DEPARTMENT OF HEALTH &. HUMAN SERVICES	  Office of Inspector General 
Washington, D.C.  20201 
MAR  2 1 2008 

TO:	  Kerry Weems 
Acting Administrator 
Centers for Medicare & Medicaid Services 
~ t. ~
   
FROM:	  Daniel R. Levinson 
Inspector General 
SUBJECT:	  Memorandum Report:  "Long Term Care Hospitals Short-Stay Outliers," 
OEI-OI-07-00290 
This memorandum report provides information on long term care hospitals (LTCH) short-stay 
outliers.  Short-stay outliers are LTCH stays that end before they reach five-sixths of the average 
length of stay for the patient's diagnosis (LTC-DRG).  Specifically, we reviewed LTCH claims 
for fiscal years (FY) 2003 to 2006 to determine the extent and nature of short-stay outliers in 
LTCHs.  We also reviewed data from the Quality Improvement Organization (QIO) medical 
record reviews of LTCH claims for FYs 2005 and 2006 to analyze the payment error rates for 
short-stay outliers. 
Short-stay outliers decreased annually from 40 percent of LTCH stays discharged in 
FY 2003 to 27 percent of stays discharged in FY 2006.  Despite the decline in short-stay outliers, 
some discharge patterns raise questions.  From FY 2003 through FY 2006, LTCHs discharged 
over a third of short-stay outlier patients at least 10 days before they reached the short-stay 
outlier threshold.  During this period, LTCHs increasingly discharged patients within 2 days after 
the patients qualified for fullLTC-DRG payments.  The discharge patterns to post-acute care 
facilities for short-stay outlier patients differed from discharge patterns of other LTCH patients. 
However, for FYs 2005 and 2006, short-stay outlier payment errors mirror those of all other 
LTCH claims.  Almost aU of the payment errors that QIOs identified with LTCH claims were 
inaccurate LTC-DRGs and inappropriate LTCH admissions. 
BACKGROUND 
Over the past decade, the number of LTCHs has increased rapidly.  Between 1995 and 2005, the 
number of LTCHs more than doubled, increasing from 178 to 383.  During this period, Medicare 
payments to LTCHs increased from $836 million to $4.6 billion. t 
t Medicare Payment Advisory Commission.  "Long-Term Care Hospitals Payment System." September 2006. 
OEI-Ol07.o0290  Long Term Care Hospital ShortStay Outliers  Page 2  Kerry Weems 
 
 
Long Term Care Hospital Characteristics 
LTCHs treat patients with complex medical conditions that require prolonged post-acute 
hospital-level care. Common LTCH treatments include comprehensive rehabilitation, respiratory 
therapy, head trauma treatment, and pain management. 
 
Pursuant to Federal law, LTCHs must have an average inpatient length of stay greater than  
25 days.2  Federal regulations identify no additional requirements to distinguish LTCHs from  
general acute care hospitals.  LTCHs can be freestanding facilities or hospitals-within-hospitals 
(HwH).3   A freestanding LTCH occupies an entire building or campus.  HwHs are colocated with 
another hospital-level provider (referred to as the host hospital), either sharing a building or on the 
campus of its host.4   The Centers for Medicare & Medicaid Services (CMS) reduces payments to 
HwHs that readmit more than 5 percent of the patients they discharge to their host hospitals in a 
fiscal year.5  CMS applies an additional payment adjustment if the LTCH HwH admits patients in 
excess of a specified threshold from its host hospital.6  
 
A 2004 Medicare Payment Advisory Commission (MedPAC) report found that LTCHs are usually 
the most costly post-acute care setting.  For patients with the most common LTCH diagnoses, 
MedPAC found that LTCHs have reimbursement rates that are up to 4.4 times higher than 
estimated rates for inpatient rehabilitation facilities and up to 12 times higher than estimated rates 
for skilled nursing facilities.7  Furthermore, CMS found that LTCH Medicare payments for  
FY 2003 were about 8 percent higher than LTCHs Medicare costs.8  
 
LTCH Payment  
In FY 2003, CMS implemented a prospective payment system for LTCHs.9  In this system, LTCHs 
classify patients into LTC-DRGs based on the clinical characteristics of the patient.  CMS assigns 
relative weights to each LTC-DRG that reflect the typical cost associated with treating patients with  
 
                                                 
2 Section 1886(d)(1)(B)(iv) of the Social Security  Act defines a long term care hospital (LTCH) as a hospital which has an average inpatient 

length of stay (as determined by the Secretary of the Department of Health and Human Services) of greater than 25 days.  See also  

42 CFR  412.23(e)(3)(iii), which states that facilities seeking to convert to LTCHs  must submit  Medicare discharge data related to average 

length of stay gathered during 5 of the 6 months immediately preceding the conversion.  

3 An LTCH may also establish a satellite facility, which is part of a hospital located within or on the campus of another hospital-level provider. 
  
42 CFR  412.22(h). 

4 42 CFR  412.22(e). 
 
5 42 CFR  412.532. 
 
6  42 CFR  412.534. 
 
7 Medicare Payment Advisory Commission. June 2004.  Report to the Congress:  New Approaches in Medicare.  Chapter 5:  Defining Long 

Term Care Hospitals, p. 122. 

8 Preliminary data for fiscal year  (FY) 2004 revealed an even higher  margin of about 13 percent for that year.  Testimony of Herb Kuhn,  Deputy 
 
Administrator for the Centers for Medicare & Medicaid Services (CMS) before the Committee on Ways and Means, Subcommittee on Health, 

U.S.  House of Representatives,  110th Cong., March 15, 2006.  Available online at 
http://waysandmeans.house.gov/hearings.asp?formode=view&id=5262.  Accessed December 31, 2007.  
9 Before FY 2003, Medicare paid LTCHs based on the average cost per discharge.  
OEI-01-07-00290         Long Term Care Hospital Short-Stay Outliers   Page 3  Kerry Weems 
 
 
that diagnosis.  For each patient, CMS pays LTCHs an annually adjusted base payment that is 
multiplied by the LTC-DRG relative weight.   
 
Although LTC-DRGs are identical to the DRGs that Medicare uses to pay general acute care 
hospitals, CMS applies a larger standard Federal payment rate to LTC-DRGs based upon the 
resources typically required to treat patients with an average length of stay greater than             
25 days.10  In FY 2007, the base payment for LTCHs was $38,086, compared to a standard base 
payment of $5,309 for general acute care hospitals.11    
 
Short-Stay Outliers  
When CMS applied prospective payment to LTCHs, it reduced payment rates for LTCH stays 
that end on or before five-sixths of the average length of stay for an LTC-DRG (short-stay 
outliers).12  CMS pays less than the full LTC-DRG payment for these stays because they 
typically require fewer resources than longer stays.   
 
For short-stay outlier patients discharged from FY 2003 through June 30, 2006, CMS paid 
LTCHs the least of three payment amounts: 
 
   the full payment for the patients LTC-DRG,  
   120 percent of the LTC-DRG per diem, or 
   120 percent of the cost of the stay.13  
 
For patients discharged on or after July 1, 2006, CMS reduced short-stay outlier payments.  In the 
LTCH payment update, CMS explained that some short-stay outlier patients could more 
appropriately receive treatment in general acute care hospitals.14   To discourage LTCHs from  
admitting patients whom general acute care hospitals can treat, CMS revised the payment formulas 
for short-stay outliers by:15   
 
   reducing the third payment option to 100 percent of the cost of the stay, and 
 
 
 
                                                 
10 Social Security Act  1886(d)(1)(B)(iv)(I).
  
11 42 CFR Parts 405, 412, and 413.  The general acute care hospital base rate is the rate for large urban hospitals.  The LTCH base rate varies 

depending on the payment adjustments for a patients primary diagnosis, the procedures performed on the patient, patient characteristics, and 

facility characteristics (such as labor wages). 

12 42 CFR  412.529. 
 
13 CMS calculates the per diem by dividing the full diagnosis-related groups (LTC-DRG) payment by the average length of stay and then 

multiplying by the actual length of stay.  See 42 CFR  412.529(c)(1). 

14 Medicare LTCH Payment Update for Rate Year 2007, 71 Fed. Reg. 27798, 27845 (May 12,  2006). 
 
15 Medicare LTCH Payment Update for Rate Year 2007, 71 Fed. Reg. 27851 (May 12, 2006). 
  
OEI-01-07-00290         Long Term Care Hospital Short-Stay Outliers   Page 4  Kerry Weems 
 
 
 	  adding a fourth payment option that blends the comparable general acute care hospital per 
diem amount and 120 percent of the LTC-DRG per diem amount.16  
 
Quality Improvement Organization Reviews 
As part of the Hospital Payment Monitoring Program, CMS selects a national random sample of 
116 LTCH claims each month for QIOs to review.  QIOs are Medicare contractors in each State 
that conduct case reviews to oversee and enhance the quality of care provided to Medicare 
beneficiaries.17  CMS compiles the results of the QIO reviews to project annual national payment 
error rates.   
 
For each claim, QIO staff review medical records to evaluate whether the LTCH complied with 
Medicare coverage, coding, and billing rules.18  Payment errors that QIOs have identified for 
LTCH claims include:  inaccurate LTC-DRGs, admissions of inappropriate patients, incomplete 
medical records, and technical errors.  Based on QIO reviews for 2005, CMS estimated that 
nationally about 7 percent of its payments to LTCHs were in error.19  By comparison, CMS 
estimated that 5 percent of its payments to general acute care hospitals were in error.   
Seventy-five percent of the LTCH claims for which QIOs identified errors were for stays that  
lasted 25 days or less.20  
 
Related Office of Inspector General Work 
A 2004 Office of Inspector General (OIG) report identified shortcomings in CMSs oversight of 
LTCHs.21  In that report, OIG found that 19 of the 87 HwHs exceeded the annual 5-percent limit  
for readmissions from their host hospitals at least once from September 2000 through December 
2002. OIG also found that CMS lacked a system to detect readmissions over the 5-percent limit.  
CMS also lacked a mechanism to determine whether HwHs were financially and organizationally 
separate from their host hospitals.  In a December 2006 report, OIG identified and recommended 
recovery of overpayments to eight LTCHs in Massachusetts for claims totaling $936,418.22    
 
                                                 
16  For each day, as the length of stay increases, the percentage based on the general acute care hospital amount decreases and the percentage 

based on 120 percent of the per diem LTC-DRG increases.  This blend will pay longer stays an amount closer to the LTC-DRG rate, but shorter 
 
stays will receive rates closer to the  general acute care hospital payment rates. 

17  Social Security Act,  1862(g) and 1154(a)(1).  Also see QIO Eighth Statement of Work, Task 3:  Protecting Beneficiaries and the Medicare 

Program. 

18 RTI  International.  Long-Term  Care Hospital (LTCH) Payment System  Monitoring and Evaluation.  Phase II Report.  January 2007,  p. 64. 
  
CMS requires QIOs to use written criteria when reviewing LTCH claims.  However, CMS does not mandate which screening criteria the QIOs 

use. CMS, through the Iowa QIO, contracted with McKesson Health Solutions to give QIOs access to McKessons InterQualTM level of care 

assessment tools.   All but the Massachusetts QIO use the InterQualTM criteria. 
  
19 CMS.  Improper Medicare Fee-for-Service Payments ReportNovember 2006 Long Report.  Table 10d:  Error Rates and Improper
  
Payments by  Provider Type:  QIOs.  November 15, 2006. 
 
20 Communication with CMS officials who oversee QIO reviews of hospital claims.  April 10,  2007. 
 
21 Office of Inspector General (OIG).  Long-Term Care Hospitals-Within-Hospitals (OEI-01-02-00630), July  2004.
  
22 OIG.  Review of Associated Service Payments to Long-Term Care  Hospitals in Massachusetts From January 1, 2003, Through April 30, 
 
2004 (A-01-06-00506), December 2006.
  
OEI-01-07-00290         Long Term Care Hospital Short-Stay Outliers   Page 5  Kerry Weems 
 
 
METHODOLOGY 
 
Data Sources and Analysis 
We used two CMS data sources:  the 100-percent Standard Analytic Files and data from medical 
record reviews that QIOs conduct as part of the Hospital Payment Monitoring Program.    
 
Standard Analytic Files 
CMSs 100-percent Standard Analytic Files include 567,327 LTCH claims from FY 2003 through 
FY 2006.  We identified long term care facility claims by extracting records with a 2 as the third 
digit of the provider number.  Of these, we excluded records for patients who died while in the 
LTCH as well as records that lacked a valid LTC-DRG or discharge date.  Our analysis includes 
408,289 records. These records include admission and discharge dates and LTC-DRG and LTCH 
provider numbers. To identify short-stay outliers, we matched LTCH claims with CMSs annual 
updates of the short-stay outlier threshold, five-sixths of the average length of stay for each  
LTC-DRG.. 
 
To identify LTCH type (freestanding or HwH), we matched provider numbers in the LTCH records 
with a list of HwHs from CMS.  If CMSs list omitted information for a hospital from our claims  
database, we called the facility and asked if the LTCH was located in the same building as another 
hospital. We found no contact information or received an out-of-business message for 14 hospitals, 
representing 3,201 LTCH claims. 
 
Quality Improvement Organization Medical Record Review Data   
We obtained QIO medical record review data for all LTCH claims that QIOs reviewed in FYs  
2005 and 2006, the first complete years for which QIOs reviewed LTCH claims.  QIOs reviewed 
2,784 total claims, or 1,392 claims from each year.  The records include the types of errors, if any,  
that QIOs identified as well as the amounts of payment errors.  We used the data to identify 
patterns related to payment errors for LTCH claims.   
 
We projected payment errors to the population of LTCH claims from the sample of LTCH claims  
that QIOs reviewed during FYs 2005 and 2006. Each month, CMS selects a random sample of 
LTCH claims.  We weighted the claims for each month based on the total population of claims  
from that month.   
 
Standards 
We conducted this review in accordance with the Quality Standards for Inspections issued by the 
Presidents Council on Integrity and Efficiency and the Executive Council on Integrity and Efficiency. 
 
 
OEI-01-07-00290         Long Term Care Hospital Short-Stay Outliers   Page 6  Kerry Weems 
 
 
RESULTS  
 
Short-Stay Outliers Decreased Annually From Fiscal Years 2003 Through 2006 
CMS reduces payments for short-stay outliers in LTCHs because these stays typically require 
fewer resources than longer stays.  When CMS reduced payments for short-stay outliers in  
FY 2003, it predicted that these stays would decline.  At that time, CMS estimated that  
48 percent of LTCH stays were short-stay outliers.23  Our analysis of LTCH claims shows that  
the number of short-stay outliers has declined annually since CMS introduced reduced payments, 
from 40 percent of LTCH stays discharged in FY 2003 to 27 percent of stays discharged in  
FY 2006. (See Chart 1 below.) That decline was the same for both HwHs and freestanding 
facilities. 
 
Chart 1: Percentage of Short-Stay Outliers by Fiscal Year of Discharge 
45% 
 
 
 
40% 
 
40% 
 
 
s 
 ay
St 35% 
 H 
C
T
 of L 33% 
  ge 
a
nt
 erce 30%  31% 
 P
27% 
25% 
20% 
2003  2004  2005  2006 
Source: Office of Inspector General analysis of Standard Analytic Files, 2007.  
 
 
The decline in short-stay outliers is also consistent across geographic location.    Although the 
percentage of short-stay outliers varied slightly geographically, the number of short-stay outliers 
declined in every geographic area we reviewed.  (See Appendix A for short-stay outlier trend details.)    
 
                                                 
23 71 Fed. Reg. 27846 (May 12, 2006).  
OEI-01-07-00290         Long Term Care Hospital Short-Stay Outliers   Page 7  Kerry Weems 
 
 
Despite the Overall Decline in Short-Stay Outliers, Discharge Patterns Raise Questions 
One question relates to whether these patients are appropriately placed in LTCHs given their short 
lengths of stay.  From FYs 2003 through 2006, LTCHs discharged over a third of short-stay outlier 
patients at least 10 days before they reached the short-stay outlier threshold (five-sixths of the average 
length of stay for each LTC-DRG).  The LTCH stays that ended at least 10 days before the short-stay 
outlier threshold (very short stays) accounted for 36 percent to 41 percent of short-stay outliers 
throughout the 4-year period we reviewed.  (See Table 1 on the following page.)  
 
 
 
Table 1:  Lengths of Stay  for Short- Stay Outliers, Fiscal  Years  2003 to  2006 
Length of Stay  FY 2003  FY 2004  FY 2005  FY 2006 
Discharged at Least 10 Days Before  the Short-Stay Outlier Threshold  41%  39%  37%  36% 
Discharged 5 to 9 Days Before the Short-Stay Outlier Threshold  31%  31%  32%  32% 
Discharged 3 to 4 Days Before the Short-Stay Outlier Threshold  13%  14%  15%  14% 
Discharged up to 2 Days Before the Short-Stay Outlier Threshold  14%  16%  16%  17% 
   Total  99%  100%  100%  99% 
Source: Office of Inspector General analysis of Standard Analytic Files, 2007. 
 
Very short stay patients usually had lengths of stay that were closer to the average length of stay for 
patients with similar DRGs at general acute care hospitals than the average length of stay for the 
diagnosis at LTCHs.  (See Chart 2 on the following page for analysis by the 10 most common  
LTC-DRGs for very short stay patients in FY  2006.)  For example, in FY 2006, the most common 
LTC-DRG for very short stay patients was Respiratory system diagnosis with ventilator support 
(LTC-DRG 475).  In FY 2006, very short stays for this LTC-DRG lasted 19 days, at most.  The 
average length of stay for this diagnosis in general acute care hospitals was 8 days, compared to an 
average length of stay of 35 days in LTCHs.   
 
 
 
 
 
 
OEI-01-07-00290         Long Term Care Hospital Short-Stay Outliers   Page 8  Kerry Weems 
 
 
Chart 2:  Lengths of Very Short Stays Compared to Average Lengths of Stay at General 
Acute Care Hospitals and LTCHs for FY 2006, by Top 10 LTC-DRGs for Very Short 
Stays 
RESPIRATORY DIAGNOSIS
WITH VENTILATOR (475)
SKIN ULCERS (271)
PULMONARY EDEMA &
RESPIRATORY FAILURE (87)
SEPTICEMIA (416)
AFTERCARE (466) Average Length of
Stay at General Acute
Care Hospital
RESPIRATORY INFECTIONS & Maximum Length of
INFLAMMATIONS  (79) Very Short Stay at
LTCH
SKIN GRAFT &/OR DEBRIDE Average Length of
(263) Stay at Long Term
Care Hospital
REHABILITATION (462)
AFTERCARE,
MUSCULOSKELETAL SYSTEM &
CONNECTIVE TISSUE (249)
DEGENERATIVE NERVOUS
SYSTEM DISORDERS (12)
0 5 10 15 20 25 30 35 40 45
Number of Days
Source:  Office of Inspector General analysis of Standard Analytic Files, 2007. 
 
Another question relates to whether financial incentives trigger the discharge date rather than the 
patient condition.  From FYs 2003 through 2006, LTCHs increasingly discharged patients within  
2 days after they qualified for full LTC-DRG payments.  Throughout the FY 2003 to FY 2006 period, 
LTCHs discharged more patients in the 2 days after they passed the short-stay outlier threshold and 
qualified for full LTC-DRG payments than in the 2 days before.  (See Chart 3 on the following page.)  
Each year, LTCHs discharged fewer patients on the day before they qualified for a full LTC-DRG 
payment than on any of the other 4 days before or after the short-stay outlier threshold.   
 
This pattern became more prominent from FYs 2003 to 2006.  In FY 2003, LTCHs discharged  
4 percent of all patients in the 2 days before the threshold and 6 percent of patients in the  
 
 
 
OEI-01-07-00290         Long Term Care Hospital Short-Stay Outliers  Page 9  Kerry Weems 
 
 
2 days after.  By FY 2006, LTCHs discharged 4 percent of patients in the 2 days before the threshold 
and 10 percent of patients in the 2 days after the threshold.24    
 
Chart 3: Long Term Care Hospital Discharges Before and After the Short-Stay Outlier  
Threshold, FYs 2003 to 2006 
7% 
6% 
Short-Stay Outlier  Threshold 
5% 
s
e
g
ar
h
c
s
H Di 4%  2003 
C 2004 
T
of L 2005 
e  3%  2006 
g
a
nt
e
c
er
P
2% 
1% 
0% 
4 Days Before  3 Days Before  2 Days Before  1 Day  Before  First Day of Full 2nd Day of Full 3rd Day  of Full  4th Day  of Full 
Full LTC-DRG  Full LTC-DRG  Full LTC-DRG  Full LTC-DRG  LTC-DRG  LTC-DRG  LTC-DRG  LTC-DRG 
Timing of LTCH Discharge 
Source: Office of Inspector General analysis of Standard Analytic Files, 2007.  
 
From FY 2003 to July 2006, LTCH payments increased sharply on the day patients qualified for 
full LTC-DRG payments.  In the Medicare LTCH Payment Update for Rate Year 2007, CMS noted 
that the increase in payment for a full LTC-DRG stay encouraged LTCHs to retain patients just 
long enough to pass the short-stay outlier threshold and qualify for full LTC-DRG payments.25   
Analysis of claims from FYs 2003 through 2006 shows that LTCH discharges did systematically 
increase after this threshold.  Accordingly, for LTCH discharges on or after July 1, 2006, CMS  
 
                                                 
24  To estimate the percentage of  patients discharged in the 2 days before and after the threshold, we combined the number of  
patients discharged each day.  For example, we calculated that in 2006, LTCHs discharged 10 percent of patients in the  
2 days after the threshold by  combining the 4 percent of patients discharged in the first day and  6 percent of patients 
discharged in the second day.   Chart 3 presents the percentage of patients discharged each day.  
25  71 Fed. Reg. 27847 (May 12, 2006). 
OEI-01-07-00290         Long Term Care Hospital Short-Stay Outliers   Page 10  Kerry Weems  
 
 
revised the payment formula to remove the sharp increase in payment after the short-stay outlier 
threshold by incrementally increasing the LTCHs payment rate as a patients stay lengthens.26    
 
The discharge patterns to post-acute care facilities for short-stay outlier patients differed from  
discharge patterns of other LTCH patients.  From FYs 2003 to 2006, 74 percent of all LTCH patients 
came directly from general acute care hospitals.  Yet, LTCHs had to return 25 percent of short-stay 
outlier patients to general acute care hospitals, compared to only 8 percent of all other LTCH patients.  
(See Table 2 below.)  Although LTCHs discharged 36 percent of patients who stayed past the  
short-stay outlier threshold to skilled nursing facilities, they discharged only 15 percent of short-stay 
outlier patients to skilled nursing facilities, which provide less intense services. 
 
 
Table 2: Treatment After Discharge From Long Term Care 
 
Hospital, Fiscal Years 2003 to 2006* 
 
 
Percentage of Short-Stay  Percentage of Other 
  Treatment After LTCH Discharge  Outlier Patients  LTCH Patients 
 
Home Health Agency  26%  28% 
 
  General Acute Care Hospital  25%  8% 
 
Home or Self Care   23%  16% 
 
  Skilled Nursing Facility  15%  36% 
 
Other  11%  12% 
 
     Total  100%  100% 
  Source: Office of Inspector General analysis of Standard Analytic Files, 2007. 
  *Trends remain generally consistent throughout the FY  2003 to 2006 period.  
 
 
For Fiscal Years 2005 and 2006, Short-Stay Outlier Payment Errors Mirror Those of All 
Other LTCH Claims 
Inaccurate LTC-DRGs and inappropriate LTCH admissions account for almost all of the payment 
errors that QIO reviewers identified for LTCH claims during this period.27  (See Table 3 on the 
following page. See Appendix B for confidence intervals for all estimates.)  QIO reviewers 
identified about the same percentage of payment errors in short-stay outlier claims as other LTCH 
claims.  Error rates were also constant for LTCH stays that ended more than 10 days before the 
short-stay outlier threshold as well as stays that ended just after the threshold.   
 
 
                                                 
26  Ibid. 
 
27  We estimated these figures by  projecting national estimates from the sample of LTCH claims that QIOs reviewed.   

OEI-01-07-00290         Long Term Care Hospital Short-Stay Outliers   Page 11  Kerry Weems  
 
 
Table 3: Payment Errors for Long Term Care Hospital  
Stays, Fiscal Years 2005 and 2006* 
Percentage of Short-Stay  Percentage of Other 
Type of Payment  Error  Outlier Claims   LTCH Claims  
No Error  83%  85% 
Inappropriate Admission  9%  6% 
Inaccurate DRG  7%  8% 
Other Errors  1%  1% 
Total  100%  100% 
*All estimates are projected to national population, based on a sample of LTCH 
claims.  None of  these estimates differs significantly at the 95-percent confidence  
level. 
Source: Office of Inspector General analysis of QIO Medical Record Reviews, 2007.  
 
 
Based on our analysis of QIO reviews of LTCH claims, we estimate that about $85 million, or  
6 percent, of CMS payments to LTCHs for short-stay outlier claims  during the FY 2005 to 2006 
period were erroneous. This error rate was not statistically different from the error rate for other 
LTCH stays (4 percent).   For short-stay outliers in FY 2005, the average net error for inappropriate 
admissions ($20,112) was higher than the average net error for DRG changes ($3,175). 
 
CONCLUSION 
From FYs 2003 through 2006, short-stay outliers steadily declined.  These declines coincided with 
CMSs implementation of a prospective payment system that cut payments for these stays.  Further,  
to remove incentives for LTCHs to admit patients inappropriately or keep them longer than 
necessary, CMS revised short-stay outlier payments for patients discharged on or after July 1, 2006.  
 
Despite the overall decline in short-stay outliers, some discharge patterns raise questions about the 
appropriateness of placements at LTCHs.  Patients whom LTCHs discharged at least 10 days before 
the short-stay outlier threshold or who were readmitted to general acute care hospitals directly after 
LTCH stays could have more appropriately received treatment at a general acute care hospital.   
 
This memorandum report is being issued directly in final form because it contains no 
recommendations.  If you have comments or questions about this report, please provide them  
within 60 days. Please refer to report number OEI-01-07-00290 in all correspondence. 
 
 
 
 
OEI-01-07-00290         Long Term Care Hospital Short-Stay Outliers   Page 1 2  Kerry Weems  
 
  A P P E N D I X   ~   A
 
Trends in Short-Stay Outliers 
 
 
 
Table 1: Percentage of Stays That Were Short-Stay Outliers, by Facility Type 
 
Facility Type  FY 2003  FY 2004  FY 2005  FY 2006 
Hospital-within-Hospital  41%  34%  31%  26%   
Freestanding Hospital  39%  33%  31%  28%   
Source: Office of Inspector General analysis of Standard Analytic Files, 2007.    
 
 
Table 2: Percentage of Short-Stay Outliers, by U.S. Census Region 
 
Region  FY 2003  FY 2004  FY 2005  FY 2006 
 
Midwest  41%  34%  31%  29% 
 
Northeast  43%  38%  35%  32% 
South  38%  32%  29%  25% 
West   43%  34%  31%  26% 
Source:  Office of Inspector General analysis of Standard Analytic Files, 2007.  
OEI-01-07-00290         Long Term Care Hospital Short-Stay Outliers  Page 13  Kerry Weems  
 
  A P P E N D I X   ~ B
 
Confidence Intervals for Payment Error Estimates 
 
Proportion of Long Term Care Hospital Claims With Payment Errors, Fiscal Years 
2005 and 2006 
   Short-Stay Outlier Claims  Other LTCH Claims  
  
95-Percent   95-Percent  
Type of Payment  Error  Point Estimate   Confidence Interval     Point Estimate   Confidence Interval 
No Error  83.4%  81.1%  85.8%  83.7%  86.9% 
   85.3% 
Inappropriate Admission  8.5%  6.7%  10.3%  4.6%  6.7% 
   5.7% 
Inaccurate Long Term Care-
7.2%  5.6%  8.9%  6.6%  9.1% 
Diagnosis Related Groups     7.8% 
Other Errors  0.8%  0.3%  1.4%  0.7%  1.7% 
   1.2% 
Total  99.99%     100%   
  
Source:  Office of Inspector General analysis of Quality Improvement Organization (QIO)  medical record review data, 2007.  
 
Payment Error Amounts for LTCH Claims, Fiscal Years 2005 and 2006 
95-Percent  
   Point Estimate   Confidence Interval 
Average net error amounts for short-stay  outlier claims with errors   $5,687   $4,602  $6,773 
Average net error  amounts for other long term care hospital (LTCH)  
 $11,884  $9,669  $14,100 
claims with errors 
Total payment error amounts for short-stay outlier claims   $84,801,504  $64,192,183  $105,410,822 
Total payment error amounts for other LTCH claims    $304,271,761  $237,958,404  $370,585,118 
Percentage of payments for short-stay outlier claims in error  6.1%  4.6%  7.6% 
Percentage of payments for other LTCH claims in error 
4.3%  3.3%  5.2% 
Source:  Office of Inspector General analysis  of QIO medical record review data, 2007. 
 
 
 
OEI-01-07-00290         Long Term Care Hospital Short-Stay Outliers   Page 14  Kerry Weems  
 
 
A P P E N D I X ~ B  
 
 
Average Net Payment Error Amount by Error Type, Fiscal Year 2005 
95-Percent  
   Point Estimate   Confidence Interval 
Average net error  amount for admission denial errors    $20,112   $17,699  $22,525 
Average net error  amount for admission denial errors    $3,175   $1,296  $5,054 
Source:  Office of Inspector General analysis  of QIO medical record review data, 2007. 
 
OEI-01-07-00290         Long Term Care Hospital Short-Stay Outliers