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Medicare three-day window payment policy holds strong

Three-day window payment policy holds strong

After eight years, Medicare maintains standard for bundling outpatient services into inpatient stays

Under Medicare rules for hospitals subject to the Inpatient Prospective Payment System (IPPS), when a patient receives outpatient services in the three days before a related inpatient admission, payment for the outpatient services is bundled into the Diagnosis Related Group (DRG) payment for the stay.

This rule, officially called the three-day payment window and sometimes referred to as the 72-hour rule, applies to diagnostic tests and other related services provided by the admitting hospital on the three calendar days prior to the patient’s admission.

An example of this occurs when a patient receives preoperative imaging or lab work before a scheduled surgery that requires an inpatient hospital stay. If the patient is admitted on a Thursday, the services provided by the hospital on Monday, Tuesday, and Wednesday can be bundled into the DRG payment.

The three-day window policy allows hospitals to remain neutral about whether pre-surgery work-up is done before or during a hospital admission. Healthcare providers can make decisions based on what makes the most sense for each individual patient, rather than relying on payment considerations.

Several state Medicaid agencies include this policy as part of their inpatient payment methodology, which is why it's important to stay up to date. The Centers for Medicare and Medicaid Services (CMS) finalized the three-day window policy January 1, 2012 under section 102 of the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 (PACMBPRA) (Pub. L. 111-192).

Inclusions and Exclusions

There are a  few exceptions to Medicare’s policy cited below:

  • Clinically unrelated services are not subject to the three-day window policy, if the hospital can attest that the services are distinct or independent from a patient’s admission.
  • Ambulance services and maintenance renal dialysis services are also excluded.
  • Rural Health Clinics (RHCs) and Federally Qualified Health Centers (FQHCs) are not subject to the three-day window. Critical Access Hospitals (CAHs) are exempt except when wholly owned or operated by a non-CAH hospital.
  • The policy also does not apply if a third party, such as a health system, owns both the hospital and other entities, or if the hospital is not the sole owner of another entity.
  • A similar one-day window exists for psychiatric hospitals, inpatient rehabilitation hospitals and units, long-term care facilities, children’s hospitals, and cancer hospitals.
  • Outpatient services that are potentially subject to the three-day window are required to be submitted with a modifier PD (a diagnostic or related non-diagnostic item or service provided in a wholly owned or operated entity). If a modifier PD is applied, Medicare will only reimburse the professional component of a code (when both a professional and technical component are included). The technical component is reimbursed on the inpatient claim. Condition code 51 (attestation of unrelated outpatient non-diagnostic services) should be used to identify services unrelated to the inpatient admission, and must be billed as outpatient services.

CMS provides a list of revenue and procedure code combinations that are subject to the window payment policy in the Medicare Claims Processing Manual.

Streamlining Payment Policies

As mentioned, many state Medicaid agencies follow Medicare’s three-day window policy or have adopted similar policies based on Medicare’s model. Such efforts reduce the administrative burden on hospitals of having to keep track of two separate windowing policies.

According to the Medicaid and CHIP Payment and Access Commission, 35 state Medicaid agencies have some sort of outpatient window payment policy. While many of these programs have adopted policies similar to Medicare, some differences remain.

Florida, for example, includes payment for observation in the 48 hours preceding an admission in an inpatient claim. In Illinois, hospitals have the option to bill one outpatient claim for emergency room or observation services, while all other ancillary services must be included on the inpatient claim. In addition, one salaried physician’s services may also be billed under the physician’s name.

While outpatient window policies may be tailored to state-specific objectives, the overarching goal remains consistent: payments for outpatient services directly related to an inpatient admission are included in the inpatient payment. Providers are accustomed to this policy because diagnostic testing performed in advance is often the primary reason for an inpatient admission. State Medicaid agencies that already use the three-day window policy should continue to rely on this payment policy. As always, it is advisable to keep up with any rule changes from Medicare.

The Payment Method Development team at Conduent advises state agencies on how to adopt outpatient window policies, which impact both inpatient and outpatient billing practices, payment methods and Medicaid Management Information Systems. For further information, contact Andrew Townsend at, or write to us at