Underpayments Continue With Transfer DRGs

Bill Phillips, for HealthLeaders Media , August 25, 2008

In 2004, the Centers for Medicare and Medicaid Services instituted a "one-way edit protocol" for transfer diagnosis-related groups. While CMS identifies and recovers any overpayments, it does not identify underpayments. CMS says "hospitals are responsible for researching their own claims, identifying underpayments, and correcting claims accordingly." Since 2004, PPS hospitals may still be underpaid for transfer DRGs—and may not know it.

On Oct. 1, 1998, 10 DRGs were identified as "likely to result in a transfer to a post-acute provider that might require a PPS payment adjustment through DRG pro-ration." Under MS-DRGs, transfer DRGs increased to 263 and now could be as much as 50% of total Medicare discharges.

Current CMS policy states that full payment will be made to the final discharging hospital, but the transferring hospital will be paid a graduated (pro-rated) rate for each day of the patient's stay, not to exceed the full DRG payment.

Hospital inpatients qualify as a "transfer" when a patient is discharged to:

  • A hospital or hospital unit that was excluded from PPS
  • A skilled nursing facility
  • The patient's home, where there was a written care plan for home health and the services began in a timely manner

When CMS added edits to detect discharges paid at full DRG rate that should have been pro-rated (paid at per-diem), CMS identified over-payments and made recoupment. Unfortunately, no edits were included for underpayments. Thus, hospitals may not know that an underpayment occurred.

Impact on PPS hospitals
As much as 20% of pro-rated transfer DRGs should have been paid at full DRG rate. With no assistance from CMS or their financial intermediary, PPS hospitals must research, review, and recover underpayments on their own—or risk being underpaid.

With the growth of transfer DRGs from 30 to 263 under MS-DRGs, the underpayment universe has quadrupled in just four years—from $600 million in FY 2004 to $4 billion in FY 2007. According to IMA Consulting, underpayment can be 10% to 20% of total of transfer DRG payments.

Recovering Underpayments
As transfer DRG recovery can be significant, PPS hospitals should consider the following:

  1. Review all paid Medicare (acute inpatient) claims with one of the respective transfer DRGs (190 for FY 2007 and 263 for FY 2008).
  2. Confirm post-discharge care actually provided and timeliness.
  3. Compute applicable underpayment.
  4. Correct claims to recover underpayments.

Deadlines for FFY 2007
For FFY 2007 (Oct. 1, 2006, through Sept. 30, 2007), corrected claims must be completed by Dec. 31, 2008. As it can take four months or longer to confirm, compute, and collect transfer DRG underpayments, PPS hospitals should start no later than by Sept. 1, 2008, to ensure FFY 2007 completion by Dec. 31, 2008.

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