Can Hospitals Enable DRG Recovery?

DRG Recovery
Will your hospital be able to enjoy DRG recovery for related underpayments?

The DRG system (Diagnosis-Related Group) is over 30 years old and hospitals still struggle with the fixed dollar amount allotted for patients covered only by Medicare. The rest of the challenge is understanding changes to the program dealing with reviews and audits, and understanding how transfer DRG regulations work when patients are transferred to other providers to continue treatment. And millions of dollars are at stake.

Why DRG Related Losses Occur: Harvard Business Review published an article recently about how hospitals can handle financial losses from medicare patients. The editors observe that “roughly one-third of Medicare patients enroll in Medicare Advantage, in which private health plans pay hospitals for their services. For the remaining “regular” Medicare patients (roughly 37 million people), hospitals are paid a fixed amount of money for each hospital admission under the 32-year-old Diagnosis-Related Group (DRG) system, and for each hospital outpatient encounter under the Ambulatory Patient Classification (APC) system, established in 2000.” That leaves two thirds of a hospital’s Medicare patients, on average, being paid via a capped pool of money allocated to the hospital. Capped. That’s the part where hospitals struggle.

“If hospitals do not aggressively manage the cost of caring for Medicare patients against these fixed payments, losses result. Medicare’s legacy payment system places a premium on controlling labor and supply expenses and eliminating wasted or low-value imaging procedures and laboratory tests as well as minimizing operating-room time, intensive-care stays, and a host of other expensive services.”

This struggle was set up decades ago when the DRG system designers determined that this would be a way to prevent the collapse of the Medicare program. As the program evolves, new measures are added and this in turn keeps hospital teams scrambling to maintain compliance for best levels of revenue recovery. Sometimes it is tough to keep up with review status for hospitals.

 JDSupra has a recent article reporting that, “Effective May 8, 2019, CMS temporarily suspended Beneficiary and Family Centered Care Quality Improvement Organization (BFCC-QIO) Short Stay reviews and Higher Weighted Diagnosis-Related Group (HWDRG) reviews.” We were interested in that since we help our hospital clients with both DRG validation efforts focusing on best coding practices, and also Transfer DRG, where hospitals are paid under the Medicare Post-Acute Transfer (PACT) rules, which reduce payments for hospitals that transfer patients to other providers to continue treatment. The article also mentioned that the contracts would be awarded later in the year, so we checked and found out that in June of this year it was decided that BFCC-QIO KEPRO would continue review and appeal services mostly for western US states, and BFCC-QIO Livanta would do the same for eastern states.

RELATED:  “Key OIG Findings about Hospital Post-Acute-Care Transfer Policy Overpayments:  The OIG’s August 2020 report found that Medicare overpaid acute-care hospitals more than $267 million as it relates to the PACT policy. The audit findings indicated that where a patient was being seen by Home Care prior to entering the Hospital and then resumed Home Care upon discharge, the Hospital failed to properly code the Discharge status to 6 (Discharge to Home Care) or 6 with a Condition Code 42 (Discharge to Home Care Not Related to the Hospital Stay). “ From an article by Cloudmed’s Jim Collins with solution recommendations 

As usual, the government throws out a lot of acronyms to reference its programs. The short take on the programs mentioned in JDSupra is that after you deal with reviews and appeals for short stays with one of the two BFCC-QIO companies, you then must get in line for best revenue recovery under PACT rules when you transfer your patient to continuing care providers following transfer DRG best practices. We’ve written before about DRG Validation, so we’ll take a look at transfer DRG situations here. 

How is your hospital poised for DRG Recovery?

Becker’s Hospital Review posed the question, “Think you are covered with Transfer DRGs (TDRG)?” in an article which observes that “Medicare and Medicaid underpaid hospitals $68.8 billion in 2016, according to the American Hospital Association.”

DRG Recovery… how much is underpaid? Specifically, the article states, “A staggering 52% of Medicare Discharges are codes as TDRGs and can average as much as $1500 in payment reductions for each inpatient account.” $1500 for each patient.  

Meanwhile, Revenue Cycle Advisor noted earlier this year that the Office of the Inspector General (OIG), another government body, is taking a hard look at post-acute transfer policy. They reported that this will be done in an audit, slated for this year, and is a follow up to a previous OIG review that found that Medicare made overpayments to hospitals that did not comply with its post-acute transfer policy. 

When you review the list of OIG findings relating to Medicare and Hospitals — it’s not a pretty picture for DRG recovery. Mixed among a variety of audits are a number of findings that Hospitals made unallowable claims. Specific to Post-Acute-Care Transfer Policy, the OIG earlier in November found that “Medicare Improperly Paid Acute-Care Hospitals $54.4 Million for Inpatient Claims.”

Their report found that, “Medicare improperly paid acute-care hospitals $54.4 million for 18,647 claims subject to the transfer policy. These hospitals improperly billed the claims by using the incorrect patient discharge status codes. Specifically, they coded these claims as discharges to home (16,599 claims) or to certain types of healthcare institutions (2,048 claims), such as facilities that provide custodial care, rather than as transfers to post-acute care. Of these claims, 83 percent were followed by claims for home health services, and 17 percent were followed by claims for services in other post-acute-care settings.”

And it looks like CMS agrees with the OIG findings. In the conclusion of the report we see, “We recommend that CMS direct the Medicare contractors to (1) recover the $54.4 million in identified overpayments, (2) identify any claims for transfers to post-acute care in which incorrect patient discharge status codes were used and direct the Medicare contractors to recover any overpayments after our audit period, and (3) ensure that the Medicare contractors are receiving the post-payment edit’s automatic notifications of improperly billed claims and are taking action by adjusting the original inpatient claims to initiate recovery of the overpayments. CMS concurred with all of our recommendations and provided information on actions that it planned to take to address our recommendations.”

It’s time to ask yourself two questions: Are you coding right for DRG validation; and are you also in compliance with best transfer DRG policies? The right answers and all the associated auditing, review, and appeal work could total hundreds of thousands of dollars in revenue recovery for your hospital and millions for larger systems.