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Medicare Could Save Millions by Implementing a Hospital Transfer Payment Policy for Early Discharges to Hospice Care

On the basis of our sample results, we estimated that Medicare could have saved $602.5 million for calendar years 2009 and 2010 by applying a hospital transfer payment policy for early discharges to hospice care. Medicare payments based on a per diem rate rather than a full payment for the sampled claims would have resulted in $380,000 in savings. Approximately 30 percent of all hospital discharges to hospice care were early discharges that would have received per diem payments rather than full payments under a hospital transfer payment policy. In addition, this transfer payment policy would not have caused a significant financial disadvantage for hospitals or disproportionately affected any hospital.

Medicare pays hospitals a per diem rate for early discharges when beneficiaries are transferred to another prospective payment system hospital or to postacute-care settings. This is based on the assumption that hospitals should not receive full payments for beneficiaries discharged early and then admitted for additional care in other clinical settings. Consistent with Medicare's existing transfer payment policies, we define an early discharge as being more than 1 day earlier than the Medicare-established geometric mean length of stay for an applicable diagnosis-related group.

We recommended that CMS change its regulations or pursue a legislative change, if necessary, to establish a hospital transfer payment policy for early discharges to hospice care. CMS stated that it would like to study our recommendation further.