Transfers and Medicare Payment – Who Knew it Could Be So Complex?

Let me start this article by wishing a belated happy birthday to the Two-Midnight Rule. Yes, 10 years ago Sunday, on Oct. 1, 2013, the whole paradigm of how we determine who is an inpatient and who is an outpatient changed. Was this a successful effort? Well, if nothing else, it shut down the pot of gold that the Recovery Audit Contractors (RACs) found at the end of the short-stay inpatient-admission rainbow, and I don’t think anyone was sad about that.

But as I have reported over and over again, after those 10 years, we still are working with the Centers for Medicare & Medicaid Services (CMS) and the Quality Improvement Organization (QIO) to figure out who really should be admitted as an inpatient. Who knew healthcare could be so complicated?

Moving to another topic, transfers have been getting some attention recently, and I thought I would review a few of the rules. The first widespread myth is that inpatients can only transfer to another hospital if they need a higher level of care. That’s not correct. There are no rules on who can and cannot transfer. But what is regulated are two things: first, who pays for the transportation to the second hospital, and second, how much each hospital gets paid.

Starting with transportation, if the inpatient requires care not available at the hospital, then their transportation is billable under Part B by the ambulance company. Medicare understands that not every service is available at every hospital, so they would not expect the patient to pay. But note that this only covers transportation to the nearest facility that can provide the necessary care. If the patient wants to go to a more distant hospital, the ambulance should provide an Advance Beneficiary Notice (ABN) and charge the patient for the extra mileage. It is the responsibility of the ambulance company to present the ABN, but the hospital staff should be aware of the payment issues and inform the patient.

I also will admit that I have no idea how Medicare would know that the patient went to a more distant hospital and that the payment should be adjusted. Perhaps the ambulance company must declare that on their claim. But then again, if Hospital A calls for transportation to Hospital D, which is further away than Hospital B or C, is the ambulance company obligated to inquire if B or C can provide the necessary service when the patient requests facility D?  

If the patient is transferring for personal reasons, such as to be closer to home or where their doctor practices, the cost of transportation is not covered at all. Once again, the mechanism by which the ambulance company would know that information is beyond my knowledge base.

I will also note that if the patient is transported to another facility, be it a hospital or imaging center, or office, and then returns to continue their inpatient care, the first hospital not only is responsible for the cost of the care at that other facility, but also the transportation there and back. The hospital will place the charge for the transportation and the service on the inpatient claim as if they performed it and will get any additional revenue that may result from the charge.

Then comes the issue of payment to the hospitals. Now, let me start by noting that the same rules apply whether the transfer was necessary or not. Hospital payment is based on medical necessity for the care provided.

And let me also debunk the myth that the two hospitals “split the DRG.” That’s not how it works.

How does it work?

Hospital A will submit a claim for the services it provided with the diagnoses and procedures. The claim will indicate that the patient was transferred to another acute-care hospital by use of a specific discharge status code. That code tells the claims processing system that an adjustment to the payment may need to be made. How? First, there are specific Diagnosis-Related Groups (DRGs) that are subject to this transfer adjustment. Why not all DRGs? Only CMS knows.

If the DRG is one of those subject to adjustment, the next step is to look at the patient’s length of stay at the hospital – and then look at the geometric mean length of stay for that DRG in the CMS data. If the patient’s stay was more than one day shorter than that geometric mean length of stay (GMLOS), the hospital will be paid an adjusted lower amount. And that makes sense, since the patient was transferred before their hospital care was completed. If the length of stay was within one day or more than the GMLOS, they get the full DRG.

The accepting hospital then submits a claim for all the care they provided. That stay may have a different principal diagnosis, and will certainly have different billed procedures. They get the full payment for that DRG, with no reduction at all – unless, of course, they discharge the patient to another hospital or a skilled nursing facility (SNF) or home care. If that happens, then the same adjustment applies as for the first hospital.

How is the payment calculated?

That depends on the type of adjustment assigned by CMS. As a generalization, most medical DRGs that are subject to a transfer DRG adjustment will result in a payment calculated by taking the total DRG payment, dividing it by the GMLOS, rounded down to the nearest whole number, then calculating a “per-day” amount. For instance, a DRG with a GMLOS of 6.4 days and a payment of $30,000 will have a per-day amount of $5,000. The payment is then made with the first day paid at the per-day rate, multiplied by two, then each day with a single per-day amount. A transferred patient with a length of stay of four days will result in a payment for day 1 of $10,000, then $5,000 for days 2, 3, and 4, for a total of $25,000.

But there is also a subset of DRGs, most being surgical DRGs, that are subject to a “special” adjustment calculation. For this adjustment, the first-day payment is 50 percent of the total DRG payment and the remaining days are paid a per-day amount equal to half of the DRG divided by the GMLOS. For example, a DRG that pays $80,000 and has a GMLOS of nine days would pay $40,000 for day 1, then $6,666 per day up to day 7. Why a different method? Again, only CMS can say, but it seems logical that with surgical admissions, a large proportion of the costs are due to those incurred for the surgery, and not spread over the entirety of the stay.

What about the occasionally discussed tactic of not transferring a patient until they come within one day of the GMLOS, so you don’t get a payment reduction? Don’t you dare do that! You never make medical decisions based on money. If they need a transfer, you transfer them as soon as it can be arranged. If they want to transfer, you do it as soon as it can be arranged.

As I have said over and over again, always do what is right and let the money fall where it may.