U.S. Department of Health and Human Services 
Office of Inspector General 
 
 
Issue Brief 
 
D  ecember 2021, OEI-05-19-00380 
 
Medicare and Beneficiaries Pay More for Preadmission Services at 
Affiliated Hospitals Than at Wholly Owned Settings 
The Issue and Its Impact 
Key Results 
Medicares DRG window policy states that if a beneficiary is furnished 
Medicares DRG window policy  outpatient hospital services and is admitted to the hospital shortly 
defines when certain outpatient   afterward for the same condition, the outpatient services are considered 
services are covered by the  part of the admission and are included in the pre-set inpatient payment 
diagnosis-related group (DRG)  amount, rather than resulting in separate payments for the outpatient 
payment for inpatient  services.    services.  Since 1990, this policy has covered all settings wholly owned 
Congress has previously  or operated by the admitting hospital. 
expanded the DRG window policy 
to cover settings wholly owned  The DRG window policy does not apply to one common hospital 
by the admitting hospital.   ownership structure that is similar to wholly owned or operated 
However, it  has not yet expanded  settings: affiliated settings.  Affiliated settings are health care settings
the policy to cover affiliated   such as hospitalsthat are owned by the same affiliated group.  OIG 
settingsincluding hospitals  found that in 2019, Medicare paid $168 million and beneficiaries paid 
owned by the same groupeven  approximately $77 million for 3.3 million admission-related outpatient 
though affiliated settings are  services provided during the DRG-window-covered days at hospitals 
similar to  wholly owned settings  affiliated with the admitting hospitals.  This total of $245 million for 
in several key ways.  As  a result, in   2019 is more than 5 times the estimated $45 million that Medicare and 
2019 Medicare and beneficiaries  beneficiaries paid for nearly 800,000 outpatient services related to 
paid affiliated hospitals 
inpatient admissions at affiliated hospitals when OIG examined this 
approximately $168 million and 
issue in 2011.  Further, beneficiaries who received admission-related 
$77 million, respectively, for 
outpatient services at affiliated critical access hospitals paid particularly 
3.3 million admission-related 
high amounts for those servicesabout six times as much as 
outpatient services thatif they 
beneficiaries who received similar services at other affiliated hospitals.  
had been provided at wholly 
(Critical access hospitals are a type  of small, rural hospital that Medicare 
owned hospitalswould not have  
reimburses based on the  hospitals reasonable costs, which are typically 
required separate outpatient 
higher than the rates set by prospective payment systems or fee 
payments.  
schedules.) 
Why This Issue Is Important 
Because the DRG window policy does not cover affiliated settingsdespite the similarities of those settings 
to wholly owned settingsbeneficiaries who  receive admission-related outpatient services at affiliated 
hospitals must pay separately for those services.  For some beneficiariesincluding rural beneficiaries who 
receive services at critical access hospitalsthe costs of these services can be burdensome, with 
per-beneficiary amounts running into hundreds or thousands of dollars in just a year.  
What OIG Recommends and How the Agency Responded 
We recommend that CMS evaluate the potential impact of updating the DRG window policy to include 
affiliated hospitals, and that it seek the necessary legislative authority to update the policy as appropriate.  
CMS neither concurred nor nonconcurred with our recommendation. 
 
  BACKGROUND   
The DRG Window Policy 
In 1983, CMS introduced the Inpatient Prospective Payment System (IPPS).  Under this 
payment system, CMS pays hospitals a fixed sum for each inpatient admission.  This 
fixed sum, known as the Medicare Severity Diagnosis Related Groups (MS-DRG, 
abbreviated hereinafter as DRG) payment, represents all operating costs associated 
with the inpatient admission. These operating costs include services provided during 
the admissionsuch as nursing, radiology, and laboratory servicesas well as related 
outpatient services provided prior to the admission.1, 2 
The DRG window policy defines when CMS considers an outpatient service to be 
a part of a hospitals inpatient operating costs and therefore the service is covered by 
the inpatient payment rather than being paid for separately.3  Outpatient services are 
covered by the DRG window policy if they (1) are provided within the 3 days 
immediately preceding an inpatient admission to an acute-care hospital; (2) are 
diagnostic services or admission-related nondiagnostic services; and (3) are provided 
by the admitting hospital or by an entity wholly owned or operated by the admitting 
hospital.a, 4  
Covered services 
CMS uses different methods to determine whether preadmission diagnostic or 
nondiagnostic services are covered by the DRG window.  CMS considers all diagnostic 
services (such as laboratory tests or imaging services) provided during the 3 days 
immediately preceding the admission, or on the date of the admission, to be part of 
the hospitals operating costs and therefore covered by the DRG window.5  CMS 
defines diagnostic services using specific revenue codes and Current Procedural 
Terminology (CPT) codes.6, 7  CMS also considers all nondiagnostic services (such as 
office visits or minor surgical procedures) provided during the 3 days immediately 
preceding the admission or on the date of the admission to be related to that 
admission and therefore covered by the DRG window, unless the hospital determines 
that the service is clinically unrelated to the admission and attests to this by adding 
the appropriate condition code to the claim for those outpatient services.8  
 
_____________________________________________________________________________________________________________________________ 
a Certain hospitals (including psychiatric hospitals, rehabilitation hospitals, and childrens hospitals) are 
subject to a DRG window of only 1 day.  Social Security Act  1886(a)(4) and (d)(1)(B).  Further, critical 
access hospitals (CAHs) are not subject to any payment window when they provide inpatient services to 
beneficiaries because CAHs are not covered under the IPPS.  Social Security Act  1886(a)(4) and 
1814(l)(1). 
 
Issue Brief: Medicare and Beneficiaries Pay More for Preadmission Services at Affiliated Hospitals Than at Wholly Owned 
Settings, OEI-05-19-00380  Background | 2  Wholly owned or operated 
The DRG window policy applies to preadmission diagnostic services and 
admission-related nondiagnostic services that were performed at an entity that is 
wholly owned or operated by the admitting hospital.  CMS considers an entity to be 
wholly owned if the admitting hospital is the sole owner of the entity.  CMS considers 
an entity to be wholly operated if the admitting hospital has exclusive responsibility 
for conducting and overseeing the entitys routine operations.9   
The method that CMS uses to determine whether an entity is wholly owned or 
operated (hereinafter referred to as wholly owned) depends on the type of entity.  
For hospital outpatient settings, CMS staff reported that to identify claims for which 
the outpatient setting is owned by the admitting hospital, they use the identification 
number unique to each hospital.  When billing for a service that is subject to the DRG 
window policy, physicians offices must indicate with a payment modifier on the 
claims whether their offices are wholly owned by the admitting hospital.10 
Outpatient Service Payments Outside of the DRG Window 
Medicare and beneficiaries must pay separately for most outpatient services, 
including admission-related outpatient services that are not covered by the DRG 
window.  For outpatient services provided at most acute-care hospitals, Medicare and 
beneficiaries pay fixed amounts determined by the Outpatient Prospective Payment 
System (OPPS).  In contrast, for outpatient services provided at critical access hospitals 
(CAHs)small, rural hospitals whose CAH designation gives them a more generous 
reimbursement methodology and is thereby intended to help ensure access to 
hospital services for rural beneficiariesMedicare and beneficiaries pay 101 percent 
of the hospitals reasonable costs for those services rather than the OPPS rates.11 
The methods used to calculate the amounts beneficiaries that pay for outpatient 
services differ between CAHs and other acute-care hospitals.  At CAHs, beneficiaries 
pay 20 percent of the CAHs charges for the services, which are typically higher than 
the reasonable cost amounts that the CAHs ultimately receive.  In contrast, 
beneficiaries who receive outpatient services at most other acute-care hospitals 
typically pay about 20 percent of the OPPS rates.12  
These different methods for calculating beneficiaries shares of payments typically 
mean that beneficiaries pay moreboth proportionally and in absolute amountsfor 
outpatient services received at CAHs.  For example, the Office of Inspector General 
(OIG) found that in 2012 beneficiaries paid nearly half the costs for outpatient services 
at CAHs,13 compared to just 22 percent of the costs for outpatient services at most 
other acute-care hospitals.14  OIG also found that for 10 common outpatient services, 
the average beneficiary payment at CAHs was between 2 and 6 times the average 
payment at most other acute-care hospitals.15  
Issue Brief: Medicare and Beneficiaries Pay More for Preadmission Services at Affiliated Hospitals Than at Wholly Owned 
Settings, OEI-05-19-00380  Background | 3  Affiliated Settings 
The term affiliated settings refers to a collection of health care entities owned by the 
same organization (hereinafter referred to as an affiliated group).  Affiliated settings 
can include multiple types of health care entities, such as hospitals, physicians offices, 
and ambulatory surgical centers.  In 2018, the Department of Health and Human 
Services Agency for Healthcare Research and Quality found that 3,419 general 
acute-care hospitals could be considered affiliated settings.  That is, these hospitals 
belonged to affiliated groups that included at least one or more general acute-care 
hospitals and at least one or more physician groups.  Nearly all these hospitals
approximately 92 percentbelonged to affiliated groups that included 2 or more 
hospitals.16  Affiliated settings are similar to wholly owned settings in several key 
ways, although the owners of affiliated groups are entities other than the admitting 
hospitals. 
Hospitals that belong to an affiliated group make up an increasingly large portion of 
the current hospital market.  In 1982, one year before Congress established the DRG 
window policy, approximately one-third of all hospitals were part of an affiliated 
group.17  In contrast, by 2018, the balance had shifted in the other direction
approximately 72 percent of general acute-care hospitals belonged to affiliated 
groups.18  This trend in increasing affiliations, or consolidation, also exists for rural 
hospitals, including CAHs.19  Further, consolidation has continued during the 
COVID-19 pandemic, primarily through affiliated groups purchasing hospitals from 
one another or merging to build more concentrated networks of hospitals in certain 
geographic regions.20   
Payments to affiliated settings under the DRG window policy 
In contrast to outpatient services provided at wholly owned settings, outpatient 
services provided at affiliated settings are not covered by the DRG window policy.21  
When a beneficiary receives admission-related outpatient services at an affiliated 
hospital, the affiliated group that owns the hospitals benefits financially from both the 
outpatient services and the inpatient admission.  In contrast, if the beneficiary receives 
related outpatient services at a wholly owned setting, those outpatient services are 
considered part of the inpatient admission and the admitting hospital receives only 
the pre-set inpatient payment. 
Issue Brief: Medicare and Beneficiaries Pay More for Preadmission Services at Affiliated Hospitals Than at Wholly Owned 
Settings, OEI-05-19-00380  Background | 4   
 
Issue Brief: Medicare and Beneficiaries Pay More for Preadmission Services at Affiliated Hospitals Than at Wholly Owned 
Settings, OEI-05-19-00380  Background | 5  Past Updates to the DRG Window 
Congress has updated the DRG window policy twice since it was established in 1983.  
Congress first updated the policy with the Omnibus Budget Reconciliation Act of 1990 
(OBRA) to cover more outpatient settings, days, and types of outpatient services.  
Congress updated the policy again with the Preservation of Access to Care for 
Medicare Beneficiaries and Pension Relief Act of 2010 (PACMBPRA) to cover even 
more outpatient services. 
The Omnibus Budget Reconciliation Act of 1990 
In 1990, Congress updated several aspects of the DRG window policy to address a 
vulnerability.  Congress recognized that in order to bill Medicare for more services, 
hospitals may move certain services included in the inpatient DRG payment, offering 
them as outpatient services on days or at settings not covered by the DRG window.  
Hospitals were able to bill Medicare separately for these outpatient services while still 
receiving the fixed-amount inpatient payment.  To address this, Congress expanded 
the number of days covered by the window from 1 to 3.  It also distinguished 
between diagnostic services (all covered by the DRG window) and other services 
related to the admission (i.e., nondiagnostic services, which are covered by the DRG 
window only if the entity reports the same diagnosis codes on both the outpatient 
and inpatient claims).  Finally, it expanded the settings that were subject to the DRG 
window from just the admitting hospitals to settings wholly owned or operated by the 
admitting hospitals.22   
The Preservation of Access to Care for Medicare Beneficiaries and 
Pension Relief Act of 2010 
In 2010, Congress updated the definition of related nondiagnostic services covered by 
the DRG window to include any nondiagnostic service that is clinically related to the 
admission, rather than only services with diagnosis codes that were an exact match.23  
CMS considers all nondiagnostic services provided during the DRG window to be 
related to the inpatient admission unless the hospital attests that the services are not 
related. 
Previous OIG Work 
OIG has an extensive body of workspanning over 25 yearsrelated to the DRG 
window.  During this time, OIG has issued three reports examining the potential 
savings that Medicare and beneficiaries could realize if the DRG window were 
expanded to include more days or more hospital ownership structures.  In 2014, OIG 
found that Medicare and beneficiaries paid an estimated $263 million for 4.3 million 
related outpatient services provided at settings owned by admitting hospitals in the 
11 days prior to the DRG window, as well as an estimated $45 million for nearly 
800,000 related outpatient services provided at hospitals affiliated with, but not 
Issue Brief: Medicare and Beneficiaries Pay More for Preadmission Services at Affiliated Hospitals Than at Wholly Owned 
Settings, OEI-05-19-00380  Background | 6  owned by, admitting hospitals during the 3 days prior to inpatient admissions.24  
In 2003, OIG found that for 10 select DRGs, Medicare and beneficiaries paid 
$72 million for hospital outpatient services rendered in the 11 days prior to the DRG 
window.25  Similarly, in 1994, OIG found that Medicare and beneficiaries paid 
$121 million for hospital outpatient services in the 4 days prior to the DRG window.26     
On the basis of its findings, OIG has recommended that CMS seek legislative authority 
to expand the DRG window.  On the basis of its 2014 findings, OIG recommended that 
CMS seek legislative authority to expand the DRG window to include (1) additional 
days prior to the inpatient admission and (2) other hospital ownership arrangements, 
such as affiliated hospital groups.  CMS did not concur with either recommendation.  
Both the 2003 and 1994 reports recommended expanding the number of days 
covered by the DRG window.  CMS concurred with the recommendation made in the 
2003 report, but to date Congress has not authorized CMS to expand the DRG 
window beyond 3 days.   
Finally, in 2020 OIG found that Medicare and beneficiaries inappropriately paid 
approximately $3.7 million in 2016 and 2017 for outpatient services that were covered 
by the DRG window policy.27    
 
 
Issue Brief: Medicare and Beneficiaries Pay More for Preadmission Services at Affiliated Hospitals Than at Wholly Owned 
Settings, OEI-05-19-00380  Background | 7  RESULTS 
Medicare paid $168 million and beneficiaries paid $77 million in 
2019 for admission-related outpatient services provided at 
affiliated hospitals, which are not covered by the DRG window 
policy 
In 2019, approximately 218,000 beneficiaries received a total of 3.3 million 
admission-related outpatient services at affiliated hospitals, which are not covered by 
the DRG window policy.  These services were received either during the 3 days prior 
to the date of the beneficiaries inpatient admissions or on the dates of those 
admissions.  Medicare paid $168 million to affiliated hospitals for these services, and 
beneficiaries paid an additional $77 million.b, 28  If these outpatient services had been 
provided at the admitting hospitals or at other wholly owned settings, they would 
have been covered by the DRG window policy and Medicare and beneficiaries would 
not have made separate payments for them.   
These 3.3 million outpatient services were associated with approximately 
244,000 inpatient admissions.  For these outpatient services, the most common types 
of associated inpatient admissions were sepsis, heart failure, coronary 
angioplasty/stenting, brain hemorrhage, and psychoses.  Prior to each inpatient 
admission, beneficiaries typically received multiple outpatient services, including visits 
with a physician or other medical professional; diagnostic 
tests, such as lab tests and imaging; and injections or 
IV infusions.29  The median amount (per beneficiary, per 
admission) that beneficiaries paid to affiliated hospitals for 
these preadmission outpatient services was $146, and the 
median amount that Medicare paid was $489. 
However, some beneficiaries paid particularly high amounts 
for admission-related outpatient services.  Nearly 
21,000 beneficiariesabout 10 percent of all beneficiaries 
who received admission-related outpatient services at 
affiliated hospitalspaid $1,000 or more for those services 
in 2019.  The median amount that these beneficiaries paid 
for admission-related outpatient services in 2019 was $1,515, 
_____________________________________________________________________________________________________________________________ 
b Beneficiaries with supplemental coverage may not be responsible for paying the full cost-sharing 
amount for admission-related outpatient services received at affiliated hospitals.  In 2018, the majority of 
Medicare beneficiaries had supplemental coverage.  However, nearly one in five beneficiaries did not 
have supplemental coverage.  See Kaiser Family Foundation, A Snapshot of Sources of Coverage Among 
Medicare Beneficiaries in 2018.  Accessed at https://www.kff.org/medicare/issue-brief/a-snapshot-of-
sources-of-coverage-among-medicare-beneficiaries-in-2018/ on August 25, 2021. 
Issue Brief: Medicare and Beneficiaries Pay More for Preadmission Services at Affiliated Hospitals Than at Wholly Owned 
Settings, OEI-05-19-00380  Results | 8  but one beneficiary paid nearly $44,000.  Although some of these beneficiaries paid 
for outpatient services associated with multiple different hospital admissions, most 
paid more than $1,000 for services associated with just a single admission.   
                             
Nearly all these admission-related outpatient services were 
provided prior to urgent or emergency admissions 
Urgent and emergency admissions made up nearly 90 percent of all admissions 
associated with outpatient services provided at affiliated hospitals.  These types of 
admissions indicate that beneficiaries required immediate care for their medical 
conditions.  Of the $245 million that Medicare and beneficiaries paid to affiliated 
hospitals for admission-related outpatient services, $225 million was for services that 
were provided prior to urgent or emergency admissions. 
Beneficiaries typically received outpatient services at affiliated hospitals immediately 
before urgent or emergency admissions.  Specifically, 59 percent of admission-related 
outpatient services were received on the same day as beneficiaries urgent or 
emergency admissions.  Another 30 percent of these outpatient services were 
received on the day prior to these admissions.     
There are many reasons why beneficiaries may have received outpatient services at 
one hospital prior to an urgent or emergency admission at an affiliated hospital.  For 
example, the first hospital may not have been able to provide the needed caresome 
hospitals may be unable to provide certain types of inpatient services, such as 
orthopedic surgery, or to access certain types of specialists, such as cardiologists.30  
Issue Brief: Medicare and Beneficiaries Pay More for Preadmission Services at Affiliated Hospitals Than at Wholly Owned 
Settings, OEI-05-19-00380  Results | 9  In these cases, hospitals often transfer beneficiaries to a hospital that offers these 
services.31  Further, some affiliated groups may intentionally offer certain types of 
inpatient services at only a limited number of the hospitals in their groups, thereby 
necessitating transfers between some hospitals.32    
Beneficiaries who received outpatient services at affiliated critical 
access hospitals paid even more for those services 
Beneficiaries paid even more for admission-related outpatient services that were not 
covered by the DRG window policy when they received those services at affiliated 
critical access hospitals rather than at other types 
of affiliated hospitals.  The median amount that 
beneficiaries paid for outpatient services at CAHs 
prior to being admitted to an affiliated hospital 
was $646.  In contrast, the median amount that 
beneficiaries paid for outpatient services at other 
hospitals was $109.  Despite the large difference 
in median payments, beneficiaries generally 
received similar outpatient services at both 
settings.  See Appendix A for a breakdown of the 
most common outpatient services provided at 
each setting in 2019.   
Beneficiaries who received outpatient services at affiliated CAHs generally paid even 
more for two reasons.  First, the costs of outpatient services at CAHs are often higher 
than the costs for those same services at other hospitals.  Previous OIG work found 
that services commonly provided at CAHs cost between 2 and 6 times the amounts 
that the same services cost at other types of hospitals.33  Second, CAHs calculate the 
amounts that beneficiaries pay on the basis of what the CAHs charge for the services, 
rather than the services final costs.  Charges at CAHs are typically much higher than 
the final costs.  In 2019, beneficiaries who received preadmission outpatient services 
at affiliated CAHs paid approximately 49 percent of the final costs for those services, 
while beneficiaries who received those services at other affiliated hospitals paid 
20 percenta disparity consistent with previous OIG findings.34  
Because beneficiaries paid even more for admission-related outpatient services at 
affiliated CAHs, beneficiary payments to CAHs made up a disproportionately high 
share of the total beneficiary payments to affiliated hospitals.  In 2019, approximately 
one-fifth of beneficiaries paid affiliated CAHs $48 millionmore than half of the total 
$77 million paid to all affiliated hospitals.  See Exhibit 1 for a comparison of 
beneficiary use of CAHs for admission-related outpatient services and the amounts 
they paid for those services.   
 
Issue Brief: Medicare and Beneficiaries Pay More for Preadmission Services at Affiliated Hospitals Than at Wholly Owned 
Settings, OEI-05-19-00380  Results | 10  Exhibit 1: Beneficiary payments to CAHs made up a disproportionately high share of the 
total beneficiary payments to affiliated hospitals for admission-related outpatient services.  
 
 
Issue Brief: Medicare and Beneficiaries Pay More for Preadmission Services at Affiliated Hospitals Than at Wholly Owned 
Settings, OEI-05-19-00380  Results | 11  CONCLUSION AND RECOMMENDATION 
Since Congress first established the DRG window policy, it has updated it twice 
in response to changes in health care delivery trends to ensure that the policy 
continues to serve its original purposeprotecting Medicare and beneficiaries from 
paying separately for outpatient services that are related to inpatient admissions.  
One of these changesmade in 1990expanded the policy to cover wholly owned 
settings that were becoming increasingly popular in the health care system.  Since 
that time, affiliated settings have become increasingly common, with more than 
70 percent of all general acute-care hospitals belonging to an affiliated group, and 
they are similar to wholly owned settings in key ways.  However, affiliated settings are 
not covered by the current DRG window policy.   
Because the DRG window policy does not cover hospitals that belong to affiliated 
groups, Medicare and beneficiaries in 2019 paid these hospitals $168 million and 
$77 million, respectively, for admission-related outpatient services that, if they had 
been delivered at wholly owned settings, would have been considered part of the 
inpatient admission and not paid separately.  These payments are particularly costly 
for Medicare beneficiaries who rely on CAHs for their care, in part because beneficiary 
payments at CAHs are based on charges for services rather than final costs (which are 
lower).  OIG has previously recommended that CMS seek the legislative authority 
necessary to modify how coinsurance is calculated for all outpatient services that 
CAHs provide. 
Further, for most beneficiaries, the extra costs associated with receiving 
admission-related outpatient services at affiliated hospitals may be practically 
unavoidable.  In 2019, the vast majority of these payments were made for outpatient 
services provided prior to urgent or emergency admissions.  When beneficiaries are 
seeking urgent or emergency care, they may not be able to choose where they 
receive services. 
As more hospitals join affiliated groups, the fact that the DRG window policy does not 
cover affiliated hospitals will continue to result in increased costs for Medicare and 
beneficiaries.  For example, as the number of hospitals that belonged to affiliated 
groups has increased, OIG has found considerable growth in the number of 
admission-related outpatient services provided at affiliated hospitalsfrom nearly 
800,000 services in 2011 to 3.3 million services in 2019along with a five-fold 
increase in the total payments made for these services.  The trend towards greater 
consolidation among hospitalswhich has continued through the COVID-19 
pandemicsuggests that the DRG window policy needs another update to ensure 
that Medicare and beneficiaries do not pay higher, setting-specific amounts for the 
same outpatient services.  To that end, CMS should take the following action: 
Issue Brief: Medicare and Beneficiaries Pay More for Preadmission Services at Affiliated Hospitals Than at Wholly Owned 
Settings, OEI-05-19-00380  Conclusion and Recommendation | 12  We recommend that CMS: 
Evaluate the potential impacts of updating the DRG window 
policy to include affiliated hospitals, and seek the necessary 
legislative authority to update the policy as appropriate. 
This report highlights the financial burdens placed on Medicare and beneficiaries 
when beneficiaries receive admission-related outpatient services at affiliated hospitals.  
However, our analysis does not explore all the potential implications of expanding the 
DRG window policy to include affiliated hospitals.  Therefore, we recommend that 
CMS analyze relevant policies, including those related to inpatient and outpatient 
payments, rate-setting, and other relevant areas, to determine the impacts of 
including affiliated hospitals in the DRG window policy.  This analysis should consider 
both potential savings to Medicare and beneficiaries as well as possible unintended 
negative effects on beneficiary access to care or increases in costs.  With past updates 
to the DRG window, CMS has done analyses of expected costs and benefits. 
CMS should also consider incorporating in its analysis the impact of including other 
(i.e., nonhospital) affiliated settingssuch as physicians officesin the DRG window 
policy.  We did not include these types of settings in our analysis because we were 
unable to confidently determine if they were affiliated with admitting hospitals in 
2019.   
To the extent that CMS determines that updating the DRG window policy to include 
affiliated hospitalsand potentially other affiliated settingswould achieve savings 
for Medicare and beneficiaries with low risk of unintended negative effects, CMS 
should seek the necessary legislative authority to do so. 
Issue Brief: Medicare and Beneficiaries Pay More for Preadmission Services at Affiliated Hospitals Than at Wholly Owned 
Settings, OEI-05-19-00380  Conclusion and Recommendation | 13  OIG RESPONSE TO AGENCY COMMENTS 
In its response to our report, CMS neither concurred nor nonconcurred with our 
recommendation.  CMS noted that expanding the DRG window policy to include 
affiliated hospitals would require legislation and that such a proposal is not currently 
included in the Presidents Budget.  CMS indicated that it has not yet determined 
whether to use its administrative resources to conduct the recommended analysis. 
We continue to recommend that CMS evaluate the potential impacts of updating the 
DRG window policy to include affiliated hospitals.  If that evaluation finds that 
updating the DRG window policy would result in savings for Medicare and 
beneficiaries, with a low risk of unintended negative effects, we also continue to 
recommend that CMS seek the necessary legislative authority to update the policy.  
For the full text of CMSs comments, see the Agency Comments section following the 
Appendices.  
Issue Brief: Medicare and Beneficiaries Pay More for Preadmission Services at Affiliated Hospitals Than at Wholly Owned 
Settings, OEI-05-19-00380  OIG Response to Agency Comments | 14  METHODOLOGY 
Scope 
For this evaluation, we analyzed fee-for-service preadmission services delivered in 
affiliated hospital outpatient settings.  We excluded approximately one-third of all 
Medicare beneficiaries because those beneficiaries were enrolled in Medicare 
managed care plans and the DRG window policy does not apply to those plans.  We 
did not analyze preadmission services delivered at other affiliated settings, such as 
physicians offices, where data was not available to definitively determine whether 
they were affiliated with admitting hospitals in 2019. 
Data sources 
Standard Analytic Files 
We used the inpatient Standard Analytic Files (SAFs) from calendar years 2018 and 
2019 to identify inpatient admissions to include in our analysis.  We used just over 
12 months of outpatient SAF data (December 29, 2018, through December 31, 2019) 
to identify outpatient services delivered 3 days prior to the inpatient admissions.  We 
also used the outpatient SAF data to identify the types of admission-related 
outpatient services not covered by the DRG window. 
Medicare Cost Reports 
We used fiscal year (FY) 2019 Medicare cost reports to identify affiliated hospital 
groups.35  If a hospital did not have an FY 2019 Medicare cost report, we used its 
Medicare cost report from FY 2018.  
Provider Enrollment, Chain, and Ownership System 
In addition to using the Medicare cost reports, we used the Provider Enrollment, 
Chain, and Ownership System (PECOS) to identify affiliated hospital groups. 
Data analysis 
We analyzed inpatient and outpatient claims and Medicare cost reports to identify 
how much Medicare and beneficiaries paid in 2019 for admission-related outpatient 
services not covered by the current DRG window policy.  We included outpatient 
services that were provided the DRG windowi.e., during the 3 days preceding 
inpatient admissionsby hospitals affiliated with, but not owned by, admitting 
hospitals.  
 
Issue Brief: Medicare and Beneficiaries Pay More for Preadmission Services at Affiliated Hospitals Than at Wholly Owned 
Settings, OEI-05-19-00380  Methodology | 15  Identifying Admission-Related Outpatient Services 
We used the following steps to identify preadmission outpatient services provided 
within the DRG window at affiliated hospitals: 
1.  We identified all 2019 inpatient admissions subject to the DRG window that 
were performed at short-term acute-care hospitals.  For each admission, we 
noted the beneficiarys Medicare identification number, the start date of the 
admission, and the provider number of the admitting hospital.  We included 
only inpatient admissions for which (1) the hospital was located in one of the 
50 U.S. States or Washington, D.C.; (2) the beneficiary was not enrolled in a 
Medicare managed-care plan; and (3) Medicare paid for the admission.  We 
used the 2019 inpatient SAF to identify these admissions. 
2.  Next, we identified all outpatient services provided to these beneficiaries 
during the 3 days prior to those inpatient admissions and on the day of those 
admissions.  We selected this timeframe because it is the same number of 
days covered by the DRG window policy.  To identify these outpatient services, 
we used Medicare identification numbers and admission start dates from the 
inpatient admissions and the Medicare identification numbers and line-item 
dates of service from the outpatient claims from December 29, 2018, through 
December 31, 2019.36  In total, we identified 14.6 million outpatient services 
provided to approximately 883,000 beneficiaries.  These outpatient services 
were associated with approximately 1 million inpatient admissions. 
3.  We then determined whether each hospital was part of an affiliated group.  
To do this, we used several sources, including cost reports, PECOS, and 
internet research.  First, we used chain ownership information provided in each 
hospitals FY 2019 cost report (or, if the FY 2019 report was not available, the 
FY 2018 report) to identify groups of affiliated hospitals.  We considered 
hospitals to be part of the same affiliated group if they provided the name of 
the same chain owner on their cost reports.  We conducted internet 
researchfor example, searching for press reports on acquisitions and for 
ownership information on hospital websitesto verify chain names when 
there were minor inconsistencies between cost reports.  (For example, some 
hospitals used abbreviations in the chain name while others wrote out the full 
name.)  Next, if a hospitals cost report indicated costs for a home office but 
did not report a chain owner, we used PECOS data and checked hospital 
websites to determine whether these hospitals belonged to affiliated groups.  
If either of these sources showed that the hospital had a chain owner during 
2019, we assigned the hospital to the appropriate affiliated group.  If cost 
reports, PECOS, and our research did not show a chain owner, we considered 
a hospital to be independent and did not assign it to an affiliated group.  We 
assigned a unique ID to each affiliated group.   
We also used the cost reports, PECOS, and internet research to identify any of 
our affiliated hospitals for which the affiliated group ownership changed 
 
Issue Brief: Medicare and Beneficiaries Pay More for Preadmission Services at Affiliated Hospitals Than at Wholly Owned 
Settings, OEI-05-19-00380  Methodology | 16  in 2019.  If a hospital changed affiliated group ownership in 2019, we recorded 
both the original and new affiliation and date of ownership change.  We used 
this information to assign admission-related outpatient services to the correct 
affiliated group on the basis of the dates on which the services were provided.  
4.  Next, for the outpatient services we identified, we determined whether they 
were provided at settings affiliated with admitting hospitals.  To do so, we 
identified the outpatient services that were performed at hospitals in the same 
affiliated group as the admitting hospital.  We then excluded outpatient 
services provided by hospitals with the same exact hospital identification 
number as the admitting hospital, so that our analysis did not include wholly 
owned settings that are already covered by the DRG window policy.    
We then determined whether these outpatient services would have been 
covered by the DRG window policy had they been provided at wholly owned 
settings.  First, we classified the outpatient services as diagnostic or 
nondiagnostic using a list of diagnostic services from CMS.  The DRG window 
policy covers all diagnostic services and related nondiagnostic services in the 
3-day window.  Therefore, we included all diagnostic services.  We determined 
which nondiagnostic services were related to the inpatient admission by 
matching the first three digits of the diagnosis codes on the hospital inpatient 
claims and the outpatient claims.37   
Our method to classify nondiagnostic services as being related to an inpatient 
stay is different from how Medicare makes this determination for the DRG 
window policy.  The DRG window policy uses condition code 51 to designate 
nondiagnostic outpatient services as not being related to the inpatient 
admission at wholly owned settings.  However, because affiliated settings are 
not covered by the DRG window policy, hospitals would have no occasion to 
use condition code 51.  Therefore, we relied on diagnosis code matches.  
This methodology of matching by partial diagnosis codes is based on the 
World Health Organizations description of diagnosis codes; epidemiologists 
use a similar methodology for research purposes.38, 39  Additionally, we believe 
that matching by using the first three digits is appropriate because CMS has 
stated that requiring an exact match would impermissibly limit the number 
of outpatient services related to an inpatient admission as defined by the DRG 
window policy.40 
For approximately 51 percent of related nondiagnostic services, we identified 
the services as being related because the primary diagnosis code on the 
outpatient claim matched the primary diagnosis code on the inpatient claim.  
See Appendix B for the number and percentage of each combination of 
matches of inpatient and outpatient diagnosis codes included in this dataset. 
 
Issue Brief: Medicare and Beneficiaries Pay More for Preadmission Services at Affiliated Hospitals Than at Wholly Owned 
Settings, OEI-05-19-00380  Methodology | 17  Calculating Potential Savings Under Alternative Policy Options 
for Medicare and Beneficiaries 
Using the dataset of matches that we described above, we summed Medicare 
payments to providers to calculate the amount that Medicare paid for outpatient 
services related to an inpatient stay.  These related outpatient services were provided 
at affiliated hospitals within the 3-day DRG window.  Similarly, we summed beneficiary 
deductible and coinsurance payments to providers to determine the amount that 
beneficiaries paid for related outpatient services provided inside the DRG window at 
affiliated hospitals.   
We next examined the inpatient hospital admissions that were associated with the 
related outpatient services provided at affiliated hospitals not covered by the DRG 
window policy.  We used the DRGs and admission type codes from inpatient claims to 
identify the reason for and urgency of the inpatient admissions.  We compared the 
outpatient dates of service to the associated inpatient start dates to identify when 
within the 3-day DRG window the related outpatient services were provided.  Finally, 
we summed the number of outpatient services and Medicare and beneficiary 
payments by inpatient admission and calculated mean number of services and 
payments per admission. 
Finally, we calculated payments made by Medicare and beneficiaries for 
admission-related outpatient services by type of hospital, comparing payments made 
to CAHs to payments made to other hospitals.  CAH designation was determined 
using the facilitys CMS Certification Number (CCN).  Hospitals with 13 as the third 
and fourth digits of the CCN were classified as CAHs.41  We used Healthcare Common 
Procedure Coding System (HCPCS) codes to compare the types of outpatient services 
provided at CAHs and other hospitals prior to a related inpatient admission at an 
affiliated hospital. 
Limitations 
The number of admission-related outpatient services and associated costs to 
Medicare and beneficiaries that we present in this work should be considered 
estimates, not exact figures.  We excluded some admission-related services from our 
analysis, specifically:  
1.  Admission-related services at nonhospital settingssuch as physicians 
officesaffiliated with the hospital where the beneficiary was admitted.  We 
excluded these settings because we were unable to confidently determine 
whether they were affiliated with admitting hospitals in 2019.  
2.  Admission-related services at hospitals that we could not determine to be part 
of an affiliated group.  We did not have FY 2019 cost reports for all hospitals. 
For such hospitals, we had to rely instead on FY 2018 cost reports and PECOS 
data. Therefore, it is possible that for these hospitals for which we had only 
a FY 2018 cost report, a hospital could have changed affiliation status in 
 
Issue Brief: Medicare and Beneficiaries Pay More for Preadmission Services at Affiliated Hospitals Than at Wholly Owned 
Settings, OEI-05-19-00380  Methodology | 18  FY 2019 without our being aware of that change.  Additionally, we may not 
have been able to identify all instances in which a hospital was part of 
an affiliated group if ownership was not accurately reported in the cost report 
and/or PECOS.  
For the nondiagnostic services that we included, we relied on a match of diagnosis 
codes to determine whether the nondiagnostic outpatient services were related to the 
inpatient admission.  We developed this methodology on the basis of the following: 
(1) the construction of the diagnosis codes (i.e., that the three digits we are using for 
the match describe the major disease category), (2) CMSs statements that requiring 
that all characters of the diagnosis code to match would limit related services and 
therefore be impermissible; and (3) common practice among other researchers.  It is 
possible that this methodology may both identify some services that are not related 
to the admissions and not identify other services that are related.  We did not perform 
a medical record review on the claims in our analysis to ensure that we had identified 
all admission-related outpatient services that were not covered by the DRG window, 
or to ensure that we had not identified some outpatient services that were in fact not 
related to the inpatient admission. 
Standards 
We conducted this study in accordance with the Quality Standards for Inspection and 
Evaluation issued by the Council of the Inspectors General on Integrity and Efficiency. 
 
Issue Brief: Medicare and Beneficiaries Pay More for Preadmission Services at Affiliated Hospitals Than at Wholly Owned 
Settings, OEI-05-19-00380  Methodology | 19  APPENDICES 
Appendix A: Affiliated CAHs and other affiliated hospitals 
provided similar outpatient services 
 
Service Description  Critical Access Hospitals  Other Hospitals 
(HCPCS Code) 
Rank  Number of  Rank   Number of 
Claims  Claims 
Complete blood count w/  1  44,370  1  130,228 
auto diff (85025) 
Comprehensive metabolic  2  40,278  2  110,317 
panel (80053) 
Electrocardiogram tracing  3  34,862  3  98,201 
(93005) 
Routine venipuncture  4  34,108  4  82,881 
(36415) 
Assay of troponin quant.  5  29,860  5  80,692 
(84484) 
Source: OIG analysis of Medicare inpatient and outpatient claims data, 2021. 
  
Issue Brief: Medicare and Beneficiaries Pay More for Preadmission Services at Affiliated Hospitals Than at Wholly Owned 
Settings, OEI-05-19-00380  Appendix A | 20  Appendix B: We identified about half of all nondiagnostic 
services because of a match between the primary diagnosis 
codes 
Type of Match  Number of Services  Percentage of Total 
(Inpatient Diagnosis Code- Nondiagnostic Services 
Outpatient Diagnosis Code) 
Primary-Primary  1,268,765  50.9% 
Admitting-Primary  386,777  15.5% 
Secondary-Primary  217,651  8.7% 
Primary-Secondary  196,343  7.9% 
Admitting-Reason for visit 1  173,993  7.0% 
Secondary-Secondary  90,314  3.6% 
Admitting-Secondary  80,215  3.2% 
Primary-Reason for visit 1  31,604  1.3% 
Admitting-Reason for visit 2  19,330  0.8% 
Admitting-Reason for visit 3  10,797  0.4% 
Secondary-Reason for visit 1  8,754  0.4% 
Secondary-Reason for visit 3  2,219  0.1% 
Secondary-Reason for visit 2  1,966  0.1% 
Primary-Reason for visit 3  1,099  0.0% 
Primary-Reason for visit 2  987  0.0% 
Source: OIG analysis of Medicare inpatient and outpatient claims data, 2021.  We included in this matching process three diagnosis codes from 
each inpatient claim (primary diagnosis code, admitting diagnosis code, and the first-listed secondary diagnosis codes) and five diagnosis 
codes from each outpatient claim (primary diagnosis code, secondary diagnosis code, and the three diagnosis codes given as the reason for 
the visit).   
Issue Brief: Medicare and Beneficiaries Pay More for Preadmission Services at Affiliated Hospitals Than at Wholly Owned 
Settings, OEI-05-19-00380  Appendix B | 21  AGENCY COMMENTS 
Following this page are the official comments from CMS. 
Issue Brief: Medicare and Beneficiaries Pay More for Preadmission Services at Affiliated Hospitals Than at Wholly Owned 
Settings, OEI-05-19-00380  Agency Comments | 22     Agency Comments
DATE:  December 3, 2021 
TO:  Suzanne Murrin 
Deputy Inspector General for Evaluation and Inspections 
Office of Inspector General 
FROM:  Chiquita Brooks-LaSure 
Administrator 
Centers for Medicare & Medicaid Services 
SUBJECT:  Office of Inspector General (OIG) Draft Report: Medicare and Beneficiaries Pay 
More for Preadmission Services at Affiliated Hospitals than at Wholly-owned 
Settings (OEI-05-19-00380) 
The Centers for Medicare & Medicaid Services (CMS) appreciates the opportunity to review and 
comment on the Office of Inspector Generals (OIG) draft report regarding the Medicare 
Severity Diagnosis Related Groups (DRG) window policy.  
In accordance with long-standing Medicare payment policy under section 1886(a)(4) of the 
Social Security Act, Medicares DRG 3-day (or 1-day) payment window policy applies to 
outpatient services that hospitals and hospital wholly owned or wholly operated Part B entities 
furnish to Medicare beneficiaries. The statute requires that hospitals bundle the technical 
component of all outpatient diagnostic services and related non-diagnostic services (for example, 
therapeutic) with the claim for an inpatient stay when services are furnished to a Medicare 
beneficiary in the three days (or, in the case of a hospital that is not a subsection (d) hospital, 
during the one day) preceding an inpatient admission. The outpatient services are considered part 
of the admission and included in the prospectively-determined inpatient payment rather than 
resulting in separate outpatient payments. Outpatient nondiagnostic services provided during the 
payment window are to be included on the bill for the beneficiary's inpatient stay at the hospital 
only when the services are related to the beneficiary's admission.1 
As the OIG noted, outpatient hospital services provided in settings wholly owned or wholly 
operated by the admitting hospital are subject to the DRG window policy, but such policy does 
not apply to affiliated settings. While CMS appreciates the OIGs work to determine the cost 
savings to Medicare if the DRG window policy applied to affiliated settings, CMS lacks the 
statutory authority to make this change. CMS will need to determine whether conducting an 
independent evaluation of the policy change is the most appropriate use of finite Agency 
administrative resources, particularly in the absence of existing statutory authority. 
The OIGs recommendation and CMS response is below. 
1 Three Day Payment Window. https://www.cms.gov/Medicare/Medicare-Fee-for-Service-
Payment/AcuteInpatientPPS/Three_Day_Payment_Window 
Issue Brief: Medicare and Beneficiaries Pay More for Preadmission Services at Affiliated Hospitals Than at Wholly Owned
Settings, OEI-05-19-00380 Agency Comments | 23 OIG Recommendation  
Evaluate the potential impacts of updating the DRG window policy to include affiliated 
hospitals, and seek the necessary legislative authority to update the policy, as appropriate. 
CMS Response 
As OIG's recommendation indicates, adopting this recommendation would require legislation 
and such a proposal is not currently included in the Presidents Budget. While CMS appreciates 
the OIGs research in this area, CMS would need to further determine whether conducting an 
evaluation of the potential impacts of updating the DRG window policy to include affiliated 
hospitals, in the absence of existing statutory authority, is the most appropriate use of finite 
Agency administrative resources.  
Issue Brief: Medicare and Beneficiaries Pay More for Preadmission Services at Affiliated Hospitals Than at Wholly Owned 
Settings, OEI-05-19-00380 Agency Comments | 24 ACKNOWLEDGMENTS AND CONTACT 
Acknowledgments 
Lisa Minich served as the team leader for this study, and Jon Carroll served as the lead 
analyst.  Others in the Office of Evaluation and Inspections who conducted the study 
include Rebecca Gorges.  Office of Evaluation and Inspections staff who provided 
support include Joe Chiarenzelli, Rob Gibbons, Christine Moritz, and Sarah Swisher.  
This report was prepared under the direction of Laura Kordish, Regional Inspector 
General for Evaluation and Inspections in the Chicago regional office, and 
Adam Freeman, Deputy Regional Inspector General. 
Contact 
To obtain additional information concerning this report, contact the Office of Public 
Affairs at Public.Affairs@oig.hhs.gov.  OIG reports and other information can be found 
on the OIG website at oig.hhs.gov. 
Office of Inspector General 
U.S. Department of Health and Human Services 
330 Independence Avenue, SW 
Washington, DC 20201 
Issue Brief: Medicare and Beneficiaries Pay More for Preadmission Services at Affiliated Hospitals Than at Wholly Owned 
Settings, OEI-05-19-00380  Acknowledgments and Contact | 25  ENDNOTES 
1 42 CFR  412.2(c). 
2 CMS, Inpatient PPS PC Pricer.  Accessed at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-
Payment/PCPricer/inpatient on March 10, 2020.  
3 Social Security Act  1886(a)(4), 42 U.S.C.  1395ww.  See also 42 CFR  412.2(c)(5). 
4 Ambulance services and maintenance renal services are the only outpatient services excluded from this rule.  
CMS always pays separately for ambulance services and maintenance renal services; it never bundles these 
services into the DRG payment. 
5 42 CFR  412.2(c)(5)(ii).   
6 Revenue codes describe hospital accommodations and services.  Current Procedural Terminology (CPT) is a set 
of codes, descriptions, and guidelines that describe procedures and services performed by physicians and other 
qualified health care providers. 
7 CMS, Medicare Claims Processing Manual, Pub. No. 100-04, ch. 3  40.3. 
8 42 CFR  412.2(c)(5)(iv).  The provider indicates that the outpatient service is unrelated to the inpatient admission 
by including condition code 51 on the claim.  CMS, Medicare Claims Processing Manual, Pub. No. 100-04, 
ch. 3  40.3(D). 
9 42 CFR  412.2(c)(5)(i).  An admitting hospital does not have to have policymaking authority over an entity for 
the entity to be considered wholly operated. 
10 CMS, Medicare Claims Processing Manual, Pub. No. 100-04, ch. 12  90.7 and 90.7.1.  
11 Social Security Act  1814(l)(1). 
12 Medicare Payment Advisory Commission (MedPAC), Payment Basics: Outpatient Hospital Services Payment 
System (revised October 2020).  Accessed at https://www.medpac.gov/wp-
content/uploads/import_data/scrape_files/docs/default-source/payment-
basics/medpac_payment_basics_20_opd_final_sec.pdf on September 3, 2021.  In 2019, beneficiaries paid 
19 percent of total OPPS payments in coinsurance.  While coinsurance amounts under the OPPS are typically 
20 percent of the services rates, these amounts cannot exceed the inpatient deductible amount ($1,364 in 2019).  
Therefore, for some particularly expensive services or bundles of services, beneficiaries pay less than 20 percent of 
the total in coinsurance. 
13 OIG, Medicare Beneficiaries Paid Nearly Half of the Costs for Outpatient Services at Critical Access Hospitals, 
OEI-05-12-00085, October 2014. 
14 MedPAC, Payment Basics: Outpatient Hospital Services Payment System (revised October 2013). 
15 OIG, Medicare Beneficiaries Paid Nearly Half of the Costs for Outpatient Services at Critical Access Hospitals, 
OEI 05-12-00085, October 2014. 
16 Agency for Healthcare Research and Quality, Compendium of U.S. Health Systems, 2018.  Accessed at 
https://www.ahrq.gov/chsp/data-resources/compendium-2018.html on March 17, 2020. 
17 Ermann, D., and Gabel, J., Multihospital Systems: Issues and Empirical Findings, Health Affairs, Vol. 3, No. 1, 
Spring 1984.  Accessed at https://www.healthaffairs.org/doi/10.1377/hlthaff.3.1.50 on January 16, 2020.  
18 Agency for Healthcare Research and Quality, Compendium of U.S. Health Systems, 2018.  Accessed at 
https://www.ahrq.gov/chsp/data-resources/compendium-2018.html on March 17, 2020. 
19 Williams, D., Jr.; Reiter, K.L.; Pink, G.H.; Holmes, G.M.; and Song, P.H., Rural Hospital Mergers Increased Between 
2005 and 2016What Did Those Hospitals Look Like?, Inquiry: The Journal of Health Care Organization, Provision, 
and Financing, Vol. 57, July 2020, pp. 116.  Accessed at https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7370548/ 
on July 13, 2021. 
Issue Brief: Medicare and Beneficiaries Pay More for Preadmission Services at Affiliated Hospitals Than at Wholly Owned 
Settings, OEI-05-19-00380  Endnotes | 26  20 KaufmanHall, M&A [Merger & Acquisition] Quarterly Activity Report: Q3 2020; M&A Quarterly Activity Report: Q1 
2021; M&A Quarterly Activity Report: Q3, 2021.  Accessed at https://www.kaufmanhall.com/insights-
all?f%5B0%5D=software_or_practice_area_resources%3A861&f%5B1%5D=type%3A466&order=desc&sort=field_p
ublication_date on October 15, 2021. 
21 76 Fed. Reg. 73026, 73286, November 28, 2011.   
22 P.L. No. 101-508,  4003. 
23 P.L. No. 111-192,  102. 
24 OIG, Medicare and Beneficiaries Could Realize Substantial Savings If the DRG Window Were Expanded, 
OEI-05-12-00480, January 2014. 
25 OIG, Expansion of the Diagnosis Related Group Payment Window, A-01-02-00503, August 2003. 
26 OIG, Expansion of the Diagnosis Related Group Payment Window, A-01-92-00521, July 1994. 
27 OIG, Medicare Made $11.7 Million in Overpayments for Nonphysician Outpatient Services Provided Shortly Before 
or During Inpatient Stays, A-01-17-00508, May 2020. 
28 These amounts are likely underestimations because data limitations precluded us from including every type of 
affiliated setting in our analysis.   
29 For example, before being admitted for heart failure, a beneficiary may receive such outpatient services as blood 
tests, an electrocardiogram, and a chest x-ray.  On average, beneficiaries received 14 outpatient services prior to 
being admitted as inpatients. 
30 Goldberg, S., Why Youll Have to Go Farther for Some Hospital Care, Modern Healthcare, July 2019.  Accessed 
at https://www.modernhealthcare.com/mergers-acquisitions/why-youll-have-go-farther-some-hospital-care on 
July 13, 2021.  Additionally, OIG found that in 2011, fewer than half of CAHs offered certain types of inpatient 
services, including intensive care, behavioral health services, and oncology.  See OIG, Services Provided by Critical 
Access Hospitals in 2011, OEI-05-12-00081, December 2013. 
31 Kindermann, D.; Mutter, R.; and Pines, J.M., Emergency Department Transfers to Acute Care Facilities, 2009, HCUP 
[Healthcare Cost and Utilization Project] Statistical Brief #155, May 2013, Agency for Healthcare Research and 
Quality, Rockville, MD.  Accessed at https://www.hcup-us.ahrq.gov/reports/statbriefs/sb155.jsp on September 2, 
2021. 
32 Noether, M., and May, S., Hospital Merger Benefits: Views from Hospital Leaders and Econometric Analysis, 
January 2017.  Accessed at https://www.aha.org/guidesreports/2017-01-24-hospital-merger-benefits-views-
hospital-leaders-and-econometric-analysis on July 13, 2021.  Ross, C., Paying More, Getting Less: As Hospital 
Chains Grow, Local Services Shrink, STAT, January 2018.  Accessed at 
https://www.statnews.com/2018/01/24/hospital-chains-services-consolidation/ on July 13, 2021.  Hayford, T., The 
Impact of Hospital Mergers on Treatment Intensity and Health Outcomes, Health Services Research, Vol. 47, 
June 2012, pp. 10081029.  Accessed at https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3423176/ on 
September 2, 2021.  
33 OIG, Medicare Beneficiaries Paid Nearly Half of the Costs for Outpatient Services at Critical Access Hospitals, 
OEI-05-12-00085, October 2014. 
34 Previous OIG work similarly found that beneficiaries who received outpatient services at CAHs in 2012 paid an 
average of 47 percent of the costs of those services in coinsurance, whereas beneficiaries who received outpatient 
services at other hospitals paid an average of 22 percent in coinsurance.  See OIG, Medicare Beneficiaries Paid 
Nearly Half of the Costs for Outpatient Services at Critical Access Hospitals, OEI-05-12-00085, October 2014. 
35 Hospitals submit cost reports based on their fiscal years rather than calendar years.  Because the start of the 
fiscal year varies across hospitals, they submit cost reports at different times. 
36 Multiple lines can be billed on a claim.  Each line item represents a unique service. 
37 For this analysis, we classified as related a match between the first three digits of the code for the admitting 
diagnosis, the primary diagnosis, or the first-listed secondary diagnosis on the inpatient claim and the first three 
digits of the codes for the primary diagnosis, the reason for the visit (1-3), or the first-listed secondary diagnosis 
on the outpatient claim were classified as related for this analysis. 
Issue Brief: Medicare and Beneficiaries Pay More for Preadmission Services at Affiliated Hospitals Than at Wholly Owned 
Settings, OEI-05-19-00380  Endnotes | 27  38 The World Health Organization (the body that develops diagnosis codes) states that the first three digits of a 
diagnosis code typically describe the major disease category, and that the fourth, fifth, and subsequent digits 
provide additional details and specificity.  World Health Organization, Instruction Manual, Fifth Edition, 
International Statistical Classification of Diseases and Related Health Problems, 10th Rev., Vol. 2, ch. 2.4. 
39 Sebastian Schneeweiss et al., Use of comorbidity scores for control of confounding in studies using 
administrative databases, International Journal of Epidemiology, Vol. 28, Issue 5, 2000, pp. 891898. 
40 Prior to June 2010, CMS used a five-digit match to determine whether nondiagnostic services were related to an 
inpatient admission.  76 Fed. Reg. 51476, 51707, August 18, 2011. 
41 CMS, State Operations Manual, Pub. No. 100-07, ch. 2,  2779A1.  Accessed at http://www.cms.gov/Regulations-
and-Guidance/Guidance/Manuals/Downloads/som107c02.pdf on July 12, 2021. 
Issue Brief: Medicare and Beneficiaries Pay More for Preadmission Services at Affiliated Hospitals Than at Wholly Owned 
Settings, OEI-05-19-00380  Endnotes | 28