Transfer provision costing millions, study confirms
Provision forces hospitals to operate efficiently
A government study says that although hospitals are losing money on the new transfer provision of the proposed prospective payment system (PPS), most hospitals are not circumventing the rule by compromising patient care or keeping patients longer than medically necessary.
The new transfer rule, which went into effect Oct. 1, 1998, affects Medicare patients in 10 diagnosis-related groups (DRGs) that were selected based on their high volume of discharges to postacute care, according to the Baltimore-based Health Care Financing Administration (HCFA). The Clinton administration placed a moratorium on expanding the number of DRGs affected by the rule until fiscal year 2003.
In its study, released in the May 5, 2000, Federal Register, HCFA says the provision resulted in an average profit of $1,180, with the average margin for DRG 483 (tracheotomy, the most expensive of the 10 DRGs) declining to $16,672 per case in fiscal year 1999. Before the change, profits ranged from $32,007 per case for DRG 483 to -$26 per case for DRG 211 (hip and femur procedures, the only one of the 10 DRGs with a negative profit margin before implementation of the policy). HCFA commissioned Waltham, MA-based Health Economics Research Inc. (HER) to conduct the study, which is intended to provide information to Congress and the general public. It does not include recommended policy changes.
The Chicago-based American Hospital Association (AHS) says the rule should be repealed because it unfairly penalizes hospitals with shorter-than-average lengths of stay (LOS) and will cost hospitals $1 billion in 1999 and 2000.
But Stuart Guterman, principal research associate at the Urban Institute in Washington, DC, and a former deputy director of the Medicare Payment Advisory Commission, says the provision is appropriate because Medicare payments for the 10 DRGs are now more in line with hospitals’ costs. Guterman says HER’s research proves the transfer provision hasn’t affected hospitals’ ability to make money. Adding the other, less profitable DRGs to the provision list likely would not have a great impact on hospitals, he maintains.
"We’ve already gotten the most bang for the buck," Guterman says. "In terms of policy, it makes sense to apply the provision to all DRGs. I don’t see the rationale of applying this policy to 10 DRGs and not to all of them."
Deborah Hale, president of Administrative Consultant Services in Shawnee, OK, disagrees. She says HCFA’s incentive in developing the rules in the first place was to encourage hospitals to operate more efficiently and effectively. "I think hospitals feel discouraged when, every time they respond to a government incentive to improve efficiency and effectiveness, the end result is payment reduction. That’s what they’ve done in the past every time we’ve responded. It’s like we’ve responded too well, so now we are going to be penalized."
Hospitals have taken their share of cuts and have become more resilient and efficient as a result, says Aileen Day, director of medical management at North Shore Medical Center in Lynn, MA. "The question is, How much can we survive in hospitals? How many decreases in reimbursement can we survive?’ I think that what we are seeing is that some places have not been able to survive some of these changes and have closed," she says.
Guterman, however, says the real issue is defining Medicare’s role. "Hospitals have been hurt because they are not making as much money as they used to on Medicare, and they were relying on Medicare profits to offset the losses on other services. They have pressure from HMOs, they have pressure from uncompensated care that they treat, and they were relying on Medicare payments to offset some of their losses."
For the 10 DRGs included in HCFA’s expanded transfer definition, a hospital receives less than the full DRG payment when a patient is discharged more than one day before the average length of stay for the DRG and is referred to a home health agency within three days of discharge from the hospital or is discharged to a rehabilitation or other PPS-exempt facility or skilled nursing facility. In the past, hospitals received the full Medicare DRG payment regardless of LOS. Payments for cases with shorter-than-average stays helped defray the costs of caring for patients with longer-than-average stays.
The DRGs included in the definition account for about 10% of all inpatient cases. Because of this impact, the AHA supports the Medicare Common Sense Hospital Payment Act, legislation that would repeal the transfer provision.
Not only does the provision penalize hospitals that have worked to reduce their LOS; it also restricts access to coordinated patient care, creates administrative problems, and puts hospitals at risk, according to a statement released by the AHA.
Switching from skilled nursing to swing beds
Hale says the losses have resulted in some hospitals being forced to close home health services or skilled nursing units. "It’s been kind of a combination of the change in the transfer definition and cuts in reimbursement with the RUG [Resource Utilization Group] payment for the skilled units. You put those two together, and a lot of hospitals are just not finding it feasible to continue their skilled units," she notes. "I’ve known several that had distinct-part skilled units that closed those and used their opportunity to have a swing bed service because the swing bed was exempt. A swing bed is still reimbursed at cost, and there is more of a financial incentive to do that.
"Whether that trend continues in the future may depend upon whether the transfer definition extends to swing beds and whether the RUG payment extends to swing beds. When that happens, then that possibility will be gone as well," Hale says.
While preliminary results of HER’s report show the new policy has not affected patient care, it also suggests there is some evidence, albeit inconclusive, that at least some hospitals are keeping patients in the 10 DRGs longer prior to transfer in order to capture the entire DRG.
The study compared the first two quarters of 1998 and 1999 and found that the mean LOS of short-stay postacute transfers was fairly constant prior to the change. After the change, the mean LOS of short-stay postacute transfers declined less than 0.5%.
However, the study found that the average LOS in cases not affected by the provision dropped 1.8%, while cases that were affected remained the same. "[HER] draws the conclusion that hospitals must be treating transfers differently, because the group affected by the provision would have been impacted the way the non-affected group was. There are a lot of reasons that could be true, and it could have nothing to do with hospital behavior," says Guterman. "You don’t know what the reasons are without spending a lot of money. But you can just observe what happened to these cases compared to other cases."
However, the comparison of short-stay postacute transfers relative to all short-stay cases determined that percentages fell from 59% in 1998 to 58% in 1999, which led HER to determine that "the policy change resulted in a moderate decline in the number of postacute care transfers paid for under the lower per diem methodology."
Hale says before the transfer definition was changed, hospitals had an incentive to move patients through the system as quickly as possible. "I think [after the rule change] maybe some of them intended to slow down and not push so hard and not be fraudulent. They actually just didn’t find the time to focus on that. They didn’t find the time to get the information to the discharge planners, for example. Often the discharge planners have no idea what DRG that patient is in, and they are not looking at it from the perspective of, How much money are we going to lose?’ They are actually looking at it from the perspective of, What is best for the patient?’
"Obviously, the change in transfer definition causes you to get less reimbursement," she says. "But for the most part, the hospitals that I’m aware of are just doing what is best for the patient and not looking at it from a financial perspective."
Day says although the provision is affecting her hospital financially, "We take care of the patient and the patient’s well-being. We try to have them go where they need to be to get the care that they need. But we are tracking [the transfers] more and it has affected the reimbursement."
On the positive side for hospitals, HCFA, and the transfer rule, HER concluded that hospitals are improving the accuracy of coding transfer cases.
In 1998, only 74% of transfer cases had discharge destination codes on the acute care hospital claim that were consistent with whether there was a postacute care claim for the case matching the date of discharge. Following implementation, the rate rose to 79%.
Accurate coding requires more follow-up
"I think hospitals did work a little harder to report discharge destination codes accurately, but it really puts a burden on the hospital to follow up to see if a patient received home health services within three days of discharge," Hale says. "Sometimes a patient refuses services in a hospital, so it is documented in the discharge plan that there’s no need. Then later the family calls the physician, and the person is not handling the situation as well as we’d thought. That puts the hospital in the position of having to call these patients to find out [how they are coping]. To me, that’s a lot of added regulatory burden, but that’s the extent to which hospitals were willing to go in order to demonstrate their intent to be compliant," Hale said.
To assess whether postacute care was being delayed, HER considered the number and percentage of cases admitted to either a hospital or distinct-part unit of a hospital excluded from the prospective payment system or to a SNF two or three days following the discharge, and the number and percentage of patients who received services from a home health agency four or five days after discharge from an acute care hospital.
The analysis found that home health referral on the fourth or fifth day following discharge fell from 17.5% to 16.5% between the two study periods. On the basis of these findings, HER says "these results do not support the contention that hospitals would circumvent the lower per diem payments by delaying the date of postacute care admission or visit."
The role of the hospital in the continuum of care has been changing over time as trends have shown patients being discharged earlier to skilled nursing facilities, home health facilities, and rehab hospitals, says Guterman. "There’s nothing wrong with that. It could reflect a more efficient way of treating patients.
"As soon as [a patient] is no longer in need of acute care, you get them out of the hospital and put them into a different setting," Guterman says. "It does mean that the cost of the hospital stay is changing, partially because the nature of the hospital stay is changing."
And as the nature of hospitals changes, so do the payment rules. "[Under the old rules] hospitals were getting the full DRG amount for cases they were transferring to another facility," Guterman says.
But, as Hale points out, because of hospitals’ financial woes, alternative levels of care are increasingly being provided within acute care facilities.
For more information, contact:
The American Hospital Association, Chicago. Telephone: (312) 422-3000.
Stuart Guterman, principal research associate, the Urban Institute, Washington, DC. Telephone: (202) 833-5561.
Deborah Hale, president, Administrative Consultant Services, Shawnee, OK. Telephone: (405) 878-0118.
Aileen Day, director of medical management, North Shore Medical Center, Lynn, MA. Telephone: (781) 581-9200.
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