Proposed inpatient PPS rule includes new transfer DRGs - prospective payment system; diagnosis related groups

Healthcare Financial Management, July, 1998

On May 8, HCFA published a proposed rule that would update Medicare's prospective payment system (PPS) for inpatient services for FY99. The rule would change the amounts and factors required to determine prospective payment rates for operating and capital-related costs of Medicare hospital inpatient services, and would incorporates mandates from the Balanced Budget Act of 1997. Some incorrect rates that were published in the May 8 notice were corrected in a subsequent notice published in the May 13 Federal Register.

One major Balanced Budget Act provision to be implemented in the proposed rules is a change in hospital reimbursement for patients moved from a PPS hospital to a PPS-excluded hospital or distinct unit. Currently, when such moves occur, patients are classified as discharges and the discharging facility receives the full PPS payment, regardless of the patients' length of stay. Effective October 1, 1998, however, the Balanced Budget Act requires that patients moved to a PPS-excluded hospital or distinct unit be considered transfers rather than discharges if their hospital stays are classified in one of 10 DRGs, which were selected because they exhibit high percentages of discharges to postacute settings:

* DRG 14 - Specific Cerebrovascular Disorders, Except Transient Ischemic Attack

* DRG 113 - Amputation for Circulatory System Disorders, Excluding Upper Limb and Toe

* DRG 209 - Major Joint Limb Reattachment Procedures of Lower Extremity

* DRG. 210 - Hip and Femur Procedures, Except Major Joint, Age [greater than] 17 with CC

* DRG 211 - Hip and Femur Procedures, Except Major Joint, Age [greater than] 17 without CC

* DRG 236 - Fractures of Hip and Pelvis

* DRG 263 - Skin Graft and/or Debridement for Skin Ulcer or Cellulitis with CC

* DRG 264 - Skin Graft and/or Debridement for Skin Ulcer or Cellulitis without CC

* DRG 429 - Organic Disturbances and Mental Retardation

* DRG 483 - Tracheostomy, Except for Face, Mouth, and Neck Diagnoses

HCFA also would consider a patient to be transferred if he or she is admitted to a skilled nursing facility (SNF) or leaves the hospital with a written plan of care calling for home healthcare services to begin within a specified period of time. Payment to the transferring facility would be based on per-diem amounts calculated by the patient's geometric mean length of stay. The payment methodology used to calculate reimbursement for transfer cases varies depending on the DRG.

In the proposed rule, HCFA made two important interpretations of the Balanced Budget Act. First, HCFA determined that moving a patient to a hospital swing-bed (as well as to a SNF) also would trigger the transfer payment. Second, the agency established a three-day window for classifying patients as transfers when they leave the hospital and begin home healthcare services. HCFA stated that three days should give hospitals time to fully determine the status of patients when they are discharged and, thus, hospitals "could be held responsible for correctly coding the discharge as a transfer." If the patient's bill is coded incorrectly, HCFA will notify the hospital and adjust its payment. However, hospitals that continue to bill for a discharge when a patient is receiving home healthcare services within the three-day window may be investigated for fraudulent or abusive billing practices.

The proposed PPS updates are effective for Medicare discharges occurring on or after October 1, 1998. The proposed rules were published in the May 8 Federal Register. Comments are due by July 7. For PPS operating rates and complete highlights of the proposed rule, call Fax-It at (800) 839-HFMA and request document 400034.