Review of Inpatient Rehabilitation Facilities' Compliance With Medicare's Transfer Regulation During Fiscal Years 2004 Through 2007

Inpatient rehabilitation facilities (IRF) did not always code claims in compliance with Medicare's transfer regulation. Pursuant to Medicare's transfer regulation, Medicare pays the full prospective payment to an IRF that discharges a beneficiary to home. In contrast, Medicare pays a lesser amount for a transfer case. Whether Medicare pays for a discharge to home or a transfer depends on the patient status code indicated on the IRF's claim. On April 1, 2007, in response to our prior recommendations, CMS implemented an edit in the Common Working File (CWF) to identify transfers improperly coded as discharges.

Of the 220 claims in our sample, 213 claims pertained to transfers to facilities that were subject to Medicare's transfer regulation but were improperly coded as discharges. These 213 claims resulted in overpayments of $1.2 million. Based on our sample results, we estimated that fiscal intermediaries overpaid $34 million to IRFs for the 4-year period that ended September 30, 2007. In addition, although the new CWF edit detected miscoded claims, fiscal intermediaries did not take appropriate action to adjust the claims and prevent incorrect payments.

We recommended that CMS (1) recover the $1.2 million in overpayments identified in our sample, (2) instruct fiscal intermediaries to review the remaining claims in our sampling frame and identify and recover additional overpayments estimated at $32.8 million, (3) instruct fiscal intermediaries to take appropriate action in response to future CWF edit alerts, (4) follow up with fiscal intermediaries to ensure that they took appropriate action in response to CWF edit alerts, and (5) consider reviewing claims paid after our audit period to identify any improperly coded transfers. CMS agreed with our recommendations and described the corrective actions that it planned to take.