Reimbursement under the hospital inpatient prospective payment system (IPPS) is reduced for certain cases that are transferred to other facilities for continuing care. These cases may include patients requiring treatment in facilities not available at the admitting hospital or those sent to another facility for post acute care.

Since the beginning of the IPPS, reimbursement for patients transferred to another short-term acute care hospital has been reduced on a per diem basis. Since FY99, adjustments also have been made for specific diagnosis-related groups (DRGs) where the patient was transferred to a post acute care setting. The number of effected DRGs rose from 10 in FY99 to 174 in FY07, and the number has risen to 273 in FY08 under the expanded MS-DRGs. In addition to these DRGs, a number of special-pay DRGs receive further reductions. There were 13 of these special-pay DRGs in FY06, and just 12 in FY07, but the number has climbed to 25 in FY08.

For the three types of effected transfers, reimbursement is reduced on a case if the covered days preceding the transfer are less than the published geometric mean length of stay (GMLOS) of the assigned DRG. Reimbursement is based on a per diem rate that is calculated as a hospital's normal reimbursement for the DRG divided by the GMLOS.

For transfers to another acute care hospital and for designated DRGs transferred to a post acute setting, the hospital receives double the per diem rate for the first day of stay plus the per diem rate for each subsequent day prior to the transfer. For special pay DRGs transferred to a post acute setting, the hospital receives the per diem rate for the first day plus one-half the per diem rate for each subsequent day prior to the transfer.

The difference between the normal DRG payment and the per diem payment is referred to as the transfer adjustment. An analysis of Centers for Medicare and Medicaid Services (CMS) data found that from FY07 to FY08, the number of cases receiving transfer adjustments declined (see exhibit), as did the average transfer adjustment amount for each of the three types of transfers (see exhibit

Based on the data, projections were further detailed to show the frequency of transfers by medical service and the percentage change in transfer adjustments from FY07 to FY08.

Changing regulations will likely result in patient reclassifications among medical services. The results of these reclassifications are shown in the table (see exhibit), which excludes some medical services with lower-volume Medicare utilization). The table further shows significant changes in the number of transfers for some medical services due to changing transfer thresholds associated with the new MS-DRGs.

Though the study findings do not point to any onerous changes in transfer payment under the IPPS regulations for FY08, it may be useful for hospitals to compare their own experiences with the approximately $4 billion in transfer adjustments projected for FY08. It also may be useful to compare utilization differences among medical services and the relative frequency of various types of transfers. The data further indicate the importance of ensuring that patients are coded accurately for MS-DRG assignment and that their discharge destinations are correct.

About the Study

Analysis is based on the FY06 MedPAR file that CMS used in promulgating the final regulations for FY08. This is a file of 100 percent of all Medicare fee-for-service claims representing discharges during the 12 months ending Sept. 30, 2006 and billed as of Feb. 28, 2007. Only short-term acute care hospitals were included in the analysis, and hospitals were excluded if they did not have sufficient data to project payment under the IPPS for the periods studied. More than 3,400 short-term acute care hospitals were included, representing more than $100 billion in IPPS payments per year.

IPPS payment was computed on a patient-by-patient basis under existing and new payment regulations for respective fiscal years. Each component of payment was included in calculating payment: the respective DRG definitions, relative weights, hospital blended rates, capital payments, outlier payments, DSH adjustments, IME adjustments, transfer adjustments, etc. No adjustments were made to the data to account for inflation among the periods.

For more information, please contact Paul Shoemaker at

Publication Date: Monday, September 01, 2008

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