New RAC Issues and the Post-Acute Care Transfer Policy

on Monday, 28 August 2017. All News Items | Recovery Auditor | Medicare Coverage | Coding | Billing

Medicare Wants Their Money’s Worth

There is a lot of discussion around the country these days, and especially in our nation’s capital, about the best direction for healthcare.  Everyone would like to be able to provide the best quality care to the most people for the lowest cost, especially if the government is footing the bill.  Although there is a surfeit of new ideas recently, the government has always tried to control their cost.  For example, in 1984, Medicare began paying for hospital inpatient admissions using an Inpatient Prospective Payment System (IPPS).  Under IPPS, hospitals receive a predetermined rate per Medicare discharge that is “payment in full to the hospital for inpatient operating costs.”  Discharges are classified based on the patient’s diagnoses and procedures by Diagnosis Related Groups (DRGs).  Even under DRGs, Medicare wants to get their money’s worth.  If a patient stays fewer days than expected for a particular DRG and then transfers to another setting where care is continued, the transferring hospital may not receive full payment.  From Medicare’s perspective, they are paying another entity to continue care when the first entity did not provide care for the usual time frame (known as the geometric mean length of stay or GMLOS).  The transferring hospital provided a reduced course of treatment and does not deserve full payment.

This is known as Medicare’s Transfer Policy – it applies to transfers from an IPPS hospital to another hospital.  It also applies to transfers from an IPPS hospital to certain post-acute care settings for certain MS-DRGs, which is known as the Post-Acute Care Transfer Policy (PACT). Recently all four regions of the Medicare Parts A and B Recovery Audit Contractors (RACs) have posted a new issue related to the PACT policy.  Before we get into the details of the RAC audit issue, let’s review some basics of this policy.

Facts about the Post-Acute Care Transfer Policy:

  • PACT policy only applies to certain MS-DRGs. The list of DRGs to which the policy applies is updated annually as Table 5 of the IPPS Final Rule.
  • PACT policy only applies when the patient is transferred to certain post-acute care settings:
    • Inpatient rehab facilities and units (discharge status code 63)
    • Long term care hospitals (code 62)
    • Psychiatric hospitals and units (code 65)
    • Children’s and Cancer hospitals (code 05)
    • Skilled nursing facilities (code 03)
    • Home with a home health plan of care that begins within 3 days (code 06)
  • Medicare identifies transfers to the affected settings by the discharge status code on the claim. If Medicare receives a claim from a post-acute care provider for days immediately after discharge, they will ask the transferring hospital to adjust their discharge status code if needed.
  • Payment is reduced to the transferring hospital. A per diem rate is calculated by dividing the MS-DRG rate by the GMLOS. The transferring hospital is paid 2 x the per diem rate for the first day and the per diem rate for subsequent days up to the full MS-DRG payment.
  • There are special pay MS-DRGs (also noted in Table 5) that are paid differently, with a higher payment percentage for the first day of hospitalization.
  • Transfer cases are eligible for outlier payments.

The new issue approved for all four RAC regions at the first of August is “Inpatient Hospital Validation of Condition Code 42.”  If a patient is discharged to home for the provision of home health services (discharge status code 06), but the continuing care is not related to the condition or diagnosis for which the individual received hospital inpatient services, the provider should append Condition Code 42 – Continuing care not related (i.e. condition or diagnosis) to inpatient admission, – as appropriate, to the claim.  Condition code 42 will allow the transferring hospital to receive full MS-DRG payment, even in cases where the post-acute care transfer policy would normally apply.  The RACs are reviewing this issue because, according to their postings, “IPPS hospitals are incorrectly billing condition code 42 on claims with discharge status code 06.”  When that happens, it could easily result in an overpayment to the hospital.

In other RAC updates since last month, Cotiviti added the complex review of Vagus Nerve Stimulation for outpatient hospitals and Ambulatory Surgical Centers.  This issue was previously posted for Performant Region 1 and HMS Region 4; Cotiviti added it for both Regions 2 and 3.  Affected CPT codes are 64568 and 64569.  Vagus Nerve Stimulation is only covered for patients with medically refractory partial onset seizures for whom surgery is not recommended or for whom surgery has failed. It is not medically necessary for resistant depression or for other medically refractory seizure disorders where surgery is not recommended or has failed.  See NCD 160.18 and associated Claim Processing Manual  (Chapter 32, Section 200) instructions for complete coverage, coding and billing requirements. 

Performant launched their new enhanced website at the end of July.  It contains the same content as before but Performant believes the new look and feel will make it easier to locate information.  The new website is

Hospitals need to make sure their billing and coding processes related to the Post-Acute Care Transfer Policy are accurate.  Correct assignment of discharge status codes and correct usage of condition codes are two key elements to ensure Medicare gets their money’s worth.

Article by Debbie Rubio

Debbie Rubio, BS, MT (ASCP), is the Manager of Regulatory Affairs and Compliance at Medical Management Plus, Inc.  Debbie has over twenty-seven years of experience in healthcare including nine years as the Clinical Compliance Coordinator at a large multi-facility health system.  In her current position, Debbie monitors, interprets and communicates current and upcoming regulatory and compliance issues as they relate to specific entities concerning Medicare and other payers.  You may contact Debbie at This email address is being protected from spambots. You need JavaScript enabled to view it..

This material was compiled to share information.  MMP, Inc. is not offering legal advice.  Every reasonable effort has been taken to ensure the information is accurate and useful.

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