CMS to Seek Recoupment of $25 Million From Hospitals Under Medicare’s Post-Acute Transfer Policy

March 20, 2009

According to an audit report recently released by the Office of Inspector General of the Department of Health and Human Services (OIG), hospitals paid under the inpatient prospective payment system (IPPS) may have received an estimated $25 million in overpayments between fiscal years 2003 and 2005 as a result of noncompliance with Medicare’s post-acute transfer policy. The purpose of this policy is to provide a disincentive for hospitals to discharge patients to another hospital, a skilled nursing facility, or a patient’s home early in a patient’s stay in order to minimize costs while still receiving a full diagnosis-related group (DRG) payment.

Under this policy, Medicare pays full DRG payments to hospitals that discharge inpatients to their homes. In contrast, for DRGs described in 42 C.F.R. § 412.4(d), Medicare pays hospitals that transfer inpatients to certain post-acute care settings a per-diem rate for each day of the stay, not to exceed the full DRG payment for a discharge. The post-acute care settings to which a patient could be “transferred” include:

  1. certain hospitals and hospital units not reimbursed under the IPPS (e.g., psychiatric hospitals, rehabilitation hospitals, children’s hospitals, long term acute care hospitals, and cancer hospitals);
  2. skilled nursing facilities; or
  3. a patient’s home when there is a written care plan for home health services.

The Centers for Medicare and Medicaid Services (CMS) found during an audit of the discharge status codes of 150 sampled claims that 92 claims were improperly coded as discharges to home rather than transfers to post-acute care facilities. 80 of the 92 improperly coded claims were followed by claims for home health services or skilled nursing facility services.

Nationally, hospitals billed Medicare for over ten million discharges for DRGs subject to the post-acute transfer policy between fiscal years 2003 and 2005. Therefore, extrapolating from the sample results, OIG estimates that hospitals across the country may have improperly coded over 15,000 claims for the three-year period ending September 30, 2005.

As a result of this audit, CMS previously implemented an edit in the Common Working File for the purpose of detecting overpayments, and intends to instruct fiscal intermediaries to recover the $137,226 in overpayments identified in the claims sample, review additional claims during the 2003 to 2005 sampling timeframe, and identify and recover the estimated $25 million in overpayments from hospitals. It is important to note that fiscal intermediaries will only seek recoupment from transferor hospitals.

Please contact one of the authors or a member of the Senior Care Team if you have questions about CMS’s post-acute transfer policy or upcoming fiscal intermediary audits of hospitals.