal dialysis services also were excluded because HFCA states that outpatient chronic renal dialysis service is distinct from the type of hospital services that the payment window rule was designed to address.

"Related To" Services

HCFA noted that it defines - and always has defined - services as related to an admission only when there is an exact match between the ICD-9-CM diagnosis code assigned for the preadmission services and the inpatient stay. Many experts contend that this definition is not widely known by hospitals and other entities within the healthcare industry. There also has been some question about whether the Office of the Inspector General (OIG) and other Federal law enforcement agencies have used this definition when investigating and settling violations of the bundling requirements.

Regardless, physicians and other clinicians should be consulted when diagnosis codes are assigned to comply with the payment window rule, because these codes could be challenged by enforcement officials.

"Wholly Owned or Operated" Entities

HCFA, in its comments, stated that it would like to address the many inquiries it has received concerning the definition of an entity "wholly owned or operated" by a hospital. The agency states, "In general, if a hospital has direct ownership or control over another entity's operations, then services provided by that other entity are subject to the three-day window. However, if a third organization owns or operates both the hospital and the entity, then the window provision does not apply."

HCFA provided examples of how this general policy is to be applied.

Arrangement: A hospital owns a physician clinic or a physician practice that performs preadmission diagnostic services for the hospital. Are these services subject to the bundling requirements?

Policy: Yes, in part. A hospital-owned or hospital-operated physician clinic or practice is subject to the three-day payment window rule. The technical portion of preadmission diagnostic services performed by the physician clinic or practice must be included in the inpatient bill and may not be billed separately. A physician's professional service, however, is not subject to the payment window rule.

Arrangement: Hospital A owns Hospital B, which in turn owns Hospital C. Does the payment window apply if preadmission services are performed at Hospital C and the patient is admitted to Hospital A?

Policy: Yes. HCFA would consider that Hospital A owns both Hospital B and Hospital C, and the payment window rule would apply.

Arrangement: Corporation Z owns Hospitals A and B. If Hospital A performs preadmission services and the patient is subsequently admitted as an inpatient to Hospital B, are these services subject to the payment window rule?

Policy: No. The payment window rule does not apply to situations in which both the admitting hospital and the entity that furnishes the preadmission services are owned by a third entity. The payment window rule includes only those situations in which the entity furnishing the preadmission services is wholly owned or operated by the admitting hospital itself.

Arrangement: A hospital refers its patient to an independent laboratory for preadmission testing services. The laboratory does not perform testing by arrangement with the admitting hospital. Are the laboratory services subject to the payment window rule?