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dabbey120dsCMS, through Congressional action, has gone through a change cycle regarding the venerable three-day pre-admission window. The required bundling of certain charges onto inpatient claims now has been incorporated into the Social Security Act (SSA) itself.


The changes that have been made represent a specific example of a more general CMS trend.  The trend involves more general guidance without specific definitions of key terms and concepts being supplied, plus switching responsibility from specific CMS directives to hospital interpretations. This pattern fits very nicely into the process by which RACs can claim overpayments based on audit criteria that may be developed operationally well after the fact.


On June 25, 2010, the world of the three-day DRG pre-admission window changed. However, hospitals still are trying to determine precisely how it changed and how they should react. CMS is not being at all helpful in terms of providing specific guidance. Thus, hospitals are being left in the very unenviable position of trying to code, bill and be reimbursed correctly with only very general guidance, at best.


In the past, the three-day pre-admission window has been defined by fairly tight definitions from CMS. Here are the basic tenets, some of which are still in place.


1.   The trigger to apply the three-day pre-admission window is that the outpatient services must be provided at a “wholly owned or wholly operated” facility of a hospital.  This definition is broader than covering just provider-based operations, as it also can apply to freestanding clinics that simply are owned and/or operated by a hospital.

2.   All diagnostic services provided by the hospital on an outpatient basis and/or diagnostic services covered in accordance with the above trigger are bundled into the inpatient billing. This includes the diagnosis codes as well as the charges.

3.   Non-diagnostic services related to the inpatient admission also are bundled into the inpatient billing, including diagnosis and procedure codes for services so bundled. The key issue is what constitutes “related” or “clinically related.”

4.   There are two distinct windows: a three-day window for IPPS hospitals and a one-day window for non-IPPS hospitals. Critical Access Hospitals (CAHs) are not subject to either window.


Up to June 25, 2010, the concept of relatedness was defined to mean that there existed an exact match of the principal diagnosis occasioning the inpatient admission with the primary diagnosis of the outpatient(1) services. Depending upon the specific diagnosis code, this could be a three-, four- or five-digit match.


While this test is specific, there are some definite operational challenges. Consider the following two case studies.


Case Study 1Apex Medical Center’s Owned and Operated Freestanding Clinics – Apex owns two freestanding clinics that file claims only on the CMS-1500. Both clinics have a laboratory and limited radiology services. The billing system for the clinics is completely separate from the hospital billing system.


The only way Apex can be assured of identifying diagnostic and possible therapeutic services is by manually reviewing any services provided at either clinic when a patient is admitted to the hospital.  Even this approach has not worked smoothly, however, because concerns have been raised about mid-level practitioners having their services billed on an incident-to basis by a physician at a clinic  (see Case Study 4).


Case Study 2Apex Medical Center’s Difficulty in Properly Billing – For several years Apex has been trying to program its billing system so that three-day pre-admission window services automatically cross over to the inpatient claim. However, this type of programming doesn’t appear feasible. As a result, the billing system is designed to roll any and all diagnostic or therapeutic services provided on an outpatient basis within the window.


Apex recognizes that this is not the correct way to bundle the services. The QIO has raised objections in certain cases for which an unrelated therapeutic service actually has increased the DRG payment through the inclusion of the associated diagnosis, and procedure codes in particular.


Basically, prior to June 25, 2010 this rule was precise despite the existence of significant operational problems for hospitals. As a result, at least some (if not many) hospitals bundled more services into the inpatient billing than truly were required.



(1) The word “outpatient” is used in a more general sense, going beyond “hospital outpatient” into any service falling under the trigger for the pre-admission window.


Here is the timeline for the most recent changes:


  • June 25, 2010 – Section 102 of Public Law 111-192 takes effect. This changes Section 1886(a)(4) of the Social Security Act by elevating the bundling of related services into inpatient billing at the SSA level.
  • Aug. 9, 2010 – CMS issues an informal memorandum providing limited guidance based on language that was to appear in the IPPS update Federal Register for the 2011 fiscal year. The phrase “clinically associated” is used repeatedly, but there is no specific definition or formula for it.
  • Aug. 16, 2010 – The IPPS update Federal Register is published. There is nothing truly substantive in this entry that was not included in the Aug.9 memorandum.
  • Oct. 29, 2010 – Transmittal 796 is issued. This is basically a one-page document that introduces the “51” condition code that allows hospitals to attest to the fact that certain outpatient services are being billed separately.


The one glaring omission from these documents, and thus the guidance, is that there is no official definition of the phrase “clinically related.” We have gone from working off of a very specific definition to a situation for which there is no definition at all.


Note: this change is particularly egregious because the burden of proof for justifying separate billing of unrelated therapeutic services has been shifted entirely to the hospital.  We no longer have a formula that indicates when a therapeutic service is considered unrelated. This means that everything is subjective, and auditors, eventually including RAC auditors, can question such determinations.


In Transmittal 796, CMS does provide a mechanism through which the separate billing of unrelated therapeutic services can be reported on the UB-04 using the “51” condition code. The definition of this code is as follows: Attestation of Unrelated Outpatient Non-diagnostic Services. The code will not be available until April 1.


While having the option of using code “51” certainly helps, this is not a complete answer. Consider the following case study:


Case Study 3Freestanding Clinics Using Only the CMS-1500 – The Apex Medical Center owns and operates two freestanding clinics, which as previously mentioned file claims only on the CMS-1500. While Apex staff understand the use of the “51” condition code on the UB-04 filing for unrelated therapeutic services provided on a hospital outpatient basis, the billing personnel do not know what to do about CMS-1500 claims that involve unrelated therapeutic services that must be considered for inclusion on the inpatient billing.


Keep in mind that the trigger for application of the three-day pre-admission window is “wholly owned or wholly operated,” and this includes freestanding clinics that file claims only on the CMS-1500. CMS seems to make no provisions for these billings. Ostensibly, any possible improper overlap would be identified only by comparing the CMS-1500 with the UB-04. However, with the development of the regional MACs (Medicare Administrative Contractors), comparing such billing for the same patient on related dates of service is now readily available.


The bottom line is that, with CMS failing to provide specific guidance on what is “clinically related” hospitals are placed in an almost impossible circumstance. In order to apply the bundling process correctly, hospitals must establish their own policies as to what constitutes relatedness. Even the simple development of such a policy can and probably will be challenged by federal auditors, eventually including the RACs. Thus, hospitals really must review each case manually and then make a judgment as to relatedness. Most likely, many services that are not fully related will be bundled, but taking a conservative stance will satisfy the main compliance issue.


On Dec. 9, 2010, HFMA issued a letter to CMS. Here is a key paragraph from the letter:


Further, we strongly believe the regulated healthcare community needs a crystal-clear understanding of the standards to which it is held. That understanding has not been in place since Congress passed PACMBPR on June 25, 2010. Prior to enactment, non-diagnostic services provided within three days of an inpatient admission were separately billable unless there was an exact, five-digit match between the primary/principal diagnosis code on the outpatient service claim and on the inpatient claim. We believe that for the new definition to be useful for hospitals and meet statutory requirements, it must provide the same clarity as existed prior to PACMBPR. To that end, we propose CMS define “clinically associated” services as those provided when there is a three-digit match between the primary ICD-9 diagnosis code. This definition has the added benefit of improving operational efficiency for providers. Under the existing guidance, providers are forced to manually review inpatient and outpatient claims documentation a second time in an attempt to identify services that might be “clinically associated.” The definition proposed above would allow providers to automate this process, reducing administrative costs.”



This suggestion is quite appropriate and would increase the bundling of services while simultaneously providing a specific, measurable way to determine relatedness. Perhaps hospitals even would be able to tell whether or not they are in compliance!


The proper application of the three-day pre-admission window can become quite complex. Consider the following case study for a convoluted application of this rule. Keep in mind that the trigger for the three-day pre-admission rule is “wholly owned or wholly operated,” not the more restrictive requirement of being provider-based.


Case Study 4Nurse Practitioner Services Incident-To a Physician –   There is at least one physician present when services are provided at Apex’s aforementioned clinics, which again have a physician office laboratory and basic radiology services. Several nurse practitioners (NPs) also are employed there. The NPs basically function as physicians, except when it comes to billing. In order to gain full Medicare reimbursement for the NPs, claims are filed under the physician’s name (i.e. incident-to billing), which is allowed in freestanding clinics. An established patient has presented to the clinic and is seen by an NP, with recorded symptoms being cough, fever and congestion. Laboratory and radiology services are provided and the NP orders an antibiotic injection; several prescriptions also are provided and the patient is sent home. Two days later the patient presents at the Apex ED and is admitted to the hospital with a diagnosis of pneumonia.


For Case Study 4, the big question is this: what services should be bundled into the inpatient billing under the three-day pre-admission rule? Obviously, the diagnostic services (i.e., laboratory and radiology) certainly will be rolled into the inpatient billing. But what about the therapeutic services provided through the NP? These services certainly were provided on an incident-to basis,(2) given the fact that incident-to billing is taking place. For the hospital, payment includes all services and items incident-to a physician’s services, so the NP services then would be included in the hospital payment.


Thus, the NP’s services and the injection would be bundled under the three-day pre-admission window. If the NP’s services were being billed as a professional under the NP’s billing number, the situation would be altered because the NP would be serving as a physician for billing purposes.


About the Author


Duane C. Abbey, Ph.D., CFP, is an educator, author and management consultant working in the healthcare field. He is President of Abbey & Abbey Consultants, Inc., which specializes in healthcare consulting and related areas. His firm is based in Ames, Iowa. Dr. Abbey earned his graduate degrees at the University of Notre Dame and Iowa State University.


Contact the Author




To comment on this article, please go to editor@racmonitor.com


To read article entitled, “Part II: Harnessing Health Information in Real Time: Lessons from the Financial Services Industry to Mitigate Healthcare Waste, Fraud and Abuse,” please click here


(2) Note that there are two very different interpretations of the phrase “incident-to,” one for physicians and one for hospitals.



Duane C. Abbey, PhD, CFP

Duane C. Abbey, PhD, CFP, is an educator, author, and management consultant working in the healthcare field. He is president of Abbey & Abbey Consultants, Inc., which specializes in healthcare consulting and related areas. His firm is based in Ames, Iowa. Dr. Abbey earned his graduate degrees at the University of Notre Dame and Iowa State University. Dr. Abbey is a member of the RACmonitor editorial board and is a frequent guest on Monitor Mondays.

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