Health Law Daily Wrap Up, ADMINISTRATION OF MEDICARE/MEDICAID PROGRAMS—OIG REPORTS: OIG report recommends expanded hospital transfer payment policy for early discharge of postacute care, (Oct 13, 2023)

By Jody Coultas, J.D.

The report found that Medicare could save millions if CMS implemented an expanded hospital transfer payment policy for early discharges to postacute care.

The Office of the Inspector General for the U.S. Department of Health and Human Services has recommended that CMS expand its hospital transfer payment policy in order to address the projected billion-dollar deficits facing Medicare Part A. The OIG audit was done to determine how the hospital transfer policy for discharges to postacute care (PAC) would financially affect Medicare and hospitals if CMS expanded the policy to include all Medicare Severity Diagnosis-Related Groups (MS-DRGs). The report estimated that Medicare could have saved approximately $694 million from 2017 through 2019 if it had expanded its hospital transfer policy to include all MS-DRGs (OIG Report, A-01-21-00504, October 11, 2023).

The hospital transfer policy reduces hospital payments for discharges from hospitals to PAC settings that are made sooner than an average stay. For certain MS-DRGs, Medicare pays transferring hospitals a graduated per diem rate when people enrolled in Medicare are discharged early to certain PAC settings, including inpatient rehabilitation facilities, long-term care hospitals, inpatient psychiatric hospitals, skilled nursing facilities, home care, and hospice care. In 2005, CMS established the current criteria it uses to determine which MS-DRGs qualify for PAC transfer payments, and applied the policy only to MS-DRGs that had a high prevalence of early discharges to PAC. Since 2005, CMS has not made any significant change to the criteria for determining which MS-DRGs qualify for PAC transfer payments.

In a 2022 report, the Trustees of the Part A Hospital Insurance Trust Fund projected a Medicare Part A deficit of $7.3 billion by 2028 and urged policymakers to take timely and effective action to address this projected deficit. The report stated that the sooner significant reforms were enacted, the more flexible and gradual the reforms could be.

The OIG audit reviewed a stratified random sample of 100 acute-care inpatient hospital claims for Medicare enrollees who were discharged early to PAC from 2017 through 2019. These claims were billed with specified MS-DRGs that are not subject to the hospital transfer policy for discharges to PAC. The audit calculated the savings that the Medicare program would have realized if the hospital transfer payment policy for discharges to PAC had been expanded to include all MS-DRGs. Also, the OIG compared the payments that would have been made under an expanded transfer policy with the hospitals’ calculated costs to provide care.

The report found that an expanded hospital transfer policy that includes all MS-DRGs for discharges to PAC would result in significant cost savings to the Medicare program, and Medicare transfer payments would exceed hospital-reported costs to provide care for most of the claims hospitals submit to Medicare. The audit found that out of the 100 acute-care inpatient hospital claims sampled, 99 could have had transfer payments that were based on a reduced per diem rate (rather than the full payment) that would have resulted in net Medicare cost savings of over $1 million. This amount represents the difference between the amount paid to a hospital under the current policy for discharges to PAC and the amount that would have been paid if the policy had been expanded to include MS-DRGs associated with our sampled claims.

The report noted that a policy change might negatively impact hospitals’ revenues, but the transfer payment would have exceeded hospital-reported costs for an estimated 65 percent of claims that hospitals billed to Medicare with MS-DRGs not subject to the transfer policy for enrollees who were discharged early to PAC. For the remaining 35 percent of claims, payments would not fully cover hospital-reported costs. Our sampled claims showed that this happens with MS-DRGs that are typically billed with exceptionally high hospital costs or claims that involve outlier payments.

In written comments, CMS did not explicitly state whether it concurred with the OIG recommendation but stated that it will examine the data relative to the current list of MS-DRGs that are subject to the policy to potentially assist in the identification of additional MS-DRGs for future rulemaking. CMS has not conducted an updated analysis of claims data since 2005, and does not have current data to support whether the policy should be expanded nor determine which MS-DRGs should be included if it is expanded.

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