Hospital Compliance With Medicare's Postacute Care Transfer Policy During Fiscal Years 2003 Through 2005

In our nationwide review of hospital compliance with Medicare's postacute care transfer policy, we estimated that hospitals improperly coded 15,051 claims and that, as a result, Medicare overpaid $24.8 million to these hospitals for the 3-year period that ended September 30, 2005. Under the postacute care transfer policy, Medicare pays full prospective payments to hospitals that discharge inpatients to their homes. In contrast, for specified diagnosis-related groups, Medicare generally pays a lesser amount to hospitals that transfer inpatients to certain postacute care settings, such as skilled nursing facilities or home health care. Of the 150 claims in our sample, 92 claims totaling $137,000 were improperly coded as discharges to home rather than transfers to postacute care.

Most of the overpayments occurred because the Centers for Medicare and Medicaid Services (CMS) lacked adequate payment system controls before implementing a system edit on January 1, 2004, to detect transfers improperly coded as discharges to home. Although overpayments were significantly reduced after implementation of the edit, the edit did not detect 12 overpayments.

We recommended that CMS (1) instruct the fiscal intermediaries to recover $137,000 in overpayments identified in our sample, review the remaining claims in our sampling frame, and identify and recover additional overpayments estimated at $24.7 million and (2) determine why the system edit did not detect 12 overpayments and amend the edit as appropriate. CMS concurred with our recommendations.