Post-Acute Transfer Policy: How Often Has Your Hospital Been Underpaid?
March 2008 

In 1999, CMS (the Centers for Medicare & Medicaid Services) established rules that limited reimbursement on ten specific Medicare DRGs. For these DRGs, special rules were created for patients who were admitted to acute care hospitals, but transferred immediately following their hospitalization to post-acute facility—typically rehab hospital, skilled nursing facility, a long-term care hospital, or home care agency. This post-acute transfer policy limited reimbursement for early transfer patients. This meant that patients whose actual length of stay was less than the CMS-derived geometric mean length of stay received less than the full DRG payment.  

Overpayments and Underpayments: Who’s Responsible?

CMS monitors claims and identifies those DRGs that have been submitted with the wrong discharge disposition code which required hospitals to correct these errors. If a patient is designated with a disposition of “home”, but has a subsequent post-acute admission, CMS will identify the error and require correction. However, there are currently no edits or reviews for claims that had a disposition code of other than “home”. In other words, CMS edits for overpayments but not for underpayments, and unfortunately, the resulting system of checks and balances does not fully protect the interests of the hospital.

When there were only ten transfer DRGs, the financial impact of this policy was minimal; with the expansion of the number of transfer DRGs—from 29 in October 2005 to 273 in the current federal fiscal year—even a small error rate in these claims can result in significant lost reimbursement dollars. We encourage hospitals to analyze their documentation and coding to be sure paperwork accurately reflects the patient’s length of stay and whether the patient has been discharged or transferred to a post-acute care setting.