Nationwide Review of Medicare Payments for Interrupted Stays at Inpatient Psychiatric Facilities for Calendar Years 2006 and 2007

Based on a sample of 100 claims, we estimated that Medicare fiscal intermediaries made $3.9 million in improper payments to inpatient psychiatric facilities (IPF) nationwide in calendar years 2006 and 2007 for claims on behalf of beneficiaries who had been discharged from another IPF within the prior 3 days. To discourage inappropriate discharges and readmissions to IPFs, CMS has established a 3-day policy for interrupted stays. An interrupted stay occurs when a beneficiary is discharged from an IPF and admitted to the same or a different IPF within 3 consecutive days. In such a case, the 'readmission' is considered a continuation of the initial stay. CMS provides an exception to the 3-day policy when the beneficiary is admitted to a different IPF within 3 days and the second IPF is unaware of the beneficiary's immediately preceding stay in the first IPF.

We recommended that CMS (1) instruct its fiscal intermediaries to recover $19,000 for the 75 sampled claims with payment errors; (2) review our information on the 20,605 unsampled claims for IPF interrupted stays, which had potential overpayments estimated at $3.8 million, and work with its fiscal intermediaries to recover any overpayments; (3) establish system edits to prevent and detect overpayments to IPFs that admitted beneficiaries from another IPF and did not bill the claim as part of an interrupted stay; (4) instruct its fiscal intermediaries to initiate the necessary system modifications to process and pay IPF interrupted stays correctly; (5) consider reviewing claims submitted after our review to identify any incorrectly paid claims; and (6) revise its billing instructions to address appropriate billing for the second part of interrupted stays involving two separate IPFs when the second IPF is aware of the preceding stay. CMS concurred with our recommendations.