Christopher L. Keough

Changes in the Medicare program over time have not only altered the significance and use of patient days in determining Medicare payments, but also muddied the waters somewhat as to what exactly is a patient day.


At a Glance

CMS rules regarding what constitutes a patient day are often confusing and inconsistent. It is important for hospitals and their advisers to have a clear understanding of CMS's rules regarding what constitutes a patient day, the impact of those rules on Medicare payment, and instances in which CMS's rules may be subject to challenge. Lack of familiarity with the finer points of these rules may result in substantial underpayments for services rendered.


Patient day statistics are a very significant component of several Medicare payment calculations, including, for example, graduate medical education payments and disproportionate share hospital payments. Centers for Medicare and Medicaid Services rules regarding what constitutes a patient day, however, are often confusing and are internally inconsistent. Twenty-four hours does not necessarily equal a day, at least not in the Medicare reimbursement universe. And, in the Medicare context, what does count as a day differs depending on why you want to know.

Thus, it is important for hospitals and their advisers to have a clear understanding of CMS's rules regarding what constitutes a patient day, the impact of those rules on Medicare payment, and instances in which CMS's rules may be subject to challenge. 

Counting Patient Days

When the prospective payment system was first implemented, the Medicare program made it clear that outpatient services furnished prior to an admission were required to be "included in the hospital's bill submitted for payment under Part A" (Federal Register, Jan. 3, 1984, pp. 234, 250). Consistent with that policy, it should follow that services furnished to the same individual after admission as an inpatient may be billed and reimbursed under PPS, and the days should be counted as inpatient days, even if the patient dies or is discharged before being admitted to, or occupying, a routine bed. CMS's 2006 clarification to the Medicare Claims Processing Manual also seems consistent with this approach. But other CMS issuances infuse the counting rules with a good deal of confusion.

Disproportionate Share Hospital Payments

The Medicare disproportionate share adjustment is a percentage add-on to the standardized payments per discharge under the PPS for inpatient hospital services. In nearly all cases, a hospital's qualification for the DSH payment, and the amount of the payment add-on for a qualifying hospital, is based on a hospital's "disproportionate patient percentage."

The disproportionate patient percentage is the sum of two fractions, expressed as percentages. The two fractions are commonly called the "Medicare/SSI fraction" and the "Medicaid fraction." The sum of these fractions is taken as proxy for a hospital's utilization by low-income patients.

CMS computes the Medicare/SSI fraction annually for every hospital on a federal fiscal year basis. In general, this fraction consists of a hospital's number of patient days attributable to patients who were entitled to both Medicare Part A benefits and federal supplemental security income benefits (a federal cash assistance program for low-income individuals), divided by the hospital's total number of patient days attributable to patients who were entitled to Medicare Part A benefits.

Although the Medicare DSH statute was enacted in 1986, until recently, the regulation provided very little guidance as to how to count patient days for purposes of the DSH calculation. Recent amendments to the DSH regulation add some guidance, but CMS's rules still fail to address basic questions, such as whether a hospital should accumulate days in the Medicaid fraction based on the date of admission, date of discharge, or census. In addition, some provisions of the new rules may be subject to substantial legal challenge (e.g., exclusion of labor/delivery room days), and legal validity of those rules is an open question.

Pertinent provisions of the DSH regulation. The definition of inpatient days for DSH purposes, addressed in 42 C.F.R. § 412.106(a)(1)(ii), provides that days in PPS areas of a hospital should be counted; however, this provision has been substantially amended. The DSH regulation now excludes the following days from the DSH calculation: 

  • Days in PPS-exempt units
  • Days involving the use of inpatient beds for outpatient observation services, unless the patient is ultimately admitted, in which case the observation days are now counted
  • Days involving the use of swing beds for skilled nursing services
  • Days attributable to a patient who is in an ancillary labor/delivery room at the census-taking hour, unless the patient previously was checked into a routine bed, in which case the LDR day is counted
  • Days attributable to the labor and delivery time spent in a labor, delivery, recovery, and postpartum room
  • Days in a unit or ward of a hospital that does not generally provide an acute level of hospital care payable under PPS

Timing.The DSH regulation also indicates that a patient stay is counted in the Medicare/SSI fraction for the year in which the patient is discharged. With respect to the Medicaid fraction, however, the regulation refers only to "patient days" and does not specify the year in which a day should be counted when a patient stay spans over two or more cost reporting periods. But informal CMS guidance and CMS administrator decisions indicate that Medicaid patient days should be included in the numerator of the Medicaid fraction for the year in which the patient is discharged. For example, the CMS administrator issued a decision in 2003 ruling that Medicaid patient days "are to be calculated using discharges, not admissions" (Castle Medical Center, Medicare and Medicaid Guide, [CCH] 81,085). Likewise, the Office of Inspector General has issued at least one report concluding that a hospital received DSH overpayments because it counted some Medicaid-eligible days based on census instead of the date of discharge (Review of Medicare Disproportionate Share Hospital Payments for Methodist Hospital - Memphis for Fiscal Year 1999, Report A-04-03-02023 [Nov. 3, 2003]).

Labor/delivery days.In 2003, CMS amended the DSH regulation to "clarify" that a patient day should not be counted for a patient who is in a labor and delivery room at the census-taking hour unless the patient previously occupied a routine bed since admission (see 42 C.F.R. § 412.106(a)(1)(ii)[B]). In addition, the 2003 rule provides that days in a labor, delivery, recovery, and postpartum room must be allocated between ancillary labor and delivery time and routine recovery time. A time study may be used to establish an average percentage split of time for all patients in an LDRP.

Presumably, a day that is not counted as a patient day for purposes of the Medicaid fraction also would not be counted as a patient day for purposes of the Medicare/SSI fraction. Both fractions consider inpatient days. But, notwithstanding CMS's "clarification" in 2003, there appears to be no means by which CMS could exclude LDR or LDRP days from the number of Medicare days that are included in the MedPAR file and counted in the SSI fraction. These days are apparently counted in the SSI fraction, but CMS has never offered any explanation for this apparent inconsistency.

Outpatient observation and swing-bed skilled nursing days. In some cases, a hospital may use an inpatient bed for observation of an individual who has not been admitted. In 2003, CMS amended the DSH regulation to "clarify" its asserted policy that such outpatient observation services are not counted as an inpatient day for DSH purposes. These outpatient observation services may be counted, however, if the patient is later admitted for acute inpatient care.

Some hospitals are granted approval to use hospital beds as needed for the provision of skilled nursing services that are paid as skilled nursing facility services. In the 2003 amendments to the DSH regulation, CMS also clarified (its word) agency policy that the days in which swing beds are used to provide skilled nursing services are not counted as an inpatient day for DSH purposes.

Subacute units or wards. As mentioned above, for periods prior to Oct. 1, 2003, the DSH regulation provided that a hospital's number of patient days includes days "attributable to areas of the hospital that are subject to the prospective payment system and excludes all others" (see 42 C.F.R. § 412.106(a)(1)(ii) [2002]). Based on this provision, the Ninth Circuit previously ruled that the Medicaid fraction should include patient days in a unit of a hospital that was included in a hospital's Medicare bed count, but was licensed by the state as a subacute unit (Alhambra Hospital v. Thompson, 259 F.3d 1071 [9th Cir. 2001]). The Ninth Circuit concluded that the plain language of the regulation required CMS to count patient days in all areas of a hospital that are subject to PPS.

In 2003, when CMS amended the DSH regulation, the agency changed the rule to provide that a hospital's number of patient days for DSH purposes include days in units or wards of the hospital providing acute care services generally payable under the PPS. In the preamble to the 2003 rule, CMS stated that the new rule is intended to focus on the level of care that is generally furnished in an area or unit of a hospital. Regardless of whether the unit or ward is separately certified, inpatient days are not counted in the DSH calculation if the level of care furnished in a unit or ward generally is not consistent with the acute level of care that is paid under the PPS (Federal Register, Aug. 1, 2003, pp. 45417-18). The regulation is not intended to focus on the level of care furnished to a particular patient.

Graduate Medical Education Payments

The Medicare payment for direct graduate medical education cost in general is based on a hospital-specific payment rate per resident, multiplied by the hospital's number of FTE interns and residents in approved training programs, and the hospital's Medicare patient load for a fiscal year (see 42 C.F.R. § 413.76). Thus, all other things being equal, the greater the Medicare patient load, the higher the GME payment to a hospital.

The Medicare patient load is a variable term that measures the percentage of a hospital's total number of inpatient days attributable to patients who were entitled to payments under the Medicare Part A fee-for-service program, a Medicare Advantage plan, or another type of Medicare health maintenance organization. There are several very key points about the count of Medicare patient days for purposes of the GME payment calculation that many hospitals routinely miss, which means that teaching hospitals often are not receiving the full GME payments to which they are properly entitled.

Medicare-eligible-but-unpaid days in the GME calculation. One important question that has never been addressed in CMS guidance concerning the GME payment calculation is whether the numerator of the Medicare patient load calculation should include Medicare beneficiary inpatient days that are not paid for by the Medicare fee-for-service program (or the Medicare Advantage plan or other HMO, in the case of Medicare managed care plan enrollees). There are many reasons why Medicare may not make payment for all or some portion of a stay in a hospital by a Medicare beneficiary. For example, pursuant to the Medicare secondary payer provisions of the statute, Medicare will not make payment when the program's liability for payment is secondary to some other commercial payer's. Likewise, the Medicare fee-for-service program may not make payment after the beneficiary has exhausted Medicare Part A benefits for a spell of illness.

CMS has never addressed how these patient days should be accounted for in the calculation of the Medicare patient load for GME, but CMS has addressed similar issues in the Medicare DSH context. In its 2004 amendments to the DSH regulation, however, CMS adopted the position that all patient days attributable to Medicare beneficiaries who have exhausted Part A benefits should nevertheless be counted in the denominator of the Medicare/SSI fraction for DSH, effective Oct. 1, 2004 (Federal Register, Aug. 11, 2004, pp. 49098-99). That policy change by CMS for DSH purposes is also very relevant to the GME calculation.

As applied to Medicare fee-for-service beneficiaries, the numerator of the Medicare patient load for GME and the denominator of the Medicare/SSI fraction for DSH would seem to have to be like sets. Both should include days attributable to such beneficiaries who were entitled to have payment made on their behalf by the Medicare Part A fee-for-service program for the inpatient hospital days in question. CMS's rationale for this new rule in the DSH context is that even though a Medicare beneficiary may have exhausted benefits for inpatient hospital services under the fee-for-service program, he or she "may be still be entitled to other Part A benefits" (Id. at 49098).  

Many providers stridently disagree with this policy as applied in the DSH context-and with good reason. Nevertheless, it would seem to follow that if CMS is going to count exhausted benefit days as Medicare days for DSH purposes, then the same days should be properly counted as Medicare days in the numerator of the Medicare patient load calculation.

Medicare advantage days in the GME and IME calculations. Following amendments by the Balanced Budget Act of 1997, which established the Medicare+Choice predecessor to the Medicare Advantage program, the Medicare GME statute has provided for a separate, additional GME Medicare patient load calculation to account for Medicare managed care patient days  (which otherwise would not be counted in the GME payment calculation as patient days entitled to payment under Medicare Part A). In the BBA, Congress amended the GME statute by adding a new provision (in 42 U.S.C. § 1395ww(h)(3)(D)[I]) for a separate GME payment with respect to patient days attributable to Medicare beneficiaries enrolled in a Medicare managed care plan. Thus, GME payment with respect to Medicare Advantage patient days is based on the percentage of a hospital's total number of inpatient bed days attributable to patients who are enrolled in a Medicare Advantage plan. Additionally, Congress also amended the statute to provide for an indirect medical education payment to hospitals with respect to Medicare managed care discharges.

The difficulty with these provisions for payment, which teaching hospitals have often missed out on, stems from the unfortunately confusing and ill-defined instructions that CMS issued to implement the BBA's provisions for these GME and IME payments. Although the BBA itself required CMS to force Medicare risk plans to furnish CMS with patient encounter data for all enrollee discharges on or after July 1, 1997 (Pub. L. No. 105-33, § 4001; 42 U.S.C. § 1395w-23(a)[3]), CMS has nevertheless taken the position that hospitals must also endure the repetitive exercise of submitting the same information again in the form of no-pay bills to the Part A fiscal intermediary if they want to get the benefit of the GME and IME benefits that Congress intended for them.

The instructions CMS issued to implement this policy are extremely confusing and somewhat contradictory. As a result, many hospitals never received clear guidance and fair warning as to the hoops they must supposedly jump through in order to receive IME and GME payments with respect to Medicare managed care patient days. Yet, the reimbursements at stake can be very significant for large teaching hospitals that serve a significant proportion of Medicare managed care enrollees. 

Counting Available Bed Days: IME Payments

The PPS payment add-ons for both IME costs and DSH are based in part on a hospital's bed count. Because the IME payment is driven by a hospital's ratio of interns and residents to its number of beds (42 C.F.R. § 412.105), the lower the bed count, the higher the ratio, and the greater the IME payment.

The IME regulation governs the determination of a hospital's bed count for both IME and DSH purposes (42 C.F.R. §§ 412.105(b) and 412.106(a)(1)[I]). In general, the bed count is determined by dividing a hospital's number of available bed days in a cost reporting period by the number of days in the cost reporting period. Long-standing CMS instructions in section 2405.3.G of the Provider Reimbursement Manual provide that specific types of beds should be excluded from the count of available bed days for IME, but recent CMS amendments to the IME regulation may confuse the matter considerably.

Based on the program instructions in section 2405.3.G of the Provider Reimbursement Manual, for example, it should be clear that beds located in a hospital emergency department are not included in the hospital's count of available bed days for IME. But, in the preamble to the 2003 inpatient PPS rule for FY04, CMS expressed the view that the days and beds counted for DSH and IME generally should be counted consistently (Federal Register, Aug. 1, 2003, pp. 45346, 45415-16). Moreover, that rule made it clear that outpatient days attributable to an individual who is ultimately admitted as an inpatient should be counted in a hospital's number of patient days for DSH purposes.

So, it may follow that in some cases a hospital's count of available bed days for IME purposes might be increased to reflect bed days attributable to a patient who was in the ED for a period of time before admission. But such a literal application of the general policy statement in the preamble to the 2003 rule would also seem to conflict with other amendments that CMS made to the bed count rules in the 2003 rulemaking. As amended, the IME regulation provides that the bed count for IME excludes all beds in an area or ward of a hospital that does not generally provide an acute level of care payable under PPS. How exactly CMS expects hospitals to deconstruct and apply these internally inconsistent rules remains unclear. 

Getting Your Counts Right

Although Medicare cost reimbursement is a thing of the past for the vast majority of hospitals, the old Medicare cost reporting rules governing the count of patient days continue to have great relevance to a hospital's payment under PPS. Unfortunately, the guidance available from CMS for counting patient days and bed days has become increasingly convoluted since the days of cost reimbursement. Thus, it is all the more important for hospitals to pay particular attention to these details, as the failure to do so may result in substantial underpayments for services rendered.


Christopher L. Keough, JD, is a partner, Vinson & Elkins, LLP, Washington, D.C. , and a member of HFMA's Virginia Chapter (ckeough@velaw.com).


General Medicare Rules for Counting Inpatient Days

The Medicare program's general definition of an inpatient day is a long-standing one. The definition, as set forth in section 216 of the Medicare Hospital Manual, provides that an inpatient is an individual who has been admitted with the expectation of an overnight stay. Similar formulations of the same general definition appear in many different program manuals. For instance, chapter one, section 10 of the Medicare Benefit Policy Manual states:

An inpatient is a person who has been admitted to a hospital for bed occupancy for purposes of receiving inpatient hospital services. Generally, a patient is considered an inpatient if formally admitted as inpatient with the expectation that he or she will remain at least overnight and occupy a bed even though it later develops that the patient can be discharged or transferred to another hospital and not actually use a hospital bed overnight.

Consistent with this definition, CMS recently clarified that an individual who is admitted upon a physician's order, but who is discharged or dies before he or she is assigned to or occupies a bed, is considered an inpatient on the day of admission (Trans. No. 836, Medicare Claims Processing Manual, Ch. 3, § 40.2.2.K [Feb. 3, 2006]). As stated in the revision to the manual, "A patient of an acute care hospital is considered an inpatient upon issuance of written doctor's orders to that effect" (Medicare Claims Processing Manual, Ch. 3, § 40.2.2.K). This applies even if a patient dies or is discharged before being assigned to, or occupying, a room. Thus, a room and board charge for the day of admission may be entered on the claim for payment. Further, the manual confirms that if an admitted patient leaves the hospital "of their own volition prior to being assigned and/or occupying a room, [the] hospital may enter an appropriate room and board charge on the claim as well as a condition code 07 which indicates they left against medical advice."

A patient who is never admitted pursuant to a physician's written order, of course, is never considered an inpatient. Thus, even when a patient presents to an ED and then remains there for more than 24 hours, he or she is not counted as an inpatient unless admitted pursuant to a physician's order (Trans No. 881, Medicare Claims Processing Manual, Ch. 4, § 180.6 [Mar. 3, 2006]).

Publication Date: Thursday, February 01, 2007

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