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Medicare and Beneficiaries Pay More for Preadmission Services at Affiliated Hospitals Than at Wholly Owned Settings


Medicare's diagnosis related group (DRG) window policy states that if a beneficiary is furnished outpatient hospital services and is admitted to the hospital shortly afterwards for the same condition, the outpatient services are considered part of the admission and included in the pre-set inpatient payment amount rather than resulting in separate payments for the outpatient services. Since 1990, this policy has covered all settings wholly owned or operated by the admitting hospital.

The DRG window policy does not apply to one common hospital ownership structure that is similar to wholly owned or operated settings: affiliated settings. Affiliated settings are health care settings that are owned by the same affiliated group. OIG found that in 2019, Medicare paid $168 million and beneficiaries paid approximately $77 million for 3.3 million admission-related outpatient services provided during the DRG-window-covered days at hospitals affiliated with the admitting hospitals. This total of $245 million for 2019 is more than 5 times the estimated $45 million that Medicare and beneficiaries paid for nearly 800,000 outpatient services related to inpatient admissions at affiliated hospitals when OIG examined this issue in 2011. Further, beneficiaries who received admission-related outpatient services at affiliated critical access hospitals paid particularly high amounts for those services-about six times as much as beneficiaries who received similar services at other affiliated hospitals. (Critical access hospitals are a type of small, rural hospital that Medicare reimburses based on the hospital's reasonable costs, which are typically higher than the rates set by prospective payment systems or fee schedules.)


Because the DRG window policy does not cover affiliated settings-despite the similarities of those settings to wholly owned settings-beneficiaries who receive admission-related outpatient services at affiliated hospitals must pay separately for those services. For some beneficiaries-including rural beneficiaries who receive services at critical access hospitals-the costs of these services can be burdensome, with per-beneficiary amounts running into hundreds or thousands of dollars in just a year.


We recommend that CMS evaluate the potential impact of updating the DRG window policy to include affiliated hospitals, and that it seek the necessary legislative authority to update the policy as appropriate. CMS neither concurred nor nonconcurred with our recommendation.