OIG, CMS to target noncompliance with transfer policy as number of transfer DRGs increases

Healthcare Financial Management, June, 2005

In preparation for the expanded scope of the Medicare transfer DRG policy and heightened interest in compliance by CMS and the Office of Inspector General of the Department of Health and Human Resources, hospitals should audit their compliance with the policy, strengthen their compliance mechanisms, and be prepared to refund any overpayments requested by CMS.

Under the hospital inpatient prospective payment system proposed rule for FYo6, published in the May 4 Federal Register, CMS would expand the Medicare post-acute care transfer policy to 223 DRGs, thereby reducing program expenditures by $880 million in FY06. The agency estimates that the change will reduce program expenditures by $4 billion over five years. The public may comment on the proposed rule until June 24, 2005.

In addition to expanding the policy, the government is focusing on compliance with existing policy. An OIG draft final report released in May found that out of a sample of 400 hospital inpatient Medicare claims, 381 were coded improperly as discharges to home rather than transfers to post-acute care. Because some hospitals lacked the controls to ensure the accuracy of the discharge status codes, Medicare overpaid hospitals included in the investigation by more than $1 million. In total, OIG projected that overpayments cost the program a total of $72.4 million in FY01 and FY02, the time period covered in the OIG's nationwide review.

The report also noted that CMS did not have adequate payment system edits in place to prevent the overpayments. CMS stated that it would work on a strategy to identify and collect the remaining overpayments from hospitals. CMS intends to monitor hospitals with a high frequency of miscoded claims, and from there will issue further program instructions to ensure compliance with the recently expanded transfer policy.

To read the OIG's report, Review of Hospital Compliance with Medicare's Postacute Care Transfer Policy During Fiscal Years 2001 and 2002, go to www. oig.hhs.gov/oas/reports/region4/40403000.pdf.