Implementation of Medicare's Postacute Care Transfer Policy

EXECUTIVE SUMMARY:

This report points out that the Centers for Medicare & Medicaid Services (CMS) have no controls in place to prevent excessive payments to prospective payment system (PPS) hospitals for erroneously coded patient discharges that are followed by postacute care, such as care in a skilled nursing facility or by a home health agency. Medicare policy calls for inpatient payment rates to be reduced when PPS hospitals discharge beneficiaries in 10 specified diagnosis related groups (DRG) to such settings. However, we estimate, based on a statistical sample, that Medicare paid approximately $52.3 million nationwide in excessive DRG payments to PPS hospitals as a result of erroneously coded discharges. In addition to recovery of overpayments, we are recommending that HCFA, as a long-term remedy, establish edits in its Common Working File to compare beneficiary inpatient claims potentially subject to the postacute care policy with subsequent claims. This will allow potentially erroneous claims to be reviewed and appropriate adjustments to be made to the discharging hospital's inpatient claim.  CMS officials concurred with our findings and recommendations.