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HCFA’s transfer payment policy takes a bite out of hospitals’ bottom line
One year after the Health Care Financing Administration (HCFA) implemented its controversial transfer payment policy, some hospitals are compensating for lost revenues by inflating lengths of stay for the 10 affected diagnosis-related groups (DRGs).
Those hospitals are walking a fine line between good business practice and what federal investigators might construe as outright fraud against the Medicare system, says Deborah Hale, president of Administrative Consultant Services in Shawnee, OK. "When HCFA changed the transfer definition, it said that it would monitor hospitals’ response to this ruling," she says. "My interpretation is, if you deliberately start holding your patients longer to capture the full DRG — if you change your practice for financial reasons — then that might be considered an inappropriate practice." (See related story on DRG 014 fraud probe, p. 151.)
Until Oct. 1, 1998, a discharge from a prospective payment system (PPS) hospital was always paid at the full DRG rate unless the patient was transferred to another PPS hospital. Under the new rule, which affects 10 specific DRGs, HCFA pays hospitals "transfer payments" rather than full DRG payments for patients discharged to postacute care more than a day earlier than a national "geometric mean" length of stay defined by HCFA.
This means that hospitals with lengths of stay significantly lower than HCFA’s geometric mean are penalized with lower reimbursement than that received by hospitals with longer lengths of stay.
In a financial impact analysis completed before the rule took effect last year, the Congressional Budget Office estimated that the transfer payment policy would create overall hospital losses of around $100 million per year. Estimates from the American Hospital Association in Chicago range from $410 million to $450 million per year.
When it instituted the policy, the government claimed that the transfer payment rules were established to prevent the illegal practice of "double-dipping," which HCFA defines as "submitting duplicate payments for care provided during a patient’s episode of care." (See "Breaking the chain: How new Medicare changes threaten continuum of care," in Hospital Case Management, October 1998, p. 189.)
But some experts have interpreted the new rule as simply an attempt by HCFA to reduce the level of Medicare reimbursement being paid out for the 10 DRGs in question. "HCFA would rather pay a lesser amount to a skilled nursing facility than the per diem rate for the DRG," Hale says. "They would prefer to let hospital practice stay the way it is, with lengths of stay shorter than the geometric means, and pay the lesser amount." That’s why increasing LOS to achieve full DRG payment could be a risky proposition for hospitals.
But the potential dangers haven’t dissuaded everyone, Hale says. "I am aware of some hospitals deliberately holding their patients in these 10 DRGs longer than they did in the past," she says. "I know of one that miscalculated and is holding patients even two days longer than it would have to [to achieve the full DRG]. Others have determined that they will keep patients until they stay one day less than the geometric mean so they can capture the full DRG. I think that’s a risky decision."
At St. John’s Medical Center in Tulsa, OK, case managers aren’t keeping patients longer as a result of the transfer rule, but reducing LOS for the 10 affected DRGs hasn’t been a high priority, either, says Joyce George, RN, director of medical information management at St. John’s. "We definitely haven’t tried to push those patients hard," she says. "Some probably could have been transferred earlier, but I wouldn’t transfer them because of the new rule."
In general, the transfer rule hasn’t hit St. John’s too hard, largely because lengths of stay there were never particularly low for the DRGs in question. "A lot of hospitals were transferring their total joint patients at three days," George says. "We had really not gotten to that point. Our numbers were close to the geometric mean," George says. "Our goal became to make sure that we kept them to the geometric mean more or less, rather than shortening the length of stay. Because they already kind of fell in line, it wasn’t that much of a big deal. We just talked to the medical staff about it, told them why the rules were there and why we were doing what we were doing."
One reason the transfer rule hasn’t posed much of a problem at St. John’s is that for many of the affected DRGs, discharge planners have had difficulty discharging patients as quickly as they would like. "We try to get these patients into the level of care that’s appropriate for them, but sometimes those beds are just not available, so we have to leave them in acute care. We’ve never been really tight on those DRGs."
For other hospitals, the transfer payment policy has complicated the discharge planning process, especially when nursing homes aren’t on the same page as the hospital, Hale says. Indeed, some case managers have transferred patients to nursing homes as intermediate care patients, only to find later that the nursing home admitted the patient to a skilled bed. "The hospital didn’t know about it, and, consequently, they billed their discharge to intermediate care rather than skilled care, which is subject to the transfer definition." Such costly mix-ups have been "the biggest hassle" for many hospitals in dealing with the transfer rule, Hale says.
While patient placement hasn’t been a big problem at Elkhart (IN) General Hospital, the transfer payment policy has had some impact on the hospital’s bottom line, says Shelby Morse, RN, hospital director of case management at Elkhart. "Our finance department has analyzed some of the numbers, and it looks to be between $150,000 and $200,000 in lost revenue," with most of the losses due to DRG 209 (major joint limb reattachment procedures of lower extremity, or total joint replacement), she says.
Even so, case managers at Elkhart haven’t made any adjustments to compensate for the lost revenue. Indeed, lengths of stay for DRG 014 (specific cerebrovascular disorders except transient ischemic attack) have actually fallen by almost half a day since the transfer rule took effect. "Most of our stroke patients are going to inpatient rehabilitation here, so there’s still revenue," Morse says. "Even though we’re getting a smaller DRG payment, we’re still getting revenue. We’re not hanging around waiting and prolonging patients’ overall length of stay just to get one more day of DRG payment."
Good PR offsets financial losses
Similarly, although the hospital has lost money with regard to DRG 209, no changes have been made to Elkhart’s popular and successful total joint replacement program. "There’s a lot of positive public recognition of that program, as well as positive patient impact," Morse says. "We’re not going to change that, because we’re getting good PR from it. So even though there is some bottom-line impact, at this point it’s not affected us enough for us to really rethink the way we’re doing things." That could change, however, if HCFA decides to expand the number of DRGs included under the transfer rule, Morse notes.
Similarly, case managers at the University of Pennsylvania Medical Center in Philadelphia decided to make no adjustments regarding the transfer payment policy, despite lost revenue. "We have clinical pathways in which length of stay is shorter than the transfer rules’ length of stay," says Maryellen Reilly, MS, MT, director of clinical resource management and social work at the medical center. "But we felt that what we were doing was best practice, so we stayed with it, even though we knew it would impact reimbursement."
Hale suggests that the best approach for case managers eager to offset reimbursement losses due to the transfer payment policy is to focus their energy on reducing costs and lengths of stay for patients with complicated conditions. "Really focus on the complex patients who stay in the hospital eight, 10, or 12 days, and generate cost savings there rather than trying to save one day here or there for everyone else," she says.
For more information, contact:
Shelby Morse, RN, hospital director of case management, Elkhart General Hospital, 600 East Blvd., Elkhart, IN 46514. Telephone: (219) 294-2621.
Deborah Hale, president, Administrative Consul tant Services, P.O. Box 3368, Shawnee, OK 74802. Telephone: (405) 878-0118.
Maryellen Reilly, MS, MT, director of clinical resource management and social work, University of Pennsylvania Medical Center, 220 Blockley Hall, 420 Guardian Drive, Philadelphia, PA 19104-6021. Telephone: (215) 349-6021.
Joyce George, RN, director of medical information management, St. John’s Medical Center, 1923 S. Utica, Tulsa, OK 74104. Telephone: (918) 744-2481.