CMS 3 Day Payment Window and The Proposed Impact on Wholly Owned Physician Practices

By Baker Newman Noyes July 17, 2011

The CY 2012 proposed rule for the physician fee schedule and other revisions to part B was published in the Federal Register on July 19, 2011.  Part of this proposed rule further clarifies and provides instruction on CMS’ decision regarding changes to the 3 day payment window, first issued last year as part of the IPPS final rule. The 3 day window refers to the technical portion of diagnostic services and admission related nondiagnostic services provided during the 3 days preceding a beneficiary’s admission as an inpatient.  Hospitals, including wholly owned or operated entities of the hospital, must include those services as part of the inpatient stay. The proposed rule discussed here clarifies the new law enacted on June 25, 2010, the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 (PACMBPRA), also known as Public Law 111-192, part of which provides further instruction on the 3 day window change.

PACMBPRA, section 102(a)(1), clearly states that for outpatient services on or after June 25, 2010, all nondiagnostic services, other than ambulance and maintenance dialysis, provided by a hospital or one of its wholly owned or operated entities, furnished during the three days immediately preceding the date of admission are deemed related to the admission and must be billed with the inpatient stay, unless the hospital attests that certain nondiagnostic services are unrelated to the hospital claim.  In those cases, the hospital may separately bill for those services.  This rule also eliminates the additional requirement for an exact match of ICD-9 CM diagnosis codes for the outpatient services and the inpatient admission.  The proposed rule published on July 19, 2011, takes this a step further and proposes that for services on/after January 1, 2012, when a physician furnishes services to a beneficiary in a hospital’s wholly owned or operated physician practice and the beneficiary is subsequently admitted within 3 days, the window will apply to all technical components of diagnostic services and any nondiagnostic services that are clinically related to the reason for the admission regardless of whether the reported ICD-9 CM diagnosis codes are the same.

CMS proposes to implement a new modifier to accomplish this. They propose to pay only the professional component (PC) for codes with a technical (TC)/PC split that are provided in the three day window in a wholly owned or operated physician practice.  If implemented, the modifier will be effective for claims with dates of service on or after January 1, 2012 and payment will be at the facility rate for related nondiagnostic services and only for the professional component for diagnostic services.

This portion of the proposed rule has some onerous overtones for hospitals and their wholly owned or operated physician practices.

• Each wholly owned or operated physician practice will need to manage its billing processes:
• Potential reduction in reimbursement for wholly owned/operated practices
• Ensure appropriate billing when there is a related inpatient admission
• Hospitals responsible for notifying the practices of related IP admissions for a patient receiving services in a wholly owned/operated practice within the three day window
• Requires physician practices to identify the services that are part of the IP admission
• Expect a slowdown in the dropping of bills by at least 72 hours for compliance
• There becomes a real danger of overpayment without proper application of the modifier

This is generally a moot point for wholly owned or operated physician practices that are billing under provider-based rules, since there is already financial integration of their practices within the hospital.  However, for those hospitals with wholly owned or wholly operated practices that are not considered provider based, it will be important to monitor this section of the proposed rule closely, determine the financial ramifications, if any, consider making wholly owned/operated practices provider based and finally, to make plans to implement the necessary structural/operational changes internally if CMS finalizes this rule.