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Recovery Audit Contractors (RACs) are on the scent of errors stemming from the post-acute care transfer (PACT) rule. It’s designed to reduce reimbursement when acute-care stays are cut short, but RACs may find as many underpayments as overpayments, experts say.



RACs are conducting automated reviews using the Medicare common working file, a giant database that holds the claims-processing history for all beneficiaries. The common working file is the key to validating claims for patients who were discharged to post-acute care. Hospitals, however, may not be taking advantage of it in their compliance monitoring.


“Incorrectly reporting the post-acute care discharge as ‘home’ is a compliance risk,” says Gloryanne Bryant, regional managing director of health information management for Kaiser Foundation Health Plan & Hospitals in Oakland, Calif. “However, compliance is not just overpayments but any payment that is paid incorrectly.”


The compliance risks of the PACT rule have grown with time as Congress has applied it to more MS-DRGs, Bryant says. The PACT rule dates back to the 1997 Balanced Budget Amendment, which changed the way Medicare reimburses hospitals for certain patients discharged to post-acute care. The rule affects patients who are assigned to certain MS-DRGs if they are sent to post-acute care after staying fewer days than the national average for those DRGs, which is known as the geometric mean length of stay (GMLOS). These patients are reclassified as transfers, and hospitals receive per-diem payments for their care.


Post-acute care is defined as home health services, skilled nursing care, and psychiatric and rehab facilities, and each is represented by a patient status code. In the beginning, Congress applied the PACT transfer policy to 10 DRGs, but it has been expanded to 273. Twenty-seven are considered “special-pay MS-DRGs” that qualify for a higher per-diem payment for the stay, she says.


“The PACT payment policy was based on the belief that it was inappropriate to pay the transferring hospital the full MS-DRG payment for less than the full course of treatment,” Bryant said at a webinar sponsored by RACMonitor.com.


CMS requires hospitals to use discharge disposition codes — also known as patient status codes — to indicate where patients go after leaving the hospital. Some of the most common codes are:


· 01: home

· 02: another acute-care hospital

· 03: skilled nursing facility (SNF)

· 06: home health agency services within three days of discharge

· 62: inpatient rehabilitation

· 63: long-term care hospital

· 65: psychiatric hospital


Under the PACT rule, Medicare pays hospitals twice the per-diem rate the first day of the hospital stay and the per-diem rate thereafter up to the full MS-DRG payment. There’s a boost for the 27 special-pay MS-DRGs because they are surgical. “There are huge upfront costs the first day the patient comes to surgery,” Bryant says. For day one, hospitals receive half the full MS-DRG payment plus the per-diem amount. On subsequent days, hospitals get half the per diem up to the full MS-DRG payment, she says.



Home Health Plans May Change


Medicare calculates per diems by dividing the MSDRG payment by the GMLOS for that MS-DRG. For example, payment for nutritional and miscellaneous metabolic disorders (MS-DRG 641) is $4,149.60 (assuming a hospital base rate of $6,000). The GMLOS is 2.9 days, so the per diem is $2,841.78 for the first day and $1,420.89 for the second day. If the patient’s hospital stay is within a day of the GMLOS, the per-diem payment more or less equals the MS-DRG payment.



The PACT rule is a longtime risk area because of the potential for overpayments, but now RACs have gotten in on the act. There is a lot of room for error, particularly with home health care and skilled nursing.


If patients are discharged from the hospital and the physician orders home health within three days, the PACT rule applies, and the hospital will be paid per diems (if the length of stay is less than the GMLOS). But sometimes things don’t go according to plan. Sometimes families decide to take care of their loved one after discharge. If that proves too overwhelming, the family calls the physician directly and asks for the home health order after the fact, Bryant says. The last thing on everyone’s mind is to notify the hospital that plans have changed; why would they? Meanwhile, the hospital has submitted a claim with a discharge disposition code of 01 and collected full MS-DRG reimbursement, which is a risk.


It’s easy enough for RACs to identify this overpayment. As soon as relevant claims are processed, the information is in the common working file. The RAC identifies patients who received home health services within three days of discharge from the hospital, and if the hospital was paid the full MS-DRG rate instead of a per diem, there has been an overpayment, Bryant says. It’s frustrating for hospitals because there’s no way they could have known that home health plans changed “without having exceptional communication lines internally and externally,” she says.


For example, a 70-year-old female is admitted to the hospital for cardiac valve surgery. Her children vow to take care of her, so she is discharged home. Medicare pays the hospital $26,880 (assuming a hospital base rate of $6,000) for MS-DRG 221 (cardiac valve surgery without complications or comorbidities) with a GMLOS of 4.48 days. But the kids can’t cope with their mother’s needs and ask the physician to order home health care. When the RAC looks in the common working file and sees that the hospital was paid the full freight for this patient despite the transfer to home health care, it recoups the difference between the MS-DRG payment and the per diems for the two days she is in acute care. The per diem is $4,700, except for the first day, when it’s $18,140 because surgical DRGs are paid at the special PACT rate.


Another compliance risk arises at nursing homes, says David Jupp, CEO of MCare Solutions in Houston. Patients may be discharged to custodial care in a nursing home, which doesn’t trigger the PACT policy. But on arrival, the nursing home may determine that the patient requires skilled nursing, which means per diems for the hospital, Jupp says. “The nursing home doesn’t call the hospital to say, ‘this patient needs skilled care,’ but they submit the claim for skilled care,” he says. “There’s a compliance risk if you use 04 [i.e., custodial care] and the patient ends up in skilled care because you may have been overpaid.”


His solution: Hospitals usually use a couple of nursing homes/SNFs and should capitalize on their desire to please referral sources. “Have SNF admitting nurses come to the hospital and look at the medical records and decide whether the patient will probably need skilled care,” Jupp says. “Then discharge planning people will put a note in the chart saying, ‘the patient will receive skilled care versus custodial’ so coders will have a better idea what will happen as opposed to a note from a physician saying, ‘transfer to skilled care.’”


Notwithstanding the overpayment fears, Jupp says underpayments are more likely with the PACT rule. Though hospitals consistently make discharge disposition coding errors — usually because they are not informed of changes in a patient’s post-acute care status— their Medicare administrative contractors figure it out and adjust the payment. The RAC has seized on this area only because of concerns raised by the HHS Office of Inspector General, Jupp says.


Underpayments are another story, says Jupp, who has worked with 200 hospitals on PACT issues. Patients get referred for home health or skilled nursing and don’t qualify, but the hospital never finds out, so it bills the patient as a transfer. In fact, his research shows that 1.2% of all discharges have a discharge disposition coding error, evenly split between SNF and home health. All the home health errors resulted in underpayments, Jupp says.


Life with RACs can get weird. One hospital received a $3,000 refund stemming from a RAC audit. The RAC insisted that the hospital was owed the money because a patient did not receive home health care after discharge from the hospital, even though the hospital billed the patient as a transfer with an 06 discharge disposition code. The hospital informed the RAC that it was not entitled to the refund because the patient did receive home health care — and the hospital had medical records to prove it. But the RAC refused to process a refund of the refund because there were no home health claims for that patient in the common working file. The hospital is still struggling with a solution, as it is certain the money belongs to Medicare, but the RAC insists it doesn’t.


Validating discharge disposition codes to improve PACT transfer policy compliance is not really that complicated, Bryant says, but it is time-consuming. The best bet is to use the common working file in your validation processes. It maintains all beneficiary claims data since 1989. “RACs are using the common working file to validate discharge disposition codes, and this is being done through automated reviews,” she says. The common working file shows patient movement among different levels of care. “This is a link for RACs into improper payment specific to discharge patient status codes.”



Medicare condition codes — which are required for discharges to home health care and SNFs — also play a role in PACT compliance, Bryant says. Hospitals are required to put condition code 42 on the UB billing form when home health or SNF services are not related to the inpatient hospital admission, she says. Hospitals must use condition code 43 when home health or SNF services are related to the inpatient admission (based on diagnosis codes) but don’t start within the three-day window after discharge. For example, if a patient’s hip fracture is related to his/her admission, but home health care doesn’t begin until four days after discharge, the hospital must report condition code 43 to ensure full MS-DRG payment, Bryant says. “It’s a little caveat people often don’t know about or gets missed in claims processing.”


About the Author


Nina Youngstrom has been writing The Report on Medicare Compliance since 1992 and has a reputation for being one of the most knowledgeable journalists and incisive writers in the field. With excellent contacts at the IG’s office and at CMS, and strong relationships among industry experts and line compliance officers, every week Nina’s Report on Medicare Compliance has inside news you won’t read anywhere else.


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