Effective July 1, 2012, when a physician furnishes services to a beneficiary in a wholly owned or operated hospital entity (including a physician practice) and the beneficiary is later admitted to the hospital as an inpatient within three days of receiving such services, the Medicare three-day payment window policy will apply to all diagnostic services furnished, and any non-diagnostic services that are clinically related to the inpatient admission, regardless of whether the reported inpatient and outpatient diagnosis codes are the same.

Effective July 1, 2012, when a physician furnishes services to a beneficiary in an entity that is wholly owned or wholly operated by a hospital (including a physician practice) and the beneficiary is later admitted to the hospital as an inpatient within three days of receiving such services, the Medicare three-day payment window policy will apply to all diagnostic services furnished, and any non-diagnostic services that are clinically related to the inpatient admission, regardless of whether the reported inpatient and outpatient diagnosis codes are the same.  In such cases, Medicare will make payment for the preadmission services under the physician fee schedule at the facility rate.  The change does not affect how provider-based physician practices currently bill Medicare for professional physician and non-physician practitioner services or the longstanding requirement that all diagnostic services furnished during the three-day payment window be included on the hospital claim for the inpatient admission.

The Centers for Medicare & Medicaid Services (CMS) is relying on the 1998 Inpatient Prospective Payment System (IPPS) final rule’s definition of “wholly-owned” and “wholly-operated," specifically, “An entity is wholly owned by the hospital if the hospital is the sole owner of the entity.  An entity is wholly operated by a hospital if the hospital has exclusive responsibility for conducting and overseeing the entity’s routine operations, regardless of whether the hospital also has policymaking authority over the entity.”  CMS previously stated “an outpatient service is related to the admission if it is clinically associated with the reason for a patient’s inpatient admission,” but is refraining from further defining admission-related non-diagnostic services, as the determination requires knowledge of the specific clinical circumstances surrounding a patient’s inpatient admission that can only be determined on a case-by-case basis.

Prior to the June 25, 2010, enactment of the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 (PACMBPRA), the payment window policy for preadmission non-diagnostic services was rarely applied in the wholly owned or operated context because the policy required an exact match between the principal ICD-9 CM diagnosis codes for the outpatient services and inpatient admission.  Because the policy applied only in such narrow circumstances, CMS did not provide further guidance to wholly owned or operated entities on how non-diagnostic services are to be included on hospital bills when the three-day payment window applied.  However, the statutory change to the payment window policy made by PACMBPRA significantly broadened the definition of non-diagnostic services subject to the payment window to include any non-diagnostic service that is clinically related to the reason for a patient’s inpatient admission, regardless of whether the inpatient and outpatient diagnoses are the same.

CMS extended the effective date from January 1, 2012, to July 1, 2012, in order to permit hospitals and their wholly owned or operated entities to develop internal claims processing procedures to ensure hospital/entity coordination when billing services subject to the payment window.  It is important for hospitals and wholly owned or operated entities to develop such procedures in order to minimize the risk of overpayments or filing a false claim.  A new Medicare HCPCS modifier PD is available to wholly or wholly operated entities and may be appended to Part B claims lines to identify preadmission services that are subject to the three-day payment window (the modifier will be formally implemented on July 1, 2012).  The PD modifier will signal claims processing systems to provide payment only for the PC for CPT/HCPCS codes with a TC/PC split and to pay services without a PC/TC split at the facility rate when they are provided in the three-day payment window.  The facility rate will be paid for codes without a TC/PC split to avoid duplicate payment for the technical resources required to provide the services.  In addition, the technical costs of diagnostic and related non-diagnostic services of the wholly owned or operated entity subject to the three-day payment window shall be included on the hospital’s inpatient claim for the related inpatient admission and reflected appropriately on the hospital cost report.