Every post-acute provider should become familiar with the Post-Acute Care Transfer (PACT) policy. The November 2019 Office of Inspector General (OIG ) report found Medicare improperly paid acute-care hospitals $54.4 million for 18,647 claims subject to the transfer policy.

Hospitals coded claims as discharges to home or to certain types of healthcare institutions, such as facilities that provide custodial care, rather than as transfers to post-acute care.

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Background

The  Post-Acute Care Transfer (PACT ) policy was originally enacted in 1998 to prevent CMS from “paying twice” for a patient’s care. At the time, CMS targeted a list of 10 “high risk” DRGs for which it believed hospitals were discharging patients early and subsequently sending patients to receive post-acute services to continue their treatment and recovery.

In these cases, CMS was paying the hospital the full DRG rate, regardless of the patient’s length of stay (LOS), and also paying the post-acute provider their full case rate. CMS concluded that, for these cases, the acute hospital should receive a per diem payment instead of the full DRG rate to account for the short stay. Since the enactment of the PACT policy over 20 years ago, the rule has expanded from 10 DRGs to 280 DRGs and, in turn, has put a significant portion of a hospital’s Medicare revenue at risk.

The PACT policy is triggered when an inpatient claim meets the following criteria:

  1. The DRG is one of the 280 “Transfer DRGs,”
  2. The length of stay (LOS) is less than the geometric mean length of stay (GMLOS) for that DRG, and
  3. The patient was discharged to a qualifying post-acute facility, namely a home health agency or skilled nursing facility.

When these criteria are met, CMS automatically applies a per-diem payment to the claim to account for the short stay.

To help hospitals ensure compliance with the PACT policy and to ensure that Medicare has not overpaid according to the rule, CMS maintains a one-way edit that is intended to capture any claims that meet the first two criteria, but were paid at the full DRG rate as a result of the discharge status code used (i.e. a code that is NOT subject to penalties under the rule).

The most common occurrence of this is discharges to home (status code “01”). For example, if a hospital codes a claim indicating that a patient is going home, but the patient receives home health care the next day, the edit should pick up the home health stay and return the claim to the provider for correction. While the edit catches most coding errors, it does not catch everything. Not surprisingly, OIG audit activity has been focused on the areas known to slip through the cracks.

Medicare improperly paid acute-care hospitals $54.4 million for inpatient claims subject to the post-acute care transfer policy

What OIG Found

Medicare improperly paid acute-care hospitals $54.4 million for 18,647 claims subject to the transfer policy. These hospitals improperly billed the claims by using the incorrect patient discharge status codes. Specifically, they coded these claims as discharges to home (16,599 claims) or to certain types of healthcare institutions (2,048 claims), such as facilities that provide custodial care, rather than as transfers to post-acute care. Of these claims, 83 percent were followed by claims for home health services, and 17 percent were followed by claims for services in other post-acute-care settings.

Medicare makes the full Medicare Severity Diagnosis-Related Group (MS-DRG) payment to an acute-care hospital that discharges an inpatient to home or certain types of healthcare institutions. In contrast, Medicare pays an acute-care hospital that transfers a beneficiary to post-acute care a per diem rate for each day of the beneficiary’s stay in the hospital. The total overpayment of $54.4 million represented the difference between the amount of the full MS-DRG payments and the amount that would have been paid if the per diem rates had been applied.

CMS officials stated that the edits appropriately detected inpatient claims subject to the transfer policy. However, some Medicare contractors reported that they did not receive the automatic notifications of improperly billed claims or did not take action on those claims to adjust them. If all of the contractors had received the notifications and properly taken action since calendar year 2013, Medicare could have saved $70 million.

What OIG Recommends and CMS Comments

The OIG recommend that CMS direct the Medicare contractors to:

  1. recover the $54.4 million in identified overpayments,
  2. identify any claims for transfers to post-acute care in which incorrect patient discharge status codes were used and direct the Medicare contractors to recover any overpayments after our audit period, and
  3. ensure that the Medicare contractors are receiving the post-payment edit’s automatic notifications of improperly billed claims and are taking action by adjusting the original inpatient claims to initiate recovery of the overpayments.

CMS concurred with all of our recommendations and provided information on actions that it planned to take to address our recommendations.

Post-Acute-Care Transfer Policy and Types of Providers

An acute-care hospital transfers a beneficiary to a post-acute-care setting, such as a SNF, when the beneficiary’s acute condition is stabilized and the beneficiary requires further treatment.

Section 4407 of the Balanced Budget Act of 1997, P.L. No. 105-33, added subparagraph 1886(d)(5)(J) to the Act to establish the Medicare post-acute-care transfer policy, and CMS implemented regulations at 42 CFR §§ 412.4(c), (d), and (f).

The intent of this policy is to avoid providing an incentive for a hospital to transfer a beneficiary to a post-acute-care setting early (before treatment of the beneficiary’s acute condition is stabilized) to minimize its costs while still receiving the full MS-DRG payment. CMS adjusts the payment to the hospital to approximate the reduced cost for a beneficiary who was transferred to a post-acute-care setting.

Under the post-acute-care transfer policy, a transfer occurs when a beneficiary whose hospital stay was classified within specified MS-DRGs is discharged from an acute-care hospital describer below:

  • The beneficiary receives home health services from an HHA, the services are related to the condition or diagnosis for which the beneficiary received inpatient hospital services, and the services are provided within 3 days of the date that the beneficiary was discharged from the hospital.
  • The beneficiary is admitted on the same day to a SNF.
  • The beneficiary is admitted on the same day to a hospital or distinct-part hospital unit that is not reimbursed under the IPPS. These non-IPPS providers include LTCHs, IRFs, IPFs, cancer hospitals, and children’s hospitals.
  • The beneficiary is admitted on the same day to a hospice.

Payments to Acute-Care Hospitals for Transfers to Post-Acute Care and the Use of Patient Discharge Status Codes

Medicare makes the full MS-DRG payment to an acute-care hospital that discharges an inpatient to home or certain types of healthcare institutions, such as facilities that provide custodial care.

In contrast, Medicare pays an acute-care hospital that transfers a beneficiary to post-acute care a per diem rate for each day of the beneficiary’s stay in the hospital. The total per diem payment is intended to be payment in full to cover the inpatient costs of the beneficiary stay.

The total per diem payment cannot exceed the full MS-DRG payment that would have been made if the beneficiary had been discharged to home. Therefore, the full MS-DRG payment is either higher than or equal to the per diem payment depending on the beneficiary’s length of stay in the hospital. Whether Medicare pays for a discharge or a transfer depends on the patient discharge status code assigned by the hospital (42 CFR § 412.4(f)).

CMS requires acute-care hospitals to include a patient discharge status code on all inpatient claims to identify a beneficiary’s status after being discharged from the hospital. When a beneficiary is transferred to a setting subject to the post-acute-care transfer policy, the discharge status code used depends on the type of post-acute-care setting. For example, when a beneficiary is transferred to a SNF, discharge status code 03 should be used.

If an acute-care hospital submits a bill based on its belief that it is discharging a beneficiary to home or another setting that is not included in the post-acute-care transfer policy but subsequently learns that post-acute care was provided, the hospital should submit an adjusted bill.