The document discusses the history and financial implications of transfer Diagnosis Related Group (DRG) payments under Medicare, which were introduced to prevent overpayments when patients are transferred to different care providers. It details the methodology for calculating payments and highlights issues surrounding underpayments and overpayments related to discharge statuses. The impact of the post-acute transfer rule results in a significant annual reduction in Medicare payments, affecting hospitals financially.

1. The history and impact of
Transfer DRG payments

2. What is a
Transfer DRG?
• The Centers for Medicare and
Medicaid Services (CMS) pays for
Medicare inpatient hospital care on
the basis of Diagnosis Related Groups
(DRGs). Certain DRGs (known as
Transfer DRGs) are paid under the
Medicare Post Acute Transfer rules,
which reduce payments for hospitals
that transfer patients to other
providers to continue treatment.

3. Transfer DRG Issue Background
• In the mid-1990’s, Medicare determined that when
certain patients were transferred from an acute
care facility to another provider’s care, the
transferring facility was being paid in full for
providing only part of the necessary care.
• Medicare began looking at certain patients and
their total cost of care

4. PACT
• The FFY 1997 Final Rule introduced the
Post Acute Transfer (PACT)
payment methodology effective
10/1/98.
• The policy applies to the Inpatient
Prospective Payment System (IPPS) and
Rehab PPS
The purpose of the policy is to prevent
Medicare from paying for the same care
twice.
• The hospital’s MS DRG payment
• A separate payment to the post-
acute provider of care

5. PACT Does Not Apply To…
• Certain Sole Community Hospitals
• Critical Access Hospitals
• Medicare Dependent Hospitals

6. Number of Transfer DRGs affected each year
2012-
2014
275 DRGs
2008-
2011
273 DRGs
2007
190 DRGs
2006
182 DRGs
2005
30 DRGs
1999
10 DRGs

7. Transfer DRG Calculations
• The majority of transfer payments
are calculated as follows:
• Hospital specific per diem is calculated for each
affected DRG based on the GMLOS
• First day of care is paid at double the per diem rate
• Subsequent days are paid at the per diem rate
• Total payment is not to exceed the DRG rate
• Special DRGs are reimbursed
differently:
• One half of full DRG rate for first day
• One half of the per diem rate for each subsequent
day
Majority of transfer payments
DRG Payment X (LOS + 1)
GMLOS
Special DRG payments
½ DRG Payment + ½ Per Diem Per Day as Above
In either case, payment
may not exceed the full
DRG payment

8. Discharge Status
• Status codes impacted by
the transfer rule:
• “03” – Skilled nursing facility
• “05” – Children’s/Cancer Hospital
• “06” – Home health agency
• “62” – Inpatient rehabilitation hospital
• “63” – Long term care hospital [LTAC]
• “65” - Psychiatric Hospital
• In some of cases impacted by the Transfer Rule, the care the patient
receives after discharge from the original acute care hospital doesn’t
correlate with the discharge status that was assigned, and the
hospital may be underpaid as a result.
The discharge status is the data
element that drives whether or
not a reduced payment is issued

9. Overpayments
• After the rule was changed to 30 DRGs in
2004, the OIG began to conduct audits
around discharge status.
• They discovered an inordinate amount of
discharge status errors that would impact
claims under the Medicare post acute
transfer rule.
• As a result, edits were established by CMS
to concurrently identify overpayments.
• If an overpayment is detected, payment is recouped
for the entire original bill (CWF Edit 7272)
• Hospitals must resubmit with the correct discharge
status even if all documentation indicates otherwise
(see MLN Matters article 3240)
85%The accuracy rate of
edits per OIG

10. Example of an overpayment edit
When overpayments are identified,
Medicare processes a claim adjustment,
for example:
• Discharged to home (“01”) full payment received
• Patient receives HHA care 2 days post discharge
• HHA submits claim, conflict with IP claim
• Medicare recoups original payment – CWF edit 7272

11. Underpayments
• Hospitals are left to their own means to
identify underpayments
• The FFY 1998 Final Rule was specific –
UNDERPAYMENTS WOULD NOT BE IDENTIFIED BY CMS
See “Why do Transfer DRG
underpayments occur?” for
additional detail about what can
cause underpayments

12. Impact of the Post Acute
Transfer Rule
• Overall reduction in Medicare payments
of approximately $4B per year
• Average impact of over $3,500 per
affected claim
• Transfer DRGs account for 41.6% of
all Medicare discharges
Based on 2009 MEDPAR data

13. Download Transfer DRGs: Approaches to Revenue
Recovery to continue reading about:
The financial impact of the Medicare Transfer Rule
Provider options for recovering Transfer DRG underpayments
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