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Vulnerabilities in Medicare's Interrupted-Stay Policy for Long-Term Care Hospitals


In 2010 and 2011, Medicare paid $10.3 billion to 449 long-term care hospitals (LTCHs) for services billed on behalf of approximately 254,000 beneficiaries. LTCHs are the most expensive post-acute care setting because they are intended to treat patients with complex medical conditions. Beneficiaries may leave an LTCH and return at a later date. The Medicare LTCH interrupted-stay policy is intended to save money by treating time spent at an LTCH before and after an interruption as a single stay, rather than considering the second portion of the LTCH stay to be a readmission and thus paying for two separate stays. However, LTCHs receive payment for a second stay if a beneficiary returns to the LTCH after a certain number of days (known as the fixed day period) or receives services from multiple facilities before returning.


We analyzed data from claims from 2010 and 2011 from LTCHs and from "intervening facilities"-i.e., facilities that treat patients during interruptions in their LTCH stays-to identify inappropriate payments for interrupted stays in LTCHs. Additionally, we identified LTCHs with a high number of readmissions immediately after the fixed-day period and after multiple short intervening-facility stays. We also identified co-located LTCHs-i.e., LTCHs located in the same building or on the same campus as another provider-that billed in 2010 and 2011 and determined whether they reported their co located status and whether they exceeded the 5-percent readmission threshold. (If the number of discharges and readmissions between an LTCH and a co-located provider exceeds 5 percent of the LTCH's total Medicare discharges to that provider during a cost-reporting period, all readmissions from the co located provider are to be paid for as interrupted stays, regardless of the number of days spent away from the LTCH.)


We identified several vulnerabilities in the LTCH interrupted-stay policy, including inappropriate payments, financial incentives to delay readmissions, and potential overpayments to co located LTCHs. Specifically, in 2010 and 2011, Medicare inappropriately paid $4.3 million to LTCHs and intervening facilities for interrupted stays. Additionally, 59 LTCHs had a high number of readmissions immediately after the fixed-day period and 24 LTCHs had a high number of readmissions following multiple short stays at intervening facilities. Medicare paid $12 million and $3.1 million, respectively, for these readmissions. While these readmissions may be appropriate, this raises concerns about whether financial incentives, rather than beneficiaries' medical conditions, may have influenced some LTCHs' readmission decisions. Further, the Centers for Medicare & Medicaid Services (CMS) did not know the co-located status of most LTCHs, preventing it from applying a payment adjustment to the 35 percent of co located LTCHs that exceeded the 5-percent readmissions threshold.


We recommend that CMS (1) review existing safeguards to determine whether additional action is needed to prevent future inappropriate payments for interrupted stays, (2) conduct additional analysis to determine the extent to which financial incentives influence LTCHs' readmission decisions, (3) develop a system to enforce the 5-percent readmission threshold, (4) take appropriate action regarding LTCHs exhibiting certain readmission patterns, and (5) take appropriate action on inappropriate payments and overpayments we identified. CMS concurred-contingent on receiving more information from OIG-with two of our recommendations and nonconcurred with three recommendations.