Tackling HCFA’s transfer rule on acute care

Financial analysis required to minimize effect

By Frances J. Fowler, BS, MS, CHC

Harold L. Wagher, JD
Fowler Healthcare Affiliates

Health information management (HIM) professionals nationwide are beginning to feel the impact of the Balanced Budget Act (BBA) of 1997, which revamped the reimbursement for all post-acute services and created the most significant change in Medicare reimbursement since the prospective payment system (PPS) in 1983.

The BBA of 1997 created a shift from cost-based to prospective payment. Much of the provider’s attention has focused on the BBA’s impact on post-acute services. However, in 1998, acute care providers faced the impact of a new rule that penalizes acute providers if they discharge patients with selected diagnoses too early from acute care beds.

Known as the transfer rule, this is one of the most misunderstood provisions of the BBA of 1997. The confusion among hospitals as well as other post-acute care providers can result in patient management decisions with serious clinical and financial ramifications for the organization.

The American Hospital Association in Chicago estimates that the result of the transfer rule on hospitals will range from $410 million to $450 million. On an individual hospital basis, the impact can vary significantly based on the volume of patients with these diagnoses, the types of fast-track programs in place, and the current length of stay for these patients.

To ensure that the transfer rule has a minimal effect on patient care and costs, HIM professionals must be thoroughly familiar with all facets of the transfer rule, the DRGs affected, and the implications of early discharge of these patients.

When DRGs were implemented, the Health Care Financing Administration (HCFA) developed a transfer rule that applied to acute care patients. This rule applies when an acute care patient is transferred between two or more acute care hospitals and the diagnosis or DRG remains the same. As part of the rule, HCFA began to track the geometric mean length of stay (GMLOS) for the 485+ diagnostic related groups for acute care. These are measured at a national level and updated annually to reflect current practices, using a relatively straightforward methodology.

When an acute care facility discharges a patient to another acute care hospital before the GMLOS is reached, the patient is considered a transfer case. The transferring (first) hospital receives a reduced payment. It is based on a prorated share of the DRG that is calculated on a per diem basis by dividing the DRG payment by the GMLOS.

In recognition of higher costs incurred earlier in the stay, the per diem payment is doubled for the first day of the stay. The admitting hospital (the one receiving the transferred patient) receives a new, full DRG payment.

Under this transfer rule, hospitals received the full payment for the DRG regardless of the GMLOS when patients were discharged to any level of the post-acute continuum. This included skilled nursing inpatient rehabilitation units/hospitals, long-term acute care, home health care, or ambulatory care.

However, the new transfer rule applies to all discharges to post-acute services before the GMLOS, including:

    • PPS exempt units and hospitals — inpatient rehabilitation units and hospitals, long-term acute care hospitals, inpatient psychiatric units and hospitals, and children’s hospitals;
    • Medicare-certified skilled nursing facilities — long-term care and hospital-based;
    • swing beds;
    • home health services.

The DRGs cover a broad range including orthopedics, psychiatric (dementia), and catastrophic (tracheostomy). The 10 DRGs were chosen for their high volume of discharges to post-acute and their disproportionate use of post-acute.

The mean length of stay and the DRG payment are based on national data.

Of particular interest are the diagnoses reflecting joint replacement, fractures, and strokes. Over the past several years, hospitals have implemented fast track pathways for moving patients through the continuum of care.

In some cases, an average length of stay of 3.5 days is not uncommon for patients with joint replacements. Given the GMLOS of 5.9 days for this DRG, providers with these fast track programs will be impacted the most.

The payment methodology is similar to the existing transfer rule for seven out of the 10 DRGs, with a slight variation for DRGs 209, 210, and 211. These orthopedic procedure DRGs are paid at 50% of the DRG plus one per diem for day one of the stay, with 50% of the per diem for each remaining day of stay.

HCFA will use audits to determine if hospitals are in compliance. If the number of cases reported as discharges end up receiving post-acute care, HCFA will demand that the overpayment be returned. However, if HCFA finds a continued pattern of a hospital billing cases as discharges when the cases actually transferred received post-acute services, the hospitals will be investigated for fraudulent or abusive billing practices under the False Claims Act.

Develop your strategy

Unless an organization has a well-developed strategy for addressing the transfer rule, HIM professionals can expect to find themselves caught in a game of Ping-Pong as management tries to determine what to do next. Proactive development of a strategy is essential to the bottom line of the organization.

There is no one approach that is best for all providers. For some hospitals, the strategy for some of the 10 DRGs is to keep discharging to post-acute providers. For others, it is keeping patients for the full GMLOS. Which strategy is best depends on a number of variables: the hospital’s acute care costs for that DRG, the availability of acute care beds to accommodate a longer length of stay, labor costs for acute care vs. skilled or home health, the practice patterns in the community, the overall profitability of the acute care entity, and the impact of PPS on a specific post-acute service.

To ensure the right strategy that could potentially save hospitals significant dollars, finance departments must first analyze the incremental gains in revenue from managing the GMLOS vs. the lost opportunity to reduce costs associated with shorter stays. There may be a magic point at which it makes financial sense to discharge a patient before the GMLOS.

Moreover, the financial impact on the health system’s post-acute facilities also must be projected in light of longer acute care stays and the potential cost reductions in post-acute due to stronger patients.

In addition to defining the best strategy, HIM professionals must ensure that the right systems are in place to support the strategy. Most providers do not have systems in place to manage patients to the GMLOS or to ensure that all patients are managed for that length of stay.

Also, many of the systems can not accommodate the changing GMLOS for these DRGs.

Given the complexity of the issues, a real threat exists that providers with the GMLOS strategy will keep patients too long, thereby further depleting the bottom line for the organization. In addition, if patient lengths of stay in acute care are extended, the volume of patients for post-acute services could drop precipitously.

To assist the organization, HIM professionals need to ensure that the following systems are in place:

    • decision support system that identifies patients within the 10 DRG categories upon admission to the acute care facility;

    • decision support system that can update daily the patient’s average length of stay relative to the GMLOS;

    • decision support system that can cross-link the information collected and tie the financial pieces together;

    • method for updating the system based on the latest GMLOS for those diagnoses and a tracking system for adding new DRGs to the list when announced — the new data are usually released around Aug. 30 each year;

    • means for retrospective review to identify the number of patients who have been defined yet fall through the net;

    • tracking system specific for patients who are transferred to home health.

The transfer rule as it relates to home health is particularly onerous from a tracking perspective. It states that discharges home with home health inpatient services will be subject to the new transfer rule if the patient is discharged from the hospital with a written plan of care for home health services from a home health agency. Thus, the hospital will be aware at the time of discharge whether it will be reimbursed the full DRG or a reduced payment under the transfer rule.

However, if the patient subsequently receives home health services from any home health provider within a three-day window of discharge, the patient will be considered a transfer rather than a discharge, unless the hospital proves the discharge status.

Obvious questions arise as to how the hospital is to know when a discharged patient later receives home health services. HCFA will compare inpatient bills with home health service bills for care provided within three days after discharge. If home health services were provided during the post-discharge three-day window, the hospital will be notified and payment reduced unless the hospital provides documentation verifying the discharge status of the patient.

Act now

The transfer rule has added new work and dimensions to the role of HIM professionals. They must take the lead now to ensure that the plan of action for their hospital and health system is implemented on a case-by-case basis.

Moreover, HIM professionals must help position their organization for additional DRGs that could be added in the next few years. A sound strategy for addressing the impact of the transfer rule today will lay the foundation for the future as well.