Summary
Action: On May 4, 2005, the Centers for Medicare & Medicaid Services issued a proposed rule which would revise the criteria that are currently used to determine whether a DRG qualifies for inclusion in the postacute care transfer payment policy.
Impact: The proposed regulation would expand the application of the transfer payment policy from 30 DRGs to 223 DRGs.
Effective Date: If adopted as a final rule, the revised criteria would be applicable to discharges occurring on or after October 1, 2005. CMS will accept comments on the proposed rule until 5 p.m. on June 24, 2005.
On May 4, 2005, the Centers for Medicare & Medicaid Services ("CMS") published a proposed rule to revise the Medicare hospital inpatient prospective payment system ("IPPS"). The proposed rule includes a revision to the four criteria that are currently used to determine whether a DRG qualifies for inclusion in the postacute care transfer payment policy ("transfer payment policy"). CMS is accepting comments on the proposed rule until 5 p.m. on June 24, 2005.
Background
The Medicare regulations define a "discharge" under IPPS as when a hospital inpatient is formally released from the hospital or when a patient dies in the hospital after receiving inpatient hospital services. A discharge of a hospital inpatient is considered to be a "transfer" for Medicare payment purposes when the patient is discharged from one acute care hospital to another acute care hospital that is paid under IPPS. In addition, CMS deems a discharge of a hospital patient to be a "transfer" for Medicare payment purposes when the patient's discharge is assigned to one of the thirty qualifying diagnosis-related groups ("DRGs") described in 42 C.F.R. § 412.4(d) and the patient is discharged to one of the following: (1) a hospital or hospital unit that is not excluded from IPPS; (2) a skilled nursing facility ("SNF"); or (3) the patient's home when there is a written care plan for home health services, if the services relate to the condition or diagnosis for which the individual received inpatient hospital services, and those services begin within 3 days after the date of discharge.
CMS policy provides that in postacute care transfer situations, the transferring hospital is generally paid a graduated per diem rate for each day of the patient's stay, not to exceed the full DRG payment that would have been made if the patient had been discharged without being transferred. The per diem rate paid to a transferring hospital is calculated by dividing the full DRG payment by the geometric mean length of stay for the DRG, and the transferring hospital is paid twice the per diem amount for the first day of the admission.
The purpose of the IPPS transfer payment policy is to avoid providing an incentive for a hospital to transfer patients to another hospital early in the patient's stay in order to minimize costs while still receiving the full DRG payment, and to adjust the payments to approximate the reduced costs of transfer cases.
As initially enacted by Congress and implemented by CMS, the scope of the transfer payment policy was relatively narrow. Effective for discharges that occurred on or after October 1, 1998, Congress expanded the definition of "transfer" to include qualified discharges assigned to one of ten DRGs selected by CMS, to postacute care providers.
CMS expanded the transfer payment policy to include 29 DRGs for discharges on or after October 1, 2003. In the final IPPS rule for fiscal year 2004, CMS established the following criteria that a DRG must meet, for both of the two most recent years for which data are available, in order to be included under the transfer payment policy: (1) a geometric mean length of stay of at least three days; (2) at least 14,000 postacute transfer cases; (3) at least 10% of postacute transfers occurring before the geometric mean length of stay; and (4) for DRGs not already included in the policy, a decline in its geometric mean length of stay during the most recent five year period of at least 7%.
In the final IPPS rule for fiscal year 2005, CMS again expanded the transfer payment policy to include, for a period of two years, cases that were previously included in a DRG that has been split into two new DRGs when one or the other of the two new DRGs qualified for inclusion in the policy for both of the two previous years. As a result of these changes, 30 DRGs are currently subject to the transfer payment policy for discharges on or after October 1, 2004.
Proposed Revisions
In developing this proposed rule, CMS conducted an extensive analysis of MedPAR data for the fiscal years 2003 and 2004 to monitor the effects of the transfer payment policy. As a result of its analysis, CMS believes it is appropriate to consider major revisions to the criteria for including a DRG within the transfer payment policy. Therefore, CMS is considering substantial revisions to the four criteria that are currently used to determine whether a DRG qualifies for inclusion in the policy.
In the May 5, 2005 proposed rule, CMS stated that it is considering two options for revising the current criteria for the transfer payment policy. The first is to include all DRGs within the transfer payment policy. CMS stated that this option has the advantage of providing consistent treatment of all DRGs.
The second option being considered is to expand the application of the transfer payment policy by applying the policy to any DRG that meets the following criteria: (i) the DRG has at least 2,000 postacute care transfer cases; (ii) at least 20% of the cases in the DRG are discharged to postacute care; (iii) of the cases discharged to postacute care, at least 10% occur before the geometric mean length of stay for the DRG; (iv) the DRG has a geometric mean length of stay of at least 3.0 days; and (v) if the DRG is one of a paired set of DRGs based on the presence or absence of a comorbidity or complication, both paired DRGs are included if either one meets the first three criteria above.
This second option would expand the application of the transfer payment policy to 223 DRGs that have both a relatively high volume and a relatively high proportion of postacute care utilization. This second option would also avoid applying the transfer payment policy to DRGs with only a small number of cases transferred to a postacute care setting.
In the proposed rule, CMS formally proposed the adoption of the second option presented above. However, CMS is inviting comments on both options and on its analysis.
CMS believes that the adoption of the second option will result in a 1.1% decrease in payments to hospitals overall, with an estimated cost savings to the Medicare program of approximately $880 million for fiscal year 2006. Urban areas tend to have a greater concentration of postacute care facilities to which to transfer patients than rural areas and are, therefore, more likely to be impacted by the proposed rule.
Summary and Conclusion
CMS has proposed regulatory changes that would significantly expand the application of its transfer payment policy which would result in a substantial overall reduction in Medicare payments to hospitals for inpatient services. Therefore, hospitals should consider submitting comments on the proposed rule which may be submitted until 5:00 p.m. on June 24, 2005.
If you would like a copy of the proposed rule or would like to discuss the proposed expansion of the transfer payment policy, please contact Patrick LePine or Chris Rossman in our Detroit office, Mark Waxman in our Boston office, Kevin Egan or Fred Entin in our Chicago office, Jeff Bates or Denise Rodriguez in our Los Angeles office, Maria Gonzalez Knavel in our Milwaukee office, Rick Johns in our Orlando office, Bill Abalona in our Sacramento office, George Root or Diane Racicot in our San Diego office, Mike Scarano in our San Diego/Del Mar office, Judy Waltz in our San Francisco office, Gary Koch, M.D. in our Tampa office, Jacqueline Saue in our Washington, DC office, or the member of the firm who normally handles your legal matters.
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