MISCODING PATIENT TRANSFERS: EFFECT ON MEDICARE PAYMENT 
NA TIONAL PROGRAM INSPECTION 
S1.J.VICI.t. 
OFFICE OF INSPECTOR GENERAL 
OFFICE OF ANALYSIS AND INSPECTIONS 
JUNE 1988  Office of the Inspector General 
The mission of the Office of Inspector General (OIG) is to promote the efficiency, 
effectiveness and integrity of programs in the United States 
Department of Health and Human
Servces (HHS). It does 
this by developing methods to detect and prevent fraud
, waste and
abuse. Created by statute in 1976, the Inspector General keeps both the Secretary and the 
Congress fully and currently informed about programs or management 
problems and
recommends corrective action. The OIG performs its mission by conducting audits 
investigations and inspections with approximately 1 
200 staff strategically located around the 
country. 
Office of Analysis and Inspections 
This report is produced by the Office of Analysis and Inspections (OAl), 
one of the three major
offices within the OIG. The other two are the Office of Audit and the Office of Investigations. 
The OAI conducts inspections which are
, tyically, short-term studies designed to determine
program effectiveness, efficiency and vulnerability to fraud or abuse. 
This report entitled "Miscoding Patient Transfers: Effect on Medicare Payment 
" this
inspection was conducted to assess the vulnerabilities within Medicare Prospective Payment 
System (PPS) rules concerning the transfer of a patient from one hospital to 
another. 
This report was prepared by the Regional Inspector GeneraJ
, Office of Analysis and
Inspections, Region VI (Dallas). Assisting the Regional Inspector General (Ralph Tunnell) in 
this project were the following people. 
Dallas Region 
Headquarters 
Kevin Golladay, M. 
Kitty Ahern 
Mary Hogan  MISCODING PATIENT TRANSFERS:  EFFECT ON MEDICARE PAYMENT 
RICHARD P. KUSSEROW 
JUE 
INSPECTOR GENERAL  1988

CONTROL #OAI-06-87-00043  .,, ...

.. ....-..... -..--   ....'....-.-.  .--..... ....  ....' . . ...
$39. 9 Milion 
ijt 
1985 MEDCARE OVERPAYMENTS DUE TO 
HOSPIT AL  SCODING OF TRANSFERS
 EXECUTIVE SUMMARY 
PURPOSE 
The purposes of this inspection were: to determine if overpayments were made to 
transfers not 
hospitals under the prospective payment system (PPS) because of patient 
correctly identified during the Medicare claim payment process; to assess the conditions 
causing the overpayments; and to identify procedures to assure accurate payments in the
future. 
BACKGROUND 
The Medicare prospective payment system was implemented in October 1983 to control 
inpatient hospital reimbursements, the largest single component of Medicare spending. 
While 
The PPS is based on fixed per-case payment for diagnosis-related groups (DRGs). 
most PPS payments are for the fixed DRG amount, more or less than the DRG rate can 
be paid. 
When a patient is transferred from one short-term acute hospital to another, the first 
upon the length 
hospital is paid a proportional share up to the full DRG payment based 
of the patient's hospital stay. In order for the intermediary to correctly pay for transfers 
, or the transfer must 
hospitals must indicate on the biling form when transfers occurred
be detected by peer review organization (PRO) review. The PRO review of transfers 
contractor. 
must be communicated to the intermediary in order for claims to be correctly paid by the
FINDINGS 
1985 Medicare hospital 
This inspection centered upon a statistically-valid sample of 
discharges where an undetected transfer, material to Medicare payment, may have 
occurred. 
In the sample of possible overpaid claims, we  87.  percent were 
found 
miscoded transers. 
becaue of
An estimated  $39.  million was overpaid in Fiscal Year 
 1985 
incorrect coding of traners to other short-term acute hospital. 
possible
The PRO review resulted in only  claim from the  48 
overpayments being correctly paid through intermediar adjustment. 
a PRO. 
Sixty-nine percent of the overpaid claims were reviewed by 
Eighty-three percent of the PRO reviews identifed a transer but only 
percent were communicated to the intermediary responsible for 
. 13 

, these percentages 
correcting payment. Becaue of the small sample size
are not projectable to the universe.
 PRO/intermediar communication failures were due to a lack of 
The 
clear instructions and procedures concerning PRO identifed transfers. 
PRO review is the only current review process available to identify 
The 
Thirt-one percent of the unreported 1985 
unreported tranfers. 
transers were not subject to PRO review. 
Most of the transers were mad to obtain medical care not available in 
percent of the
the transferrng hospital. Cardiac care accounted for  55 
transfers. 
RECOMMENDATIONS 
Instructions concerning transfer cases should provide for clear responsibility on the part 
of the hospital, the intermediary and the PRO for identification and correct payment of 
the transfer. Specifically, the Health Care Financing Administration (HCFA) should: 
Periodically review (or provide the PRO access to national data) the 
posted PPS claims to identify those where interstate movement of an 
inpatient occurred and where the stay in the first hospital is less than 
the national mean. Claims identified should be referred to the PRO 
servicing the first hospital for a determination on the transfer 
question. 
The HCFA responded that the operational problems and cost associated with 
implementation of this recommendation would far exceed the return in benefits. Also, it 
stated that insufficient data was given to warrant such review. 
The HCFA has acknowledged that a vulnerability exists within the present reimburse
ment system but is unable to correct the problem because of a lack of required computer 
system sophistication. Based on our results, an estimated $5 million in 1985 was overpaid 
because of undetected interstate transfers. As HCF A develops the systems capability to 
identify these claims, data concerning them should be provided to the PROs to 
determine whether a transfer had taken place, and if so, to adjust the payment as needed. 
Modify the Medicare Hospital Manual to clearly define which 
situations should be reported as a transfer. 
The HCFA concurred with this recommendation and is in the process of preparing 
intructions to provide additional clarification to hospitals. 
Strengthen PRO review procedures to include all admissions within 
day of discharge from another PPS hospital.  The new PRO contract requirements for 1988 require the review of 25 percent of all 
readmissions to another or the same PPS hospital within 30 days of discharge. The 
HCF A believes that this will address this problem, because hospitals found to have a 
pattern of improperly coding discharge destinations will be placed on intensified review. 
We continue to believe that requiring the PRO to review 100 percent of readmissions 
within 1 day will not only identify undetected transfers, but would be a valuable source of 
information concerning premature discharge and other potential mistreatment. 
Alter the magnetic tape specifications for communication of PRO 
adjustments to the intermediary to include all transfer status changes 
as an adjustment code. 
The HCFA concurred with the recommendation and is in the process of making 
computer tape specification changes.   ......... .......................................... ................. ............. ...................... ......... . ...............................................  
TABLE OF CONTENTS 
page 
EXECUTIVE SUMMARY 
INTRODUCTION.... ....... ...... .......................................... 1 
.................................... 5

OBJECTIVES............... ..... 
........................ 7

M ETH 0 DOLOGY ................. .... 
FI ND I NGS ..... ........ 

- Medicare Overpayments
- Flawed Communication between

PRO and Intermediary

- Hospital Reasons for Incorrect Billng 
RECOMMENDATIONS 
......................... 19 
AD DEN DU M   INTRODUCTION

The Tax Equity and Fiscal Responsibilty Act of 1982 (TEFRA) 
and the Social Security Amendments of 1983 made fundamental 
changes in the Medicare payment system for inpatient hospital 
servces. 
, the Medicare program paid a hospital based upon 
Prior to 1983
s Medicare services. This 
the reasonable cost of the hospital'
retrospective cost reimbursement system had serious drawbacks. 
Inadequate controls over both the volume of services provided and 
Cost Reimbursement  the cost of hospital operations produced double digit annual 
System  percentage increases in program expenditures and predictions of 
Medicare insolvency in the 1990s. Legislative changes in 1982 and 
1983 responded to the escalating cost of inpatient care by setting 
upper limits on payments and providing hospitals with incentives 
to control Medicare patient expenses. 
Beginnng in October 1983, Medicare patient care in short-term 
general hospitals was covered by a prospective payment system 
(PPS). This system pays for most of the hospital's inpatient service 
, based upon the patient 
through a predetermined amount
medical condition, for each discharge. The actual amount of PPS 
s medical 
Prospective Payment  payment is determined by classification of the patient 
(DRGs) and a 
System  condition into one of 471 diagnosis related groups 
blend of national and hospital specific information about past and 
current hospital costs. A unique payment rate is thus established 
by DRG for each hospital. Since the rate is paid irrespective of 
, each Medicare admission provides the opportunity to
amctuaal kcoest sor lose money. 
, more or less than 
While PPS pays most claims at the DRG rate
the DRG amount can be paid. Additional monies are paid if an 
unusually high cost or long length of stay is involved. The PPS 
amount may also be reduced or denied in total. 
The PPS regulations make a payment distinction between the 
hospital transferring a patient and other discharges. A full DRG 
payment is made for a discharge based upon the assumption that 
Payment Distinction 
the discharging hospital provides the major part of the care 
needed. On the other hand, the transferring hospital is paid either 
the full DRG rate, or a reduced amount, depending upon the 
circumstances of each transfer. (See exhibit A.  METHODS OF CALCULATING HOSPITAL PAYMENTS 
WHEN TRANSFERS OCCUR 
The following examples, from the preamble to the interim final regulations in 
the Federal Register at 48 F.R. 39759 (Sept. 1, 1983), ilustrate payment for 
transfers to another short term acute hospital: 
Example 1: A patient stays at Hospital A for 2 days and is subsequently 
transferred to Hospital B. The prospective payment rate is $10 000 at each 
hospital, with an average length of stay of 10 days for the DRG. Hospital A 
would be paid $2 000 (2/10 x $10 000) and Hospital B would be paid $10 000 
the full PPS payment rate. Total payment is $12 000. 
Example 2: A patient stays at Hospital A for 8 days and is subsequently 
transferred to Hospital B. The prospective payment rate is $10 000 at 
Hospital A and $12 000 at Hospital B. The average length of stay for the 
DRG is 5 days. The payment to Hospital A would be limited to $10 000, the 
full prospective payment rate, since the length of stay exceeds the average 
length of stay for the DRG. Hospital B would be paid the full prospective 
payment rate of $12 000. Total payment is $22 000. 
Example 3: A patient stays at Hospital A for 2 days under DRG X, which has 
an average length of stay of 10 days. The prospective payment rate is $10 000 
for the hospital for X. He is subsequently transferred to Hospital B under 
DRG Y. The prospective payment rate at Hospital B is $16 000 for DRG Y. 
Hospital A would be paid $2 000 (2/10 x $10 000). Hospital B would be paid 
$16 000, the full0 p0ros0pe.c tive payment rate for DRG Y at Hospital B. Total 
payment is $18 
Example 4: A patient stays at Hospital A for 4 days under DRG X, which has 
an average length of stay of 8 days. The prospective payment rate at Hospital 
A is $16 000 for DRG X. He is subsequently transferred to Hospital B for 4 
days under DRG Y which has an average length of stay of 10 days. The 
prospective payment rate is $10 000 for DRG Y. He is finally transferred to 
Hospital C. The prospective payment rate for DRG Y in this hospital is 
$15 000. Hospital A would be paid $8 000 (4/8 x $16 000). Hospital B would 
be paid $4 000 (4/10 x $10 000). Hospital C would be paid $15 000, the full 
prospective payment rate for DRG Y at Hospital C. Total payment is 
$27 000. 
Exhibit A  A full DRG rate is paid whenever a length of stay is equal to or 
greater than the national mean for the DRG. A portion of the full 
Reduced Payment

DRG is paid when the transfer occurs earlier. The reduced 
to Transferring 
payment is calculated by dividing the hospital DRG payment by 
Hospital 
the national mean length of stay, and then multiplying this per 
diem amount by the patient's length of stay. 
Guidance on distinguishing transfers from other discharges is

, a transfer

found in 42 CFR 412.4. For the purpose of this report
exists when:

1) the patient is transferred from one short-term PPS

hospital to another short-term PPS hospital, or

What is a Transfer? 
2) the patient is tranferred from a PPS hospital to a

hospital that is excluded from PPS because of a

statewide cost control program or demonstration

project, or to a hospital whose first PPS cost

reporting period has not yet begun.

The circumstances of the patient's departure from a hospital are 
coded by the hospital on the Medicare claim form. Exhibit B 
shows the possible status codes that can be entered on the hospital 
claim form. The particular code used depends upon individual 
circumstances. 
Correct payment of claims involving a transfer depends upon (1) 
Requirement for 
accurate identification by the transferring hospital or peer review 
Correct Transfer 
organization (PRO) review and (2) proper application of the

Payment 
regulations regarding the claim payment by the intermediary.

Early in the plannng process for PPS, the OIG recognized, as did 
others, the vulnerability of transfers to incorrect payment. The 
HCFA' s requirement that PROs review all transfers and all 
related readmissions was seen as a safeguard to prevent 
overpayments. 
Hospital failure to identify the transfer may be detected during the 
; adjudication of the Medicare claim. At the time of this inspection 
Detection of a  the PRO was required to review hospital admissions occurring 
Miscoded Transfer  within 7 days of a previous discharge, if the discharge appeared 
. related. This PRO review permits identification of the transfer 
when a related admission exists. When the intermediary is 
notified, payments are adjusted (lowered) in applicable cases.  ***** *****
UB-82 (HCFA Form 1450)
and Oiscllarge Status Codes 
The tollowing is a copy 
 ot  the hospital billing torm submitted to 
intermediaries in order Ftioe lrde c2e1i vree tpearysm etont d itsocrh haorsgpei tsatla tusesr cviocdees  (pSrToAvTi)d. ed 
to Medicare patients. 
Below are a list o! the possible entries which can be entered by the

ot  the patients
hdosipsictahl aderpgenedi/ntg roan nthsef ceirrc.u mstances

Transr"r to anoth"r PPS ' Hospital 
Discharge Status Codes:

Code  Description  (Source: Hospital Kanual, Sac. (25) 
Discharged to home or sel! care (routine discharge) 
Discharged/transferred to another 6hort-term general hospital 
Discharged/trans!crred to skilled nursing !acility (SNF) 
(rCF)
Discharged/trans!erred to an intermediate care !acility(including
Discharged/trans!erred to another type o! institution 
distinct parts) 
Discharged/trans!erred to home under care o! home health service 
Le!t against medical advice  Patient)
Patient expired (or did not recover - Christian Science 
APPROVED O  8 NO. 09Ja.Q2M 
1-' 
.Qo-
T? 
TH TOP PORTION OF  UB-B2 FORM 
Exhibit B
 OBJECTIVES 
This inspection centered upon identifyng overpayments due to 
full DRG payments being made for transferred patients when only 
a pro rata payment was due. 
Specifically: 
Were Medicare PPS transfer claims accurately 
coded by the hospital? 
Were the transfer claims accurately paid by the 
Medicare contractors? 
and 
What procedures were in place to detect 
correctly pay transfer claims when the hospital 
failed to code the transfer? 
Issues 
If overpayments were made, how many claims 
were involved and what was the amount 
misspent dollars? 
Were there any distinguishing features of either the 
patients or providers involved in cases where a 
mad? 
Medicare overpayment was 
What steps can be taken to strengthen the 
transer-related adinistrative processes and 
procedures and reduce vulnerabilities?  ::.:::.:::::.:::::..::::.:.::::\..::.:::\;::::..:\.:::::.:;\::::.:;..::::.:::.;::::;;...:::::;..:::;:.:..:::;;:;::::.:.:::::::.::.:::;:..:::.:.:.::::.::..:::::::..:.:::.:::.:::.;;;..:::::...::::..;:.:::..;:::.::.:::::..:.::::;.:::.::.::.:;.;:::::..:.::::::..:::::::.::::.::::::::.:::.::::::.:.;:::::.::..:::::::..::::.::::..::::::::.::.::::::;.:\::.:::.:...:.:::::::.::.:::.;.::.::.:;:::;:.:.;..:::::\::;:::.::\..:.::::::.:\:;:.:::..;..:::.::::;:::.::.:.:.;:::.\::.;::::\:..:::.;\::.::;:\..:\.:.:::.::..::.:::...::::.\:::::\.:.::;:\:.;::.\:::;::.:::::.::;:::::;.::;::.:::.::.:.::::.:::::.:::::::::::::::::::::::::::::::::::::::::::: ~~~
DEVELOPMENT OF SAMPLE FOR REVIEW

DL TO

OF POSSIBLE OVERAYMOOS 
MlSCODING OF TRASFER

:l. \II:::\:\I\:I\.,I\:\I\\. I\.II:\.:II\1. 11\.
gm:::i::
ffBtW:::: ,l: 
??t\rrtfrrf/rr\fffttf\t))ftt 
Yt : 
CA 
O\fA 
POSSIBLE MI9::OED CLRItD

SImLE 10 REVIEU fOR OVERP
 EN1S
(N=48) 
THESE 48 CLAIMS REPRESENT POSSIBLE OVERPAYMENTS 
IF  THE READMISSION 
TO BE INVESTIGATED TO DETERMINE 

Exhibit C 
AS THE RESULT OF A TRANSFER OR NOT.  METHODOLOGY

The ideal framework to evaluate the transfer issues was a review of 
all possible transfers during a time period. Since thousands of 
these situations exist each year, we identified a national sample 
National Sample  Medicare discharges for analysis. The file used for the sample 
selection was the master record of Medicare experience 
of Same Day 
Readmissions  maintained by the Health Care Financing Administration 
(HCFA), the Federal agency responsible for the day-to-day 
operations of the Medicare and Medicaid programs. The sample 
period was Fiscal Year 1985, which was the most recent year with 
data sufficiently complete for analysis. 
Th' e sampling technique selected all discharges with Medicare 
beneficiary numbers ending with terminal digits 095 and 595. The 
size of the sample was two-tenths of 1 percent of the national total. 
Since the objective included a review of all possible transfers, no 
regard was given to patient discharge status in selecting the 
sample. All claims were identified and listed where two or more 
inpatient claims included the same day. (See exhibit C.) 
Four hundred and forty paired claims were identified 
representing a variety of situations. Some were readmissions to the 
same hospital. Other claims were coded to show a transfer from 
one hospital to another or showed discharges from a short-term 
acute hospital to a hospital or hospital unit excluded from the PPS 
system. 
Fort-eight of the paired claims met the requirements for analysis: 
Sample with 48 
Possible 
coded as a transfer 
Overpayments  1) the discharge claim was not 
was a PPS hospital 
2) the receiving hospital 
3) the claim was paid, and 
4) the hospital length of stay in the first hospital was 
less than the national mean for the DRG. 
The next step was to determine facts surrounding the 48 paired 
claims and to establish the criteria to use in defining a transfer. 
The Federal regulations and hospital manual instructions do not 
provide guidance in all identified situations. For example, the 
patient left one hospital and was taken by private car to another  -- - - -- -  ..**.***...****..* -------*-.-*-.-.-.-.
VERifiED OVRPAYMNTS 
..********************.*. TRASFERRI NG HOP IT Al  **.**** RECE I VI NG HOSP I TAL
fIrst Acri ss ion -
 u-- - -- -- -- -- u ----u -- - ---- --u --- - - MED I CARE  secon Acri ssi s ion---
CASE  HOSP IT AL  ACTUAL  CORRECT  HOSP AVER  STAY  MISCOOING  HOSPITAL
STATE  TYPE BEDS  Reirr $  Reirr 5 DRG stay  LOS  DIFf Dest OVERPAYMENT  STATE  TYPE BEDS  Reirr $  DRG 
Z%=======	 r2Z=Z================================================================================================z== 
$76 296  267  *10  617  018 
120  , 86  1 12  5327  3/3  513 296  108 
, 124  117 122  1.8  007  438  517 01,6  108 
502  685 121  11.9  817  538  $17 059  108 
171  1,69  890 121  11.9  579  21,0  529 , 17  104 
560  511  202  $973 112  11.  10.  $10 229  231  905  1,52 
569  455  582 125  873  285  331 
183  296  6 138  750  310  791  125 
300  107  5951 346  156  569  685  31,6 
201,  51,718  525 1  $193  193  116 
5290 122	 564  561  097 
697  5932 121  11.9  52, 765  168  51, 633  138 
11,  220  54 , 889  391 122  1,98  11,  1,26  006  145 
11,  116,39   5897167   $2883  112820  1,.  531,  250807   5525  212027 
801  580 138  $221  500  331  135 
100  592  $0 207  592  11,  1,61  567  195 
158  726  5258 132  1,5  1181  1,35  139 
257	 S86 138  5411  301,  611,  116 
31,	 603  965 121  11.9  638  757  079  140 
218  2181,16  079  301,  52, 906  308 
1,  $513 11,0  5898  1,09  788  11,0 
12 (100  566  5431 1,03  1,.  135  268  323  296 
21,	 1,59  776  101 087  675  198  131  101 
225  293  257211  15.  036  1,2  565  236 
1,72  631  $5, 329 112  11.  302  112  750  1,03 
388.	 923  5871,  253  049  31,  333  311,  236 
1,1,1  $715 207  $726  225  102  197 
51,	 1,90  $970 096  $520  291,  696  397 
205  972	 1,31,  11,0  1.5  $538  687  295  125 
260  901  079 121  11.9  822  1,64  $27 095  106 
1,3  151,  304  $324 130  980  1,3  1,56  983  110 
1,1,  990  879 121  11.9  111  1,1,  296  565  127 
1,5  155  511  5439  171,  3.7  072  1,5  253  $ 2,784  205 
1,5  1,3  $3, 430  $501 011  929  1,5  1127  $10 078  1,00 
1,5  162  619  1,06 121  11.9  213  1,5  841,  $11  899  109
1,5	 1,77  $762 014  715  142  175  002 
1,5  1,65  $306 140  159  1,5  258  832  157 
1,9  1,21,  $2, 167  $289  21,3  51, 878  1,9  1,01  557  1,09 
1,0  303  755  5852 121,  903  376  513 058  107 
1I,, 2  121  719312   $13,5845  113202   1,.  ===========$=2=,= 73=34=77=  ==================11=,06=57=  ==$=1=3= =40=54=13=  ==11=01z70z=  
=:==x====z=z:z=== ==:=u========u=c==z================= 
AVERAGE:  185  534  615  1,.  1,.  900  1,02  971, 
This table represents data gathered on
 1,2  overpaymts  SAXPLE TOTAL 
fou in our semle of  1,8  possible miscoded transfers.  OVERPAYKENTS  $79 801.1, 
The remining 6 claims are not Included as they were

fou to be correctly cod and paid.	
adend 
*facl tI ty typ:  8 ee 
Exhibit D	 Dest * discharge status
 hospital to obtain care for a condition diagnosed at the first 
hospital. Was this situation a transfer? What facts must exist for 
classification of a transfer? The questions were addressed by 
Classification of
 classifyng a discharge as a transfer when (1) the patient was 
a Transfer 
directly admitted to the second hospital and (2) the patient' 
medical record established the staff at the first hospital, including 
, had prior knowledge of the second 
the attending physician
admission. 
Fact finding on the sample records was extensive. We requested 
the medical records from the two hospitals involved with the 
Extensive Review of  paired stay. Claim procedures and claim processing facts were 
Patient Records  obtained from the cognizant intermediaries and peer review 
organizations. Exhibit D summarizes several of the pertinent facts 
regarding claims from our sample. 
We also discussed the transfer rules with regional and central 
office RCF A staff when questions arose in our analyses. Patients 
or the patients' representatives were interviewed to determine 
transfer facts from the patients' perspectives.  ANAL YSIS OF SAME DAY READMISSIONS

TO ANOTH ACUE HOSPTAL

CO 
NOT  AS A TRANFE

SI  sIze IS 
57. 
CORRECT PAYMENTS (6) 
12. CLRlft C(Jllcrr /'IO 
(oISCHR G( SIRTVS COOC5 
C(JIlCT RN(/O PRYNNr 
ROJ.ST(O) 
87. 57. 
SAMPLE OVERPAYMENTS (42)

CLRI/T THRT SHOOO

HRV( BaN COO(O RN(

PRIO R5 I RNsr( 
10lSCHIWIi srRIU5 DC) 
DATA REPRESENTS AN ANAlYSIS OF 1985 CLAIMS FOR

TWO TENTHS OF ONE PERCENT OF BENEFICIARIES 
THOSE WITH MEDICARE HIC TERMINAl DIGITS 095&595.

SAMPLE OVERPAYMENTS (42)
TRR 
CONG 
CAUSN OVERAYMEN

01 SCHQRGE 10 HonE

CODe 01 (5  57.)

coDTe 0R5 (2 8. 67.) J
OTH T'

It6TITVI  THIS GRAPH DEPICTS THE wRONG DISCHARGE 
STATUS CODE ENTERED IN ERROR WHICH CAUSED 
THE 42 OVERPAYMENTS IN THE SAMPLE. 
ExhIbit E
 FINDINGS 
We estimate that failure to pay hospital tranfers accurately

resulted in incorrect payments of $39.9 million in 1985.

correctly 
Forty-two of the 48 paired hospital claims were not 
coded. (See exhibit E.) This caused overpayments of $79 801.

Sample findings were projected to the universe by multiplying

. $39 Milion 
findings by the inverse of the sampling fraction. We estimate, at

Misspent 
, the total amount misspent was

the 90 percent confdence interval
$38 to 41 million.

. In the original sample of 48 possible overpayments, only 1 case was 
referred by the PRO and an adjustment made by the intermediary. 
The circumstances of the 42 overpaid claims were analyzed for 
insight on specific corrective actions. We found: 
. 12 percent of the claims involved an interstate

transfer; 
. 31 percent of the claims from the transferring.

hospital had not becn reviewed by a PRO; 
. 50 percent of the claims had been reviewed by 
the PRO and the transfer was identified; 
however, the PRO had not notified the 
intermediar of the transfer status change; and 
. 7.7 percent of the claims were referred by the 
PRO for intermediar adjustments, but no 
adjustments were made. 
Note: The percentages given above caot be projected to the 
unverse because of the small sample size. 
Since the current PPS system does not advise PROs of admissions 
No Review of  in other States and since the current PRO review does not include 
Transfers  100 percent of readmissions, correction of transfer vulnerabilities 
Between States  wil require more than improved communication between the 
PRO and the intermediary.  ~~~
:::::: ::..:.::..:::"..:::."-.:.';:,..:..:.::.:.::..::.-..:::-..:..-.":..,:..'...'.'..:..-...:..:.........................................;~.....:.~..:.:.::~..;...:.:.~:...::.~:.:::.:::;
PRO CLAIM REVIEW AND COMMUNICATaIO-NSS  WITH THE FI 
TV em 
(fTECT  AN fW T  5T A 
smFm:1 
iY 
LL REL TED REOOI1S 
TO  NOIHER HOSPI1I1 
PRO REV I EWER  WI1HIN 7 DAYS  RE TO 
! NfPiNUTD RINEVG SI E U  RErVoIoE WJ:SC RIE.CCOYR D  BE REVIEWED 
BY THI PRO 
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:-:-:-:-:O:::-'':-:O:-:-:-:-:-:
IH5YTfN BR  Prop adjustments do rot  ocnr  v,en the system 
FiJils. This Failrre seem to be the rule trere tha the excepticn 
Tthoe  irnecalsuodne  is e
n  ath djueCslRet.mc ttHr Fcanideh  ldcto aFPpoY rs  mpdcieisoFcsih cFaiigJjiet  iI soFntosar t aournsee   crooofdt e t duceohs aigge-sed 
nreoatsc nas.F Fec ti1n) S PRcth)   IFFai ls etnot  stehne  tlhneime rbdeiccaruys ed otheesy n doot  inJcott.  iJFFect 
CR chcge  or 
Exhibit F
 The PRO Manual (section 2050. 1 D) charges the PRO with the 
responsibility "  .for identifying all cases involving transfers from a

PPS hospital to any other ... acute hospitaL. ; however, there is no

PRO requirement to review all same-day discharges and

admissions and thus be able to identify the unreported transfer.

The manual instructions (PRO Manual addendum A) are not clear 
concerning PRO reporting of claims where the intermediary needs 
to recover transfer-related overpayments. The record layout 
describes the specific action needed by the intermediary through a 
combination of two data fields. Field 8 tells the intermediary an 
Weaknesses in PRO  . adjustment is needed and the nature of the adjustment (e. 
and Intermediary  admission denied, DRG change, etc.). Field 12 provides the 
Instructions  specific information needed by the intermediary to act (e.  , the 
new DRG). While field 12 reports the PRO-identified transfer 
field 8 does not provide a code for a transfer adjustment. The end 
result is no recovery of the overpayment unless ad hoc agreements 
solve this problem. (See exhibit F.) 
The PRO and the intermediary in some states have made 
7 percent of 
arrangements to overcome the deficiency. Some 16.
State PROs responding to a survey (3 out of 18 rcspondents) 
presently communicate all status code changes to intermediaries 
through electronic computer tape. In our sample, only one of the 
Few PROs Transmit  intermediaries had acted upon the PRO-identified transfer and 
Status Code Changes  recovered the overpayment. Of those not using electronic tape 
communication for status changes, 27.8 percent (5 respondents) 
use hard copy letters to inform intermediaries. The PROs not 
communicating status code changes (56 percent) stated their 
responsibility was to only inform intermediaries of status code 
changes which change the DRG. 
Vulnerabilities in the intermediary and PRO identification of 
related communication problems in the 
tranfers and the 
Medicare PPS system are the most significant findings. However 
Hospital Error

) A 
iscoding  we also found major problems in the hospitals. (See exhibit G.
Causes 
survey of the overpaid hospitals attributed 84 percent of the status 
code errors to communication problems within the hospital. 
While the survey showed most hospitals recognized the status code 
error, 16 percent of the hospitals did not recognize the transfer 
even after reviewing the circumstances which clearly show 
transfer occurred.  POSSIBLE REASONS FOR DISCHARGE CODING ERRORS

HOSPIT AL 
NURSE/DOCTOR ERROR

PATIENT  MfAL RECORD NFAILIS  TO

MEDICAL  NJA TF CORRECn Y WHE THE

RECORD  PATEN IS GONG OR  STAFF

FAL TO CORCny RfATF STATUS TO

TI 
ADMISSION/BILLNG DEPARTMETS 
tClUl eRm ()

18-81 Q.ln 
HOSPIT AL

OI'lsor IST RnJ 
an 1M  EHlER  BILLING CLERK ERROR

DA T A INUT ERROR OR CLERK

MA Y NOT UMJERSTAND TH CORRECT

USE OF MEDICARE STA TU CODES

INTERMEDIARY ERROR

aER 
A DATA ENTY  ERRS

ENIN 
W/N  FROM

A HARD COPY HOSPfT AL BIL 
(TI PROBLEM CANVOT OCCLR 
. WIT HOSPTALS WHO SUBW 
71R. QAIMS ELECTRONCALL Y) 
NTY 
DATA 
HCFA 
POLICY ISSUE

SOlv  TI-R 
READMfSIO!\'5 TO 
HOSPALS ARE DffCUL T 
CLASSIFY (ex. Referrals from 
transferring hospitol physician

fa speciofist of another 
hospitd) 
Exhibit G  The hospitals disagreeing to the transfer classification did so

reasoilng:

one which directly involved 
the tranfer was not 
arrangements by the hospital (e.  , the patient 
went to the second hospital by private 
transportation with arrangements made between 
Hospital Reasoning  physicians) or 
Differs 
the medical condition triggering the transfer is a 
new event, and the hospital views the care 
complete" for the problems involved in the first 
stay. 
The majority of hospitals which miscoded the discharge status of 
. the patient reported the reason for such a mistake as an error on 
the part of biling department staff responsible for recording 
discharge status. Hospital staff, according to the sample, coded 
. Discharge to "Home  the transfer as a discharge home (code 01) more often than any 
Entered in Error  other code. This may be due in part to the fact that most hospital 
Most Often  discharges are discharges home which hospital staff routinely 
, staff may use it without thinkng. 
enter. As a consequence
Another reason was given by one hospital which reported that its 
computer system defaults to a "home" discharge status code 
whenever biling clerks fail to enter a code. 
The second most commonly misused status code was code as 
discharge to another tye institution." The most probable reason 
for misuse of this code was lack of understanding of the use of the 
two codes. This lack of understanding was expressed by a medical 
Confusion with 
Transfer to Other  records director who emphatically believed (in error) that sending 
Type Institution  a patient to another tye of institution (code 05) was appropriate 
when its hospital did not have the capabilities to treat the patient. 
Clearly, his statement represents a lack of understanding as to the 
institution. 
distinction between a transfer to another short-term acute hospital 
tye 
and a tranfer to another 
Reasons for tranferring patients fell into two basic groups: 
and

1) patient request (N = 5) 
2) need for specialized care (N =37).
 Patient requests for transfers were generally to relocate near 
relatives and friends. As an example, patients may go to a large 
procedure done, but 
teaching hospital to have a special heart 
prefer to return to a hospital close to home for the rehabilitation 
phase of their treatment. 
Most Miscoded  The most common need for special care was in the area of 
Transfers are for  cardiology (55 percent). Twenty-nine percent (12 of 42) of the 
Cardiac Procedures  overpaid claims were for cardiac catheterization.  RECOMMENDATIONS

Instructions concerning tranfer cases should provide for clear 
responsibilty on the part of the hospital, the intermediary and the 
PRO for identification and correct payment of the transfer. 
. The HCF A should periodically review (or 
provide the PRO access to national data) the 
posted PPS claims to identify those where 
interstate movement of an inpatient occurred 
HCFA Identiication 
and where the stay in the first hospital is less 
of Interstate 
than the national mean. Claims identified 
Movement 
should be referred to the PRO servcing the first 
hospital for a determination on the transfer 
question. 
The HCFA responded that the operational problems and cost 
associated with implementation of this recommendation would far 
exceed the return in benefits. Also, it stated that insufficient data 
was given to warrant such review. 
The HCF A has acknowledged that a vulnerability exists within the 
present reimbursement system, but it is unable to correct the 
problem because of a lack of required computer system 
sophistication. Based on our results, an estimated $5 million in 
interstate transfers. As 
1985 was overpaid because of undetected 
HCFA develops the systems capability to identify these claims 
data concerning them should be provided to the PROs to 
determine whether a transfer had taken place, and if so, to adjust 
payment as needed. 
. The PRO review should be strengthened to 
require determination of the status code 
Strengthen PRO  accuracy of discharges where an admission to 
Review  another PPS hospital occurred within 1 day of 
the discharge and was not coded as a transfer to 
another short-term acute hospitaL 
The new PRO contract requirements for 1988 require the review 
of 25 percent of all readmissions to another or the same PPS 
hospital within 30 days of discharge. The HCF A believes that this 
will address the problem, because hospitals found to have a 
pattern of improperly coding discharge destinations will be placed  on intensified review. We continue to believe that requiring the 
PRO to review 100 percent of readmissions within 1 day would 
not only identify undetected transfers, but would also be a valuable 
source of information concernng premature discharge and other 
potential mistreatment. 
. The Medicare Hospital Manual should include a 
section on the transfer issue and should, through 
examples, provide additional clarification to the 
Hospital Manual  hospital on the definition of a transfer and 
Guidance  calculation of correct payments. One situation 
that should be included in the manual involves 
transfers arranged by the physicians where other 
hospital staff may not be involved in the transfer. 
The HCF A concurred with this recommendation and is in the 
process of preparing instructions to provide additional clarification 
to hospitals. 
. The magnetic tape specifications for

Computer Tape  communication of PRO adjustments to the 
Specification  intermediary should be expanded to include 
Change  transfer status changes as an adjustment code in 
field eight. 
The HCF A concurred with the recommendation and is in the 
process of making computer tape specification changes.  Addendum  ADDENDUM 
REFERENCE CHAT FOR EXHIBIT D: TYPE OF FACILITY OWNERSHIP

TYPE OF OWNRSHIP 
CODE  DESCRIPTION 
FOR PROFIT

INDIVIDUAL 
PARTNRSHIP 
CORPRATION 
PROPRIETARY 
OTHER 
NON-PROFIT 
INDIVIDUAL 
PARTNRSHIP 
CORPRATION 
PRIVATE 
CHUCH 
OTHER 
GOVT.  NON-FED 
STATE 
COUNY 
CITY 
CITY/COUNTY 
HOSP.  DIST . / AUTH 
COMB.  GOVT.  & VOL 
LOCA GOVT. 
OTHER 
GOVT.  (NON OR FED) 
GOVT - FED 
VET. ADM.

PHS. HOSP.

MILITARY 
FEDERA 
OTHER 
OTHR 
INVALID/MISSING 
RADARS-CHATS-SECTION-VI  PG. VI. 
CODES WITH APPLICABLE DESCRIPTIONS AND RADARS IDENTIFIER CODE