In December 2021, the Office of Inspector General (“OIG”) of the Department of Health and Human Services published an Issue Brief titled “Medicare and Beneficiaries Pay More for Preadmission Services at Affiliated Hospitals Than Wholly Owned Settings” (“Brief”)(available here). The Brief discusses Medicare’s policy to bundle (or not separately pay) certain services provided by entities wholly owned or controlled by a hospital prior to a beneficiary’s inpatient admission. This policy is known as the “3-Day Payment Window.”
In the Brief, OIG noted that Medicare and beneficiaries paid a total of $245 million in 2019 for admission-related outpatient services at affiliated hospitals, which could have been avoided if such services were subject to the 3-Day Payment Window. Accordingly, OIG recommended that CMS evaluate the impact of updating the 3-Day Payment Window to include affiliated hospitals and seek legislative authority to update the policy.
This most recent report follows a long list of initiatives related to the DRG Payment Window over the years, including regulatory changes expanding the Payment Window and enforcement actions.
3-Day Payment Window Policy. Section 1886(a)(4) of the Social Security Act defines the “operating costs of inpatient hospital services” to include certain preadmission services furnished by the hospital or by an entity that is wholly owned or operated by the hospital to the patient up to 3 days before the date of the patient’s admission to the hospital. CMS regulations for the 3-Day Payment Window are set forth at 42 C.F.R. § 412.2(c).
CMS has implemented the statutory and regulatory language to require that all diagnostic services furnished to a Medicare beneficiary by a hospital (or entity wholly owned or operated by the hospital) on the date of the beneficiary’s inpatient admission, or during the 3 calendar days (not “72 hours”) immediately preceding the date of admission, be billed by the hospital and included on the hospital’s Part A claim for the inpatient stay. In addition, all non‑diagnostic services (with certain limited exceptions) that are related to patient’s admission and provided by the hospital (or an entity wholly owned or operated by the hospital) within 3 days of an inpatient admission must be billed on the hospital’s Part A claim for the inpatient stay.
Like many CMS policies, the DRG Payment Window has evolved and changed over time making compliance difficult. The last major revisions to the rule were in 2012. However, hospitals have been asking questions about implementation and compliance since that time. As a result, CMS issued a set of FAQs in December 2020 (available here). Many hospitals have used this most recent guidance to review its compliance with regulatory requirements.
The DRG Payment Window has also been subject to OIG review and enforcement activities over the years. OIG has recommended expansion of the DRG Payment Window over the years, and the DRG Payment Window has been part of enforcement activities including the “DRG Payment Window Project.” The Department of Justice and OIG headed an enforcement action in the 1990s known as the DRG Payment Window Project. The DOJ and OIG alleged that more than 4,600 hospitals improperly billed and received payment for services billed in violation of the DRG Payment Window, and entered into settlement agreements with most, if not all, of these hospitals.
Issue Brief Findings. Based on 2019 data, OIG found that Medicare beneficiaries received over 3 million admission-related outpatient services at affiliated hospitals, which were not covered by the 3-Day Payment Window policy. If those services had been covered by the 3-Day Payment Window, OIG estimated that Medicare would have saved $168 million and its beneficiaries would have saved approximately $77 million for these services ($245 million total). Urgent and emergency admissions made up almost 90 percent of admissions associated with outpatient services at affiliated hospitals. In addition, OIG stated that based on the 2019 data the amount of preadmission services at affiliated hospitals was more than 5 times the amount in 2011.
OIG noted an even greater disparity when it examined admission-related outpatient services at affiliated critical access hospitals (“CAHs”). These beneficiaries paid up to 6 times more than beneficiaries who received services at other affiliated hospitals due to: (1) costs of outpatient services at CAHs are typically higher; and (2) CAHs calculate beneficiaries’ share of payments based on charges, not the services’ final costs, which are typically lower.
Recommendations. Based on the findings in the Brief and the rise in the number of admission‑related outpatient services provided at affiliated hospitals, OIG recommended that CMS analyze the impact of expanding the 3-Day Payment Window to include affiliated hospitals and nonhospital settings.
Importantly, CMS did not agree or disagree with the recommendation but did note that expanding the 3-Day Payment Window requires legislative action and was not included in the President’s budget.
Practical Takeaways
- The Medicare 3-Day Payment Window bundles certain diagnostic and non-diagnostic services provided to a patient prior to an inpatient admission (i.e., there are no separate payments for those services).
- Currently, services provided by entities wholly owned or wholly controlled by the hospital are subject to the 3-Day Payment Window, but other affiliated entities are not covered.
- Review your hospital’s compliance with current requirements for the DRG Payment Window.
- In its recent study, OIG found that nearly $250 million in preadmission services were furnished by affiliated entities in 2019 that would have been bundled under the 3-Day Payment Window if provided by the hospital (or a wholly owned or controlled entity).
- OIG recommended that CMS analyze the impact of expanding the 3-Day Payment Window to cover affiliated entities.
- Any change in the 3-Day Payment Window policy will require legislative action.
If you have any questions or would like additional information about this topic, please contact:
- Lori Wink at (414) 721-0456 or lwink@hallrender.com;
- Joseph Krause at (414) 721-0906 or jkrause@hallrender.com; or
- Your primary Hall Render contact.
Hall Render blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot—outside of an attorney-client relationship—answer specific questions that would be legal advice.
