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On July 9, 2012, the Centers for Medicare and Medicaid Services (“CMS”) posted 43 frequently asked questions (“FAQs”) addressing various issues concerning the 3-day Payment Window Rule (the “Rule”). As background, the Rule applies to outpatient services furnished (1) by a hospital or (2) by another Part B supplier (referred to herein as a “Physician Practice”) that is wholly-owned or operated by a hospital. Under the Rule, the admitting hospital must bundle the technical component of all outpatient diagnostic services and related non-diagnostic services with the claim for the beneficiary’s inpatient stay if the outpatient services are furnished to the Medicare beneficiary in the 3-day window preceding the inpatient admission.

In addition to providing guidance regarding the definition of diagnostic services and non-diagnostic services related to inpatient admissions and the use of certain billing codes, CMS dedicates several FAQs to the issue of determining when a related Physician Practice should be considered “wholly-owned or wholly-operated” by the admitting hospital. CMS states that a Physician Practice will be considered to be wholly-owned by the admitting hospital if the hospital is the sole owner of the Physician Practice, and the Physician Practice will be considered to be wholly-operated by the admitting hospital if the hospital has exclusive responsibility for conducting and overseeing the Physician Practice’s routine operations, regardless of whether the hospital also has policymaking authority. (Q.9) Generally, if the hospital has direct ownership or control over the Physician Practice’s operations, then the services provided by the Physician Practice are subject to the Rule. (Q.11) CMS provides two specific examples of circumstances when the Rule does not apply: (i) if the admitting hospital and the Physician Practice are both owned by a third party (e.g., a health system); and (ii) if the admitting hospital is not the sole or 100% owner of the Physician Practice (e.g., if physicians or other practitioners have an ownership interest in the practice). (Q.10) CMS notes that helpful examples of how the Rule is applied are found in the February 11, 1998 Federal Register (pg. 6866-6867) and the November 28, 2011 publication of the CY 2012 Medicare Physician Fee Schedule Final Rule (pg. 73285-73286). As most hospitals and related providers are owned by a corporate parent in a health system, these FAQs are expected to be welcomed by the industry.

CMS also indicated that decisions regarding whether a related Physician Practice is wholly-owned or operated will not be made by CMS on a case-by-case basis. Rather, CMS places the responsibility on the hospital and the related Physician Practice. In fact, CMS goes so far to note that it will “not make determinations as to whether a specific physician practice or other Part B entity is wholly-owned or wholly-operated by an admitting hospital.” (Q.11) CMS believes that “ownership and operational issues are inherently fact specific and hospitals and hospital owned and operated entities will know and understand best their individual circumstances and whether the physician practice is subject to the payment window policy.” (Q.14) CMS cautions, however, that if a hospital and a Physician Practice determine that the Rule does not apply, the parties should “maintain documentation to support that determination.” (Q.14) In that regard, corporate health systems should be diligent in discussing and documenting its operations as part of a health system.