OIG Report: Hospital Inpatient Claims & the Postacute Care Transfer Policy

on Tuesday, 10 June 2014. All News Items | Case Management | Coding | Billing

All Medicare discharges from acute Inpatient Prospective Payment System (IPPS) hospitals are not created equal. Specifically, hospitals must determine whether the patient was “discharged” or “transferred” from the hospital.

In May, the Office of Inspector General (OIG) released the report, Medicare Inappropriately Paid Hospitals’ Inpatient Claims Subject to the Postacute Care Transfer Policy.

This was not a new type of review for the OIG. In prior similar reviews, the OIG found issues and made the following recommendations to the Centers for Medicare and Medicaid Services (CMS):

  • Recommend that CMS provide hospitals education regarding the transfer policy
  • Require Medicare Administrative Contractors (MACs) to put edits in place to “prevent and detect postacute care transfers that are miscoded as discharges.”

In spite of prior OIG reviews and recommendations, the OIG once again found in more recent reviews that hospitals not complying with the policy received approximately $12.2 million in overpayments from Medicare contractors. In the May report, the OIG once again conducted a review with the objective of determining if appropriate payments were being made to hospitals by Medicare for claims subject to the postacute care transfer policy. Before examining the report findings, I believe it is important to first have a basic understanding of Medicare’s Postacute Transfer Policy.

Postacute Care Transfer (PACT) Policy Background

  • This policy was established by CMS effective October 1, 1998.
  • The purpose of this policy is to prevent Medicare from having to pay twice for the same care: once to the hospital as a MS-DRG payment and second to a postacute facility or level of care.
  • This policy distinguishes between beneficiary “discharges” and “transfers” from IPPS hospitals.
  • A discharge status code is required by CMS for all inpatient claims. This two-digit code determines whether Medicare pays for a “discharge” or a “transfer.”
  • Full Medicare Severity Diagnosis-Related Group (MS-DRG) payments are made for inpatient “discharges” to home or certain types of health care institutions.
  • A per diem rate is paid for each day of the stay for “transfers.” This amount is not to exceed the full MS-DRG payment made for discharges to home.
  • A “transfer” MS-DRG rate is paid for Medicare inpatients who have a qualifying DRG and one of the following discharge status codes assigned:

Discharge Disposition Codes Subject to the Postacute Transfer Policy


Discharged/Transferred to a Skilled Nursing Facility (SNF) with Medicare Certification in Anticipation of Skilled Care


Discharged/Transferred to a Designated Cancer Center of Children’s Hospital


Discharged/Transferred Home Under Care of Organized Home Health Service Organization in Anticipation of Covered Skilled Care


Discharged/Transferred to an Inpatient Rehabilitation Facility (IRF) including Rehabilitation Distinct Part Units of a Hospital


Discharged/Transferred to a Medicare Certified Long-term Care Hospital


Discharged/Transferred to a Psychiatric Hospital or Psychiatric Distinct Part Unit of a Hospital

(Source: MLN Matters Number: SE0801at: https://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/MLNMattersArticles/downloads/SE0801.pdf)

How CMS determines what DRGs will be Transfer DRG:

  • The DRG has a least 2,050 total postacute care transfer cases;
  • At least 5.5 percent of the cases in the DRG are discharged to postacute care prior to the geometric mean length of stay (LOS)for the DRG;
  • The DRG must have a geometric mean LOS greater than 3 days; and
  • If the DRG is a paired set based on the presence/absence of a comorbidity or complication, both paired DRGs are included if either one meets the first three criteria.

Again, the May OIG Report was conducted to determine if inpatient claims subject to the postacute care transfer policy were being appropriately paid by Medicare. The OIG reviewed Medicare beneficiary transfers to postacute care with dates of service from January 2009 through September 2012. Specific claims were identified through data analysis. Specific OIG findings and recommendations are as follows:

OIG Findings by the Numbers:

  • 6,635: The number of inappropriately paid claims by Medicare for claims subject to the postacute care transfer policy.
  • 91%: The percentage of inappropriately paid claims where the inpatient hospitalization was followed by claims for home health services.
  • $19,471,432: The amount Medicare overpaid to hospitals due to Common Working File (CWF) edits related to home health care, SNFs, and non-IPPS hospital not working properly.
  • $31.7 million: The approximate amount of money that Medicare could have saved over 4 years if it had had controls to ensure that the Common Working File (CWF) edits were working properly.

OIG Recommendations to CMS:

  • “Direct the Medicare contractors to recover the $19,471,432 in identified overpayments in accordance with CMS’s policies and procedures;
  • direct the Medicare contractors to identify any transfer claims on which the patient discharge status was coded incorrectly and recover any overpayments after our audit period;
  • correct the CWF edits and ensure that they are working properly; and
  • educate hospitals on the importance of reporting the correct patient discharge status codes on transfer claims, especially when home health services have been ordered.”

What the Hospital Needs to know:

“The Federal Register emphasizes that the hospital is responsible for coding the bill on the basis of its discharge plan for the patient. If the hospital subsequently determines that postacute care was provided, it is responsible for either coding the original bill as a transfer or submitting an adjusted claim.”

63 Fed. Reg. 40954, 40980 (July 31, 1998). See also MLN Matters Number: SE0408.

There were nochanges made to the Post-Acute payment policy for the current 2014 CMS Fiscal Year that goes from October 1, 2013 through September 30, 2014. A complete list of applicable DRGs can be found in Table 5 of the IPPS Final Rule.

Specific detail regarding the PACT policy can be found in the Code of Federal Regulations (CFR) Title 42: Public Health §412.4 Discharges and transfers.

Article by Beth Cobb

Beth Cobb, RN, BSN, ACM, CCDS, is the Manager of Clinical Services at Medical Management Plus, Inc. Beth has over twenty-three years of experience in healthcare including eleven years in Case Management at a large multi-facility health system. In her current position, Beth monitors, interprets and communicates current and upcoming Case Management / Clinical Documentation issues as they relate to specific entities concerning Medicare. You may contact Beth 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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