Home Health & Hospice Week

CMS proposes reducing hospitals' DRG payments when patients go to home care.

Your job of securing hospital referrals may get even more challenging this fall if a hospital payment proposal flies.

The Centers for Medicare & Medicaid Services wants to expand hospitals' post-acute transfer policy in a big way. That's the policy that pays hospitals a per diem amount, rather than the whole diagnosis related group (DRG) payment, if a patient receives home care services within three days of hospital discharge. The rule aims to keep hospitals from discharging patients too quickly and pocketing the profits.

Currently, the post-acute transfer policy applies to 30 DRGs. But in the fiscal year 2006 hospital inpatient PPS proposed rule, CMS says it wants to adjust the transfer policy criteria and increase the 30 DRGs affected to 223. The other 284 active DRGs either have very short lengths of stay anyway or have very few short-stay cases, CMS says in the proposed rule in the May 4 Federal Register.

And to add to hospitals' discharge worries, CMS told the HHS Office of Inspector General in an April report that it would monitor hospitals with a high number of claims adjusted due to early post-acute discharge. The OIG found that in 2001 and 2002, 381 of 400 claims sampled did not comply with transfer policy coding, and CMS has put in place automatic edits to catch the errors.

The drastic expansion of the DRGs subject to the post-acute transfer policy could have a big impact on home care providers and hospitals, predicts consultant Tom Boyd with Rohnert Park, CA-based Boyd & Nicholas. Hospital discharge planners may keep a closer eye on patients and check back to confirm that the patients have not sought post-acute care, Boyd says.

The trend of hospitals shedding their home health agencies may end too, if hospitals want to continue to discharge patients early but keep reimbursement in-house by directing patients to the hospital's own HHA, Boyd forecasts.

Hospitals Fighting the Expansion

Experts hope the effects from any possible DRG expansion remain limited. Many of the 223 DRGs wouldn't apply to patients who are appropriate for home care anyway, points out Alex Cacas with Peterschmidt & Associates in Albuquerque, NM.

Here's how it works: The way the post-acute transfer policy works may make an early discharge worth the price, especially for lucrative hip and knee replacement patients. For the affected DRGs, CMS divides the total payment for the DRG by the mean length of stay to arrive at a per diem payment rate. When hospitals discharge patients early to an HHA, skilled nursing facility or another hospital, they get paid the per diem rate instead of the full DRG amount. However, hospitals receive twice the per diem rate for the first day to make up for initial costs.

For three DRGs, hospitals receive a whole 50 percent of the DRG payment plus the single per diem for the first day - hip and knee procedure DRGs 209, 210 and 211. The proration kicks in only when the transfer occurs within three days of the hospital discharge and when the services relate to the condition or diagnosis for which the patient received inpatient hospital services.

Cacas' clients didn't notice a big change when CMS applied the transfer policy to the first 10 DRGs in 1999 or later when the policy expanded to 29 DRGs in 2003 and 30 DRGs last year.

Finalization of the expansion is far from assured. The heavy-hitting hospital trade groups are against the change, Cacas notes. And CMS indicates in the proposed rule that it is very open to receiving comments on the issue.

"I would be surprised to see the list expanded to 223," Boyd says. "A major increase will cause billing, policy and treatment issues ... and be a major headache given limited time to adapt and educate."

Keep an eye out: Regardless of the outcome, HHAs should follow this issue and be prepared for hospital reactions to an expansion, Cacas advises.

Marketing tip: Agencies should keep in contact with hospitals about what develops, advises Mike Ferris of Home Care Marketing Solutions in Chapel Hill, NC. "Hospitals will appreciate any way that an HHA can work with them to improve payments," Ferris says.

In the process of keeping the hospital informed, HHAs can emphasize their strengths - including reduction of rehospitalization rates - to the referral source, Ferris notes. 

Editor's Note: For more tips on using DRG changes as a hospital marketing opportunity, see Eli's HCW, Vol. XIII, No. 22. All current subscribers can obtain the archived newsletter via the Eli Online Subscription Service by logging in at www.elihealthcare.com. Don't have your OSS login and password?

Call customer service at 1-800-874-9180 to sign up for this free service.
 The hospital inpatient PPS rule is at www.access.gpo.gov/su_docs/fedreg/a050504c.html - the portion on the post-acute transfer policy is on pp. 23411 to 23434. The OIG report on the transfer policy is at http://oig.hhs.gov/oas/reports/region4/40403000.pdf.