1 | P a g e

Medicare Advantage Funds Flow In the [___] white paper “Medicare Advantage Funds Flow,” we explore the background, criteria, and

compliance implications and considerations for the funds flow between Medicare to Medicare Advantage

Carriers, and also between the Medicare Advantage Carriers and healthcare providers. We then examine

and determine the appropriate application and expected procedures for this process.

Background Medicare Advantage (MA), also known as Medicare Part C or Medicare+Choice, is a combination of Part

A and Part B. MA is available to people who would like to get their health coverage from a private insurer,

and will usually pay an additional premium to that insurer. The benefit for the additional premium is that

insurers are required to cover all services provided by Medicare Part A and B, and even frequently provides

additional health care coverage. This additional coverage could include dental, vision, and prescription

drugs.

Since the 1970’s, Medicare beneficiaries have had the option to receive their Medicare benefits through

third party health plans; such as, Health Maintenance Organizations (HMO), Preferred Provider

Organizations (PPO), and traditional Fee-for-Service (FFS). Over the past decades, Medicare payment

policy has moved from being a cost savings mechanism for the Center of Medicare and Medicaid Services

(CMS) to focusing more on expanding access to private plans and providing extra benefits to enrollees

who fall under the Medicare qualifications.

Funds Flow CMS to MA Carrier

CMS pays MA Carriers monthly on a capitated (per enrollee) basis to provide all Part A and Part B benefits

as defined by CMS. In addition to the capitated amounts, CMS makes additional payments for providing

prescription drug benefits under Medicare Part D.

To calculate the capitated payment rate, CMS determines a Risk Adjustment Factor (RAF) to pay MA plans

for the risk of the beneficiaries they enroll. This allows CMS to make appropriate and accurate payments

for enrollees, and to standardize base payment bids across carriers with different expected costs. The

designated RAF score is applied on a retrospective basis; therefore, current year adjustments in each

individual risk score will be reflected in the subsequent year. In practice, as a patient receives healthcare

services at a higher Level of Care (LOC), such as services coded as inpatient vs outpatient, then the RAF

score will increase, producing a higher monthly capitation payment in the following year.

Funds Flow MA Carrier to Provider

Medicare Advantage Plans are required by CMS to cover all services that Original Medicare covers except

for hospice care. Additionally, all plans will cover services for emergency and urgent care needs. MA Plans

may or may not cover services that are not considered medically necessary under traditional Medicare. In

2 | P a g e

the case that the plan does cover additional services; such as, vision, hearing, and dental, a monthly

premium may be required for this coverage.

Medicare Three-Day Window Rule

In the [___] white paper “Medicare Three-Day Window Rule,” we explore the background, criteria, and

compliance implications and considerations for the Medicare Three-Day Window Rule. We then examine

and determine the appropriate application and expected procedures for this process.

Background The three-day payment window rule arose from the contention that the costs related to preadmission

services; such as, laboratory or radiology tests to determine whether the disease process, injury or illness

exists were included in the DRG payment for the inpatient stay made under Medicare Part A. In effect,

Medicare patients who receive outpatient services, under certain circumstances and within the three-day

window, are covered under Medicare Part A and do not require access to Medicare Part B for coverage of

these services.

Note: For non-Subsection (d) hospitals (e.g. psychiatric, rehabilitation, and children’s hospitals) which are

excluded from Medicare’s prospective payment system, the applicable payment window is only one day

to bundle Part B and Part A into one singe bill.

Excluded Services & Criteria

Certain services and conditions leave it unnecessary to bundle the services under Medicare Part A and are

only covered under Medicare Part B. For example, charges for services furnished by home healthcare

agencies, skilled nursing facilities, and hospices under Medicare Part A do not need to be bundles with

impatient charges. Additionally, ambulance services as well as various other maintenance services are

excluded as referenced in the CMS Codex.

In addition to the services mentioned above, there are certain conditions that do not allow services to

bundle with Medicare Part A services. The CMS Codex requires that services performed by a hospital that

does not have a direct ownership or control over another entity’s operations, then services provided by

that other entity cannot qualify under the three-day window. Secondly, if the organization owns or

operates both the hospital and the entity, but they are separate organizations then the services cannot

fall under the three-day window. Refer to the diagram below.

3 | P a g e

Application

Under Medicare billing rules, the three-day window applies when a patient is admitted to a hospital or

clinic after having received outpatient treatment at a facility that is wholly owned or operated by that

same hospital or clinic. The window period begins in the three calendar days before the admission date.

The Three-Day Window is commonly referred to as the 72-hour rule. This title is misleading as there are

no hourly requirement that is applied to the rule. In fact, the window can span for longer than 72 hours if

the patient is admitted at a time during the day that is later than at the time when the three-day window

began three days prior. For example, the patient receives laboratory tests from a clinic that is wholly

owned by the referred hospital. The tests are conducted at 10 a.m. in the morning on Monday and the

patient is admitted to the hospital at 10 p.m. on Thursday. The total hours for the “window” in this

scenario 108 total hours, but only three calendar days before the admission date.

Conclusion

Under the Medicare Three-Day Window rule, certain outpatient preadmission services related to the

inpatient care and provided within three calendar days prior to admission by a wholly owned facility may

be bundled under Medicare Part-A. In effect, the patient’s outpatient services will be claimed and

reimbursed under the Medicare Part-A.