What are Transfer DRGs and why do they exist?

Transfer DRGs are the outgrowth of the Balanced Budget Act of 1997. Studies conducted by CMS during the 1990's concluded that Medicare was being overcharged in some instances, when hospitals discharged patients to other Medicare facilities and both entities claimed full DRG reimbursement. So, out of 559 total DRGs at the time, CMS initially designated 10 as Transfer DRGs in FY99. When one Medicare facility transferred a patient from this group to another Medicare facility, each entity would get a pro-rated per diem not to exceed 100% of the DRG reimbursement amount. By 2004 there were 29 Transfer DRGs. By 2006 the classification expanded to 182. By early 2013, nearly all 749 DRGs are considered Transfer DRGs

Impact of expanded Transfer DRG classifications.

Revenue loss, as a result of this expansion of Transfer DRGs in 2013, will obviously vary greatly from hospital to hospital. In 2006, when Transfer DRGs grew from 29 to 182, the overall reduction in payments was about 0.9%*. The jump in Transfer DRG numbers in 2013 represents more than three times the impact felt in 2006. Fortunately, there are several things hospitals can do to mitigate much of this revenue loss.

The objective is to minimize transfers and maximize discharges.

Medicare's Post Acute Care Transfer (PACT) Policy reduces the payment to hospitals that transfer patients to certain post-acute care settings. Hospitals trigger the PACT policy when they report one of the six discharge status codes in conjunction with a Transfer DRG. These codes are:

(03) Medicare skilled nursing facility with Medicare certification in anticipation of skilled care

(05) Designated cancer center or children's hospital

(06) Home under care of organized home health service organization in anticipation of covered skilled care

(62) Inpatient rehabilitation facility, including distinct part unit of a hospital

(63) Long-term care hospital

(65) Psychiatric hospital or psychiatric unit of a hospital

"...49% of hospitals with underpayment determinations cited discharge disposition as a reason, according to the American Hospital Association's RACTrac survey results from the third quarter of 2011**."

Further, hospitals are leaving money on the table if they aren't going back and tracking patients after discharge, to make sure they were in fact, admitted to the other institutions. For example, a patient's family may decide they want to care for the patient rather than send him or her to a Skilled Nursing Facility. When this happens the transferring hospital is likely underpaid when it reports any discharge status code that triggers the PACT policy rather then the 01 code for "home" discharge.

Transfers to home health agencies also often yield underpayments because the PACT policy is triggered only when these services occur within three days of discharge and when they are related to the previous hospital's admission. When home health agencies don't begin service within three days of discharge, billers must assign code CC43, which also allows the hospital to receive the full DRG payment

Conclusions and Recommendations.

The expansion of Transfer DRGs will undoubtedly lessen DRG discharge payments to hospitals from this point going forward. Hospital Discharge Planners, already challenged by changing regulations and CMS requirements, will be pushed even harder now that almost all DRGs have "transfer" status. The key is tracking patients after they leave the hospital, to make sure they indeed check into a qualified treatment program within 3 days of release. If your organization lacks the resources to do this, you should consider using a consultant that specializes in this area. Specific recommendations are:

1. Protect yourself if you hire a consultant to handle Transfer DRG issues. You could easily pay more in fees than you receive in incremental savings. If the consultant works on a contingency basis, you can't lose, because the fee is tied to a percentage of savings achieved as the result of services.

2. Make sure your Transfer DRG consultant has the latest technology to identify opportunities. They will need special software that "bumps" patient files against various government databases to identify anomalies. The consultant will then need "detective" skills to confirm legitimate changes to discharge status and then make successful appeals to CMS

Quality Reimbursement Services, Inc. has been consulting hospitals on matters dealing with Medicare and Medicaid reimbursements since 1994. We work primarily on a contingency basis, requiring no up-front or maintenance charges for our services. We would be happy to meet with you, and review your circumstances to see if we may be of service.

* SMA Informatics/CaseMix Consulting, Dec. 2006

**, Feb. 2012