The history and impact of Transfer DRG payments

What is aTransfer DRG?• The Centers for Medicare and

Medicaid Services (CMS) pays for Medicare inpatient hospital care on the basis of Diagnosis Related Groups (DRGs). Certain DRGs (known as Transfer DRGs) are paid under the Medicare Post Acute Transfer rules, which reduce payments for hospitals that transfer patients to other providers to continue treatment.

Transfer DRG Issue Background• In the mid-1990’s, Medicare determined that when

certain patients were transferred from an acute care facility to another provider’s care, the transferring facility was being paid in full for providing only part of the necessary care.

• Medicare began looking at certain patients and their total cost of care

PACT• The FFY 1997 Final Rule introduced the Post Acute Transfer (PACT)payment methodology effective 10/1/98.

• The policy applies to the Inpatient Prospective Payment System (IPPS) and Rehab PPS

The purpose of the policy is to prevent Medicare from paying for the same care twice.

• The hospital’s MS DRG payment• A separate payment to the post-

acute provider of care

PACT Does Not Apply To…• Sole Community Hospitals• Critical Access Hospitals• Medicare Dependent Hospitals• Rural Referral Centers• Essential Access Community Hospitals

Number of Transfer DRGs affected each year

2012-2014

275 DRGs

2008-2011

273 DRGs

2007190 DRGs

2006182 DRGs

200530 DRGs

199910 DRGs

Transfer DRG Calculations• The majority of transfer payments

are calculated as follows:• Hospital specific per diem is calculated for each

affected DRG based on the GMLOS• First day of care is paid at double the per diem rate• Subsequent days are paid at the per diem rate• Total payment is not to exceed the DRG rate

• Special DRGs are reimbursed differently:

• One half of full DRG rate for first day• One half of the per diem rate for each subsequent

day

Majority of transfer payments

DRG Payment X (LOS + 1)

GMLOS

Special DRG payments

½ DRG Payment + ½ Per Diem Per Day as Above

In either case, payment may not exceed the full

DRG payment

Discharge Status• Status codes impacted by

the transfer rule:• “03” – Skilled nursing facility • “05” – Children’s/Cancer Hospital• “06” – Home health agency• “62” – Inpatient rehabilitation hospital• “63” – Long term care hospital [LTAC]• “65” - Psychiatric Hospital

• In some of cases impacted by the Transfer Rule, the care the patient receives after discharge from the original acute care hospital doesn’t correlate with the discharge status that was assigned, and the hospital may be underpaid as a result.

The discharge status is the data element that drives whether or not a reduced payment is issued

Overpayments• After the rule was changed to 30 DRGs in

2004, the OIG began to conduct audits around discharge status.

• They discovered an inordinate amount of discharge status errors that would impact claims under the Medicare post acute transfer rule.

• As a result, edits were established by CMS to concurrently identify overpayments.

• If an overpayment is detected, payment is recouped for the entire original bill (CWF Edit 7272)

• Hospitals must resubmit with the correct discharge status even if all documentation indicates otherwise (see MLN Matters article 3240)

85% The accuracy rate of

edits per OIG

Example of an overpayment edit

When overpayments are identified, Medicare processes a claim adjustment, for example:

• Discharged to home (“01”) full payment received• Patient receives HHA care 2 days post discharge• HHA submits claim, conflict with IP claim• Medicare recoups original payment – CWF edit 7272

Underpayments• Hospitals are left to their own means to

identify underpayments• The FFY 1998 Final Rule was specific –

UNDERPAYMENTS WOULD NOT BE IDENTIFIED BY CMS

See “Why do Transfer DRG underpayments occur?” for

additional detail about what can cause underpayments

Impact of the Post Acute Transfer Rule• Overall reduction in Medicare payments

of approximately $4B per year• Average impact of over $3,500 per

affected claim• Transfer DRGs account for 41.6% of

all Medicare discharges

Based on 2009 MEDPAR data

Download Transfer DRGs: Approaches to Revenue Recovery to continue reading about:

The financial impact of the Medicare Transfer Rule

Provider options for recovering Transfer DRG underpayments

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