The Three Day Payment Policy Window & Use of the Modifier –PD

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Stacie BuckBy Stacie L. Buck, RHIA, CCS-P, RCC, CIC

April 2013—After two decades of hospitals struggling to manage billing compliance with what was commonly referred to as the “72 hour rule” or “3 day payment window,” CMS issued revised instructions in accordance with the provisions of Section 102 of the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 (PACMBPRA) passed in June of 2010.  Transmittal 2373 (CR7502) was issued on December 21, 2011 with an effective date of January 1, 2012 and an implementation date of January 3, 2012. As of July 1, 2012 providers were expected to be in compliance with the new policies.

The transmittal specified the following changes:

  • Broadened the definition of related non-diagnostic services and removed the requirement that the ICD-9-CM principal diagnosis assigned for both the non-diagnostic preadmission services and the inpatient stay must match digit for digit to be “bundled” with the inpatient claim;
  • Specified a new modifier ( –PD) that must be utilized on physician Part B claims and appended to all “related” services – both diagnostic and non-diagnostic that are required to be submitted as part of the inpatient claim.

Calculation of the 3 Day Payment Window

The 3 day payment window is calculated based on the date of admission and is determined by calendar date, so it is a bit misleading to refer to it as the “72 hour rule.”  The 3 day payment window includes services performed on the date of admission as well as services provided on the 3 calendar days prior to the admission date; therefore it is possible that the actual time period may be longer than 72 hours prior to admission.

Example:  A patient has outpatient services completed Monday morning, August 13th at 10:00AM and is admitted on Thursday, August 16th at 3:00PM.  All related diagnostic and nondiagnostic services performed Monday, Tuesday, Wednesday, or Thursday morning prior to admission are subject to the 3 day payment window. Although the services rendered on Monday morning are outside of 72 hours prior to the time of actual admission, they occurred on one of the three calendar days prior to the date of admission.

There is also what is called a 1 Day Payment Window which includes services provided the date of admission and the entire calendar preceding the date of admission, therefore it is possible that the actual time period may be longer than 24 hours prior to admission.


  • Wholly Owned or Wholly Operated

Wholly owned or wholly operated entities are defined in 42 CFR §412.2; “An entity is wholly owned by the hospital if the hospital is the sole owner of the entity.” And, “an entity is wholly operated by a hospital if the hospital has exclusive responsibility for conducting and overseeing the entity’s routine operations, regardless of whether the hospital also has policymaking authority over the entity” (Transmittal 2373)

  • Non-Diagnostic Service

A non-diagnostic service subject to the three day payment window is defined as “any non-diagnostic service that is clinically related to the reason for a patient’s inpatient admission, regardless of whether the inpatient and outpatient diagnoses are the same.” (Frequently Asked Questions CR 7502)

Examples of non-diagnostic services are evaluation and management services or surgical procedures.

  • Diagnostic Service

The Medicare Benefit Policy Manual, Chapter 6, Section 20.4 provides the definition of a diagnostic service:

A service is “diagnostic” if it is an examination or procedure to which the patient is subjected, or which is performed on materials derived from a hospital outpatient, to obtain information to aid in the assessment of a medical condition or the identification of a disease.

Examples of diagnostic services are blood chemistry, diagnostic x-rays, isotope studies, EKGs, pulmonary function studies, and thyroid function tests.

Generally speaking, any tests given to determine the nature and severity of an ailment or injury are considered diagnostic.

Application of the –PD modifier

Modifier –PD is utilized to identify a “diagnostic or related nondiagnostic item or service provided in a wholly owned or operated physician office to a patient who was admitted as an inpatient within 3 days”.  Modifier –PD is applied to each individual line item that meets this definition.

As of July 1, 2012, modifier –PD should be utilized on all claims submitted for services that are subject to the 3 day payment window.

Although the wholly owned or wholly operated physician’s office is responsible for ensuring that modifier –PD is appended to all preadmission diagnostic services and admission-related nondiagnostic services, CMS has stated that the hospital that owns the wholly owned or wholly operated physician practice or other owned Part B entity, is responsible for making the determination as to whether a non-diagnostic service is related to an inpatient admission for which it submits an inpatient claim and the claim for services paid under Part B, must be submitted accordingly.  Therefore there must be a mechanism put in place through which the hospital is responsible for notifying the Part B entity of patients who have been admitted as inpatients, who have had services within the 3 calendar days prior to admission and the day of admission.  Part B entities will need to hold claims for services to ensure compliance with the new instructions issued by CMS and prevent instances of overpayments.

Payment for Service

When the –PD modifier is appended to a service line, only the professional component will be paid for services that have both professional component and technical component split. For those codes that do not have a professional component and technical component split, the service will be paid at the facility rate.

Stacie L. Buck, RHIA, CCS-P, RCC, CIC is the President & Senior Consultant at RadRx. She can be reached at

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