On Friday, October 6, 2023, OIG announced the results of an audit performed on the Medicare Part A hospital transfer policy for discharges to post-acute care (PAC). The hospital transfer policy, which was established in 1998, reduces hospital payments for discharges from hospitals to PAC settings that are made sooner than a Medicare-established average length of stay.

The audit was motivated in part by a 2022 report of the Trustees of the Part A Hospital Insurance Trust Fund that projected a Medicare Part A deficit of $7.3 billion, and the objective of the audit was to determine whether changes in the hospital PAC policy would affect that projected deficit if CMS were to expand the PAC transfer policy to cover all Medicare Severity Diagnosis Related Groups (MS-DRGs).

In performing the audit, OIG reviewed a sample of 100 random acute-hospital inpatient claims for Medicare enrollees from 2017 through 2019 that were billed with MS-DRGs not currently subject to CMS’s transfer policy for PAC discharges. Using those sample inpatient claims, OIG then calculated the savings that Medicare would have realized had the transfer policy been applied to those claims. OIG also compared the reduced payments that would have been made under the expanded transfer policy to the hospitals’ costs of providing care.

OIG found that expanding the PAC transfer policy would result in significant savings to Medicare. Of the 100 sample claims, 99 would have yielded cost savings as compared with current policy, for a net Medicare savings of $1 million. On the basis of this sample, OIG estimated that Medicare could have saved approximately $694 million, or an average of $6,407 per claim, had the expanded PAC discharge policy been in effect from 2017 through 2019. OIG also estimated that, although this policy change would result in reduced revenue to hospitals, the transfer payments would nevertheless exceed hospital costs for an estimated 65 percent of all hospital claims submitted to Medicare.

Based on this audit, OIG has recommended that CMS conduct its own analysis of the transfer payment policy for discharges to PAC and expand the policy as necessary. In written comments to the draft OIG report, CMS did not state whether it concurred with OIG’s recommendation but said that it will examine the data and potentially identify additional MS-DRGs to which to apply the policy in future rulemaking.

OIG’s announcement of the audit results can be found here. The complete audit report can be found here.