In the final regulation for the FY 2006 Hospital Inpatient Prospective Payment System (IPPS), CMS once again changed the postacute care transfer policy. 70 Fed. Reg. 47,278 (Aug. 12, 2005). Now, 182 DRGs are subject to the payment rules for postacute care transfers, up from 30 DRGs in FY 2005. This significant change, coming hard upon an audit by the OIG finding that many hospitals had billed with inaccurate discharge status codes, increases the risks faced by hospitals for improper coding of discharge status.

Background
Beginning in FY 1999, pursuant to statutory requirements, CMS identified 10 DRGs for which discharges to certain postacute care providers would be treated as "transfers" rather than "discharges." The postacute care settings include hospitals or hospital units not subject to IPPS, SNFs, or HHAs if the patient receives home health services within three days after the date of discharge. If a patient in one of the named DRGs is discharged to one of these postacute care settings rather than discharged to home, then the "transferring" hospital is paid a per diem rate for each day of the stay (with a double per diem for the first day of the stay), not to exceed the full DRG payment that would have been made if the patient had been discharged without being transferred. The 10 DRGs were those that CMS determined had a high volume of discharges to postacute care facilities that occurred before the mean length of stay, and had a disproportionate use of postacute care services. The intent behind the policy was to discourage inappropriate premature discharges and prevent payment of a full DRG payment at the IPPS hospital when Medicare also would be paying for a large portion of the care provided at the postacute care facilities.

In the FY 2004 IPPS rule, 68 Fed. Reg. 45,346 (Aug. 1, 2003), CMS expanded the postacute care transfer policy to include a total of 29 DRGs. The criteria used to identify these DRGs were:

At least 14,000 postacute care transfer cases;

At least 10 percent of the postacute care transfers occurred before the geometric mean length of stay;

A geometric mean length of stay of at least three days; and

If a DRG is not already included in the policy, a decline in the geometric mean length of stay during the most recent five-year period of at least 7 percent.

For the FY 2005 IPPS final rule, 30 DRGs were subject to the postacute care transfer policy. CMS adopted a policy of grandfathering for a period of two years any cases previously included within a DRG that had split into multiple DRGs, when the split DRG qualified for inclusion in the postacute care transfer policy for both of the previous two years. 69 Fed. Reg. 48,916 (Aug. 11, 2004).

FY 2006 Changes
In the FY 2006 IPPS proposed rule, as part of an overall assessment of the policy, CMS proposed extensive changes to the criteria for identifying DRGs subject to the postacute care transfer policy, and identified a potential 231 DRGs that would fall under the policy. Following the receipt of comments on its proposal, in the final FY 2006 rule CMS revised the criteria to determine whether a DRG is subject to the postacute care transfer policy, as follows:

The DRG must have a geometric mean length of stay of at least three days;

The DRG must have at least 2,050 postacute care transfer cases;

At least 5.5 percent of the cases in the DRG are discharged to postacute care prior to the geometric mean length of stay for the DRG; and

If the DRG is one of a paired set of DRGs based on the presence or absence of a comorbidity or complication, both paired DRGs are included if either one meets the first three criteria.

Under the revised criteria, beginning October 1, 2005, 182 DRGs are now subject to the postacute care transfer policy (identified in Table 5, 70 Fed. Reg. 47,619). One hundred seventy-one of these DRGs are subject to the ordinary postacute care transfer payment rules, i.e., twice the per diem rate for the first day of treatment and the single per diem rate for each following day of the stay before transfer, up to the full DRG payment. An additional 11 DRGs that have an even higher share of costs very early in the hospital stay are subject to a special payment methodology, under which the IPPS hospital receives 50 percent of the full DRG payment plus a single per diem for the first day of the stay, and 50 percent of the per diem for the remaining days of the stay, up to the full DRG payment. CMS estimates this expansion of the number of DRGs subject to the policy will save $780 million in FY 2006.

In response to comments that criticized the confusion caused by changes to DRGs subject to this policy three years in a row, CMS has indicated it will no longer make annual changes to the list of DRGs subject to the postacute case transfer policy, unless it otherwise changes a specific DRG. It believes this will "promote certainty and stability." CMS further indicated, however, that it would periodically review the criteria used to make a DRG subject to the policy, proposing to do so every five years.

Compliance Challenges
The challenge for hospitals will be to ensure their coding and billing systems accurately reflect the discharge status of patients, i.e., is the patient discharged to home or to one of the postacute care settings. In an audit report issued in April 2005 ("Review of Hospital Compliance With Medicare's Postacute Care Transfer Policy During Fiscal Years 2001 and 2002," A-04-04-03000), the OIG concluded that many hospitals lacked controls to ensure the accuracy of discharge status codes. The OIG estimated these errors caused Medicare to overpay hospitals $72.4 million in FYs 2001 and 2002. Given that the number of discharges subject to the policy now has significantly increased, so has the potential for significant overpayments to hospitals as well as potential exposure to allegations of filing false claims.

Hospitals should review their coding processes to ensure accurate discharge coding. Creating a consistent place in the record where physicians can record discharge plans for the patient would be helpful. Particularly challenging are home health discharges, where home health services may not begin until two or three days after discharge, and where a patient may be returning to the care of a home health agency the patient was using prior to admission. Hospitals should incorporate into their compliance monitoring and auditing activities a review of the accuracy of discharge coding, including assessing how readily the coders can locate discharge information in the record.

According to the OIG's FY 2005 Work Plan, the OIG will now be assessing the ability of Medicare contractors to accurately limit payments to hospitals for patients discharged to one of the postacute care settings, indicating there had been "significant overpayments" in the past on this issue. While the OIG's focus this time may be on the Medicare contractors instead of the hospitals, those contractors, in turn, will focus on whether hospitals are appropriately coding discharges for these DRGs. Contractors now have the tools to compare patient billings from a variety of providers, making it easier to identify those instances in which hospitals have, for example, coded a patient as a discharge to home rather than as a transfer to a SNF. This should give hospitals added incentive to focus on this issue as part of their compliance activities.