Medicare Paid Hospital Providers Twice for Nonphysician Outpatient Services Provided Shortly Before or During Inpatient IPPS Hospital Stays

Table of Contents

• Provider Action
  • Payment Window Policy and Under Arrangement Policy
    • Three-Day/One-Day Payment Window
      • Outpatient Services Treated as Inpatient
      • Diagnostic Services
      • Nondiagnostic Services
  • When it Does Not Apply and Exclusions
    • Does Not Apply
    • Exclusions
  • Billing and Claims Processing
    • Billing
    • Claims Processing
• Under Arrangements Policy
• Under Arrangements Policy - Billing
• Related Content

The OIG recently conducted an audit of Medicare Part A IPPS hospitals and found that Medicare payments made to such hospitals were not always correct for nonphysician outpatient services rendered on the date of an inpatient IPPS hospital admission, within three days prior to the date of an inpatient IPPS hospital admission, and/or during an inpatient IPPS hospital stay (excluding the date of discharge).

The audit identified that, within JK, National Government Services incorrectly paid 41 hospitals twice; once as part of the IPPS hospital payment and also as a separate Part B payment. These errors occurred because hospitals did not understand Medicare billing requirements, had controls that failed to prevent or detect incorrect billing, and/or were unaware that the beneficiaries were inpatients at other hospitals. In addition, Medicare payment system controls, at the time of each hospital's claim submissions, did not prevent or detect overpayments for such incorrectly billed services.

On the basis of the sample results, the OIG estimated that at least $1.3 million in overpayments were made to outpatient hospitals during calendar years 2013 and 2014 because of these errors.

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Provider Action

National Government Services and the OIG recommends that all IPPS hospitals exercise reasonable diligence to investigate their Medicare claim payments from calendar years 2013 through the present and should return any identified overpayments to Medicare (in accordance with the 60-day rule), and identify/track any returned overpayments made based on this recommendation.

To prevent improper Medicare payments, all Medicare providers are responsible for billing outpatient and inpatient services accurately. Medicare requirements state:

• Most nonphysician outpatient services (i.e., emergency room services, observation services, laboratory tests, X-rays, and other radiology services) provided by the admitting IPPS hospital on the date of an inpatient IPPS hospital admission and/or within three days prior to the date of an inpatient IPPS hospital admission must be included on the inpatient IPPS hospital claim and are considered to be paid in the IPPS payment. This requirement is known as the “3-day payment window or preadmission services window policy” (i.e., the 72-hour window or bundling). There are some exceptions to this policy.
• All items and nonphysician services furnished to inpatients must be furnished directly by the hospital or billed through the hospital under arrangements. This provision applies to all hospitals, regardless of whether they are subject to PPS. This requirement is known as the “under arrangement policy”. There are some exceptions to this policy.

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Payment Window Policy and Under Arrangement Policy

Below you will find additional information on the payment window and the under arrangement policies.

Three-Day/One-Day Payment Window

Outpatient Services Treated as Inpatient

All outpatient diagnostic services, nondiagnostic services rendered on the date of the inpatient hospital admission and nondiagnostic services related to the admission rendered during the three days (IPPS hospitals) or one day (hospitals and units excluded from IPPS) prior to an inpatient hospital admission are considered inpatient services and must be included on the inpatient hospital claim.

Hospitals subject to IPPS:

• ACHs

Hospitals and units excluded from IPPS:

• IPFs and units
• IRFs and units
• LTCHs
• Children’s hospitals
• Cancer hospitals

This policy applies to the admitting hospital, or an entity that is wholly-owned or wholly-operated by the admitting hospital (or by another entity under arrangements with the admitting hospital). Hospitals are "wholly owned or operated" by the hospital if the hospital is the sole owner or operator. A hospital need not exercise administrative control over a facility in order to operate it. A hospital is the sole operator of the facility if the hospital has exclusive responsibility for implementing facility policies (i.e., conducting or overseeing the facility's routine operations), regardless of whether it also has the authority to make the policies.

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Diagnostic Services

Outpatient diagnostic services, including nonpatient laboratory tests, provided to a beneficiary by the admitting hospital on the date of the inpatient hospital admission and/or within three days (or one day) prior to the date of the inpatient hospital admission are considered inpatient services and must be included on the inpatient hospital claim. For example, if the beneficiary is admitted on Wednesday, then the outpatient diagnostic services provided by the admitting hospital on Sunday, Monday, Tuesday, and/or Wednesday are included on the inpatient claim. This is true whether or not such services are related to the inpatient hospital admission.

CMS identifies outpatient diagnostic services by the revenue code (and/or CPT/HCPCS code):

Diagnostic Revenue Codes Subject to this Provision

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Nondiagnostic Services

Outpatient nondiagnostic services provided to a beneficiary by the admitting hospital on the date of an inpatient hospital admission are considered inpatient services and must be included on the inpatient hospital claim. For example, if the beneficiary is admitted on Wednesday, then the outpatient nondiagnostic services provided by the admitting hospital on Wednesday are included on the inpatient claim. This is true whether or not such services are related to the inpatient hospital admission.

Outpatient nondiagnosticservices provided to a beneficiary by the admitting hospital within three days (or one day) prior to the date of an inpatient hospital admission are considered inpatient services and must be included on the inpatient hospital claim, unless such services are not related to the inpatient hospital admission in which case they may be billed separately as outpatient services. For example, if the beneficiary is admitted on Wednesday, then the outpatient nondiagnostic services provided by the admitting hospital on Sunday, Monday, and/or Tuesday are included on the inpatient claim if they are related to the inpatient hospital admission.  

CMS identifies outpatient nondiagnostic services as those that are not listed on the diagnostic list.  

Related means the nondiagnostic outpatient service is clinically associated with the reason for the patient’s inpatient admission.

If the outpatient nondiagnostic services, rendered within the three days (or one day) prior to the date of the inpatient hospital admission are not related to that admission, the hospital may submit such outpatient services separately from the inpatient claim but must report condition code 51 (Attestation of Unrelated Outpatient Nondiagnostic Services) on that outpatient claim.

Hospitals must maintain documentation in the beneficiary’s medical record to support the outpatient nondiagnostic services are unrelated to the inpatient hospital admission.

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When it Does Not Apply and Exclusions

Does Not Apply

The three-day (or one-day) payment window policy does not apply when Part A payment cannot be made for the inpatient hospital stay. When the payment window does not apply, you may bill the services rendered within the payment window timeframe as outpatient services and you may bill certain services rendered within the inpatient stay as outpatient services under Part B. See CMS IOM Publication 100-04, Medicare Claims Processing Manual, Chapter 4, Section 240.5 (1 MB) for information on billing the payment window services to Part B. See CMS IOM Publication 100-02, Medicare Benefit Policy Manual, Chapter 6, Section 10.1 (219 KB) for information on billing certain inpatient services to Part B when the inpatient hospital stay is denied as not reasonable and necessary and Section 10.2 for information on billing certain inpatient services to Part B when the inpatient hospital stay is denied for other circumstances.

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Exclusions

Also, the following services are excluded from the payment window:

• Ambulance services
• Maintenance renal dialysis services
• Outpatient services rendered by an admitting CAH unless the CAH is wholly-owned or wholly-operated by a non-CAH
• Services included in RHC all-inclusive rate or FQHC PPS payment
• Outpatient services rendered more than three days (or one day) prior to the date of the inpatient hospital admission. If observation is involved, the DOS used to bill for observation is the date it began. So if it began more than three days (or one day) prior to the date of the inpatient hospital admission, include all of the hours for the entire period of observation on a single line and designate the date that observation care began as the DOS for that line.  Since the DOS is outside of the payment window, it would be appropriately billed on an OP claim. CMS is aware that such an instance may result in a payable OP claim and IP claim.
• Outpatient nondiagnostic services that are not payable under Part B. For example, oral medications that are considered self-administered drugs under Part B are not payable under the OPPS and must not be included on the inpatient hospital claim due to the payment window policy.  The exception is the related inpatient-only procedure rendered in an outpatient setting within the payment window.  As described in CR 9097 Revised, this can be included on the inpatient hospital claim.
• SNF services
• HHAs services
• Hospice services

You may bill the services excluded from the payment window as usual. However, for the outpatient nondiagnostic services rendered by the admitting hospital within three days (or one day) prior to the date of the inpatient admission that are not related to the inpatient admission, your outpatient claim must include a condition code 51 to attest that the services are not related.

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Billing and Claims Processing

Billing

When the payment window applies, the admitting hospital must include, on the inpatient hospital claim (TOB 11X), all outpatient diagnostic and nondiagnostic services that meet the above requirements. Include only those applicable services that fall within the payment window timeframe.

When including such outpatient services on the inpatient hospital claim, the admitting hospital reports:

• revenue codes and charges for such outpatient services.
• procedure code(s) and date(s) of such outpatient services (convert any CPT procedure code(s) into ICD procedure codes and use the appropriate date(s) of the procedure[s]).
• diagnosis code(s) of such OP services (code any condition the beneficiary had at the time of the order to admit as an inpatient as POA regardless of whether or not the condition was present at the time the beneficiary registered as an outpatient).
• an admission date equal to date on which the beneficiary was formally admitted to the hospital as an inpatient.
• a statement from date equal to the earliest outpatient DOS being added to the inpatient hospital claim (see SE1117 Revised: Correct Provider Billing of Admission Date and Statement Covers Period).

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Claims Processing

CWF will reject:

• diagnostic services when the LIDOS falls on the date of the inpatient hospital admission and/or on any of the three days (or one day) prior to the date of the inpatient hospital admission,
• nondiagnostic services when the LIDOS falls on the date of the inpatient hospital admission, and/or
• nondiagnostic services when the LIDOS falls on any of the three days (or one day) prior to the date of the inpatient hospital admission and condition code 51 is not included on the outpatient claim.

The claim rejection applies to the claim in process regardless of whether the outpatient or inpatient claim is processed first. Hospitals must analyze the two bills and report appropriate corrections.

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Under Arrangements Policy

All items and nonphysician services furnished to inpatients must be furnished directly by the hospital or billed through the hospital under arrangements. This provision applies to all hospitals, regardless of whether they are subject to PPS. The admitting hospital must provide the “routine services” (e.g., bed, board, nursing services, use of hospital facilities, and medical social services). Services are considered to be provided by the admitting hospital if they are provided in the hospital and the hospital exercises professional responsibility over the services, including quality control. 

With a few exceptions, medical items, supplies and services that are furnished to inpatients are covered under part A and thus by the PPS rate (or reasonable cost for hospitals excluded from PPS). This includes transportation by ambulance, to and from another hospital or freestanding facility to receive specialized services (diagnostic or nondiagnostic) not available at the hospital where the beneficiary is an inpatient.

Only the hospital where the beneficiary is an inpatient is entitled to receive payment for the services rendered during the inpatient stay. So, the hospital that is performing the specialized services to the inpatient and the provider that transports the beneficiary to and from that other hospital to receive the specialized services (which are not available at the admitting hospital) must look to the hospital where the patient is an inpatient to receive payment. The other hospital and transportation provider may not bill Medicare separately for their services.

There are exceptions to this policy which can be found in CMS IOM Publication 100-04, Medicare Claims Processing Manual, Chapter 3, Section 10.4. (7 MB)

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Under Arrangements Policy - Billing

When submitting the inpatient claim, the hospital where the beneficiary is an inpatient, includes on its claim all the services it rendered to the beneficiary directly and it includes on its claim all the services that it arranged for the inpatient beneficiary to receive, on an outpatient basis, at another hospital along with the costs involved. If the inpatient beneficiary was transported by ambulance to receive those services at another hospital, then the inpatient hospital reports the cost of the transportation in with the cost for the appropriate ancillary service rendered by that other hospital. The inpatient hospital shall not report revenue code 0540 (transportation) on their inpatient claim. The amount that the inpatient hospital reimburses the other hospital and the transport provider is determined between those parties involved.

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Related Content

• CMS IOM Publication 100-04, Medicare Claims Processing Manual,
  • Chapter 3, Section 40.3 (7 MB)
  • Chapter 4, Section 10.12 (1 MB)
  • Chapter 12, Sections 90.7 and 90.7.1 (1 MB)
• Report of OIG Review, June 2017
• Three Day Payment Window Policy

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