Department of Health and Human Services 
OFFICE OF 
 
INSPECTOR GENERAL 
 
 
 
 
 
 
 
 
V
  ULNERABILITIES IN 
 
M   
  EDICARE S 
 
I -S P
NTERRUPTED TAY  OLICY 
L -T C
FOR  ONG ERM  ARE 
H
OSPITALS 
 
Daniel R. Levinson   
Inspector General  
 
June 2014 
OEI-04-12-00490   
   
EXECUTIVE SUMMARY:  VULNERABILITIES IN MEDICARES INTERRUPTED-STAY POLICY FOR 
LONG-TERM CARE HOSPITALS, OEI-04-12-00490  
 
WHY WE DID THIS STUDY 
 
In 2010 and 2011, Medicare paid $10.3 billion to 449 long-term care hospitals (LTCHs) for services billed on behalf of 
approximately 254,000 beneficiaries.  LTCHs are the most expensive post-acute care setting because they are intended to  
treat patients with complex medical conditions.  Beneficiaries may leave an LTCH and return at a later date.  The 
Medicare LTCH interrupted-stay policy is intended to save money by treating time spent at an LTCH before and after 
an interruption as a single stay, rather than considering the second portion of the LTCH stay to be a readmission and 
thus paying for two separate stays. However, LTCHs receive payment for a second stay if a beneficiary returns to the 
LTCH after a certain number of days (known as the fixed-day period) or receives services from multiple facilities 
before returning. 
 
HOW WE DID THIS STUDY  
 
We analyzed data from claims from 2010 and 2011 from LTCHs and from intervening facilitiesi.e., facilities that 
treat patients during interruptions in their LTCH staysto identify inappropriate payments for interrupted stays in 
LTCHs.  Additionally, we identified LTCHs with a high number of readmissions immediately after the fixed-day period 
and after multiple short intervening-facility stays.   We also identified co-located LTCHsi.e., LTCHs located in the 
same building or on the same campus as another providerthat billed in 2010 and 2011 and determined whether they 
reported their co-located status and whether they exceeded the 5-percent readmission threshold.  (If the number of 
discharges and readmissions between an LTCH and a co-located provider exceeds 5 percent of the LTCHs total 
Medicare discharges to that provider during a cost-reporting period, all readmissions from the co-located provider are  
to be paid for as interrupted stays, regardless of the number of days spent away from the LTCH.)   
 
WHAT WE FOUND 
 
We identified several vulnerabilities in the LTCH interrupted-stay policy, including inappropriate payments, financial 
incentives to delay readmissions, and potential overpayments to co-located LTCHs.  Specifically, in 2010 and 2011, 
Medicare inappropriately paid $4.3 million to LTCHs and intervening facilities for interrupted stays.  Additionally, 59 
LTCHs had a high number of readmissions immediately after the fixed-day period and 24 LTCHs had a high number of 
readmissions following multiple short stays at intervening facilities.  Medicare paid $12 million and $3.1 million, 
respectively, for these readmissions.  While these readmissions may be appropriate, this raises concerns about whether 
financial incentives, rather than beneficiaries medical conditions, may have influenced some LTCHs readmission 
decisions. Further, the Centers for Medicare & Medicaid Services (CMS) did not know the co-located status of most 
LTCHs, preventing it from applying a payment adjustment to the 35 percent of co-located LTCHs that exceeded the 
5-percent readmission threshold.  
 
WHAT WE RECOMMEND  
 
We recommend that CMS (1) review existing safeguards to determine whether additional action is needed to prevent 
future inappropriate payments for interrupted stays, (2) conduct additional analysis to determine the extent to which 
financial incentives influence LTCHs readmission decisions, (3) develop a system  to enforce the 5-percent 
readmission threshold, (4) take appropriate action regarding LTCHs exhibiting certain readmission patterns, and (5) 
take appropriate action regarding inappropriate payments and overpayments we identified.  CMS  concurred 
contingent on receiving more information from OIGwith two of our recommendations and nonconcurred with three 
recommendations. 
   
TABLE OF CONTENTS 
 
Objectives ....................................................................................................1 

Background..................................................................................................1 

Methodology................................................................................................9 

Findings......................................................................................................13 

Nearly all interruptions and readmissions occurred between LTCHs 

and hospitals...................................................................................13 

Medicare inappropriately paid $4.3 million to LTCHs and 

intervening facilities for interrupted stays .....................................13 

Financial incentives in the interrupted-stay policy may influence 
the readmission decisions of some LTCHs  ....................................14 

Approximately one-third of co-located LTCHs exceeded the 

5-percent readmission threshold, but CMS lacks the information  

to apply a payment adjustment ......................................................18 

Conclusion and Recommendations ............................................................21 

Agency Comments and Office of Inspector General Response .....24 

Appendixes ................................................................................................27 

A: Number of Long-Term Care Hospitals by State, 2010 and   

2011 ................................................................................................27 

B: Example of Total Payments to a Long-Term Care Hospital  

for a Stay With a 3-Day-or-Less Interruption for  

MS-LTC-DRG 207 ........................................................................29 

C: Number of Long-Term Care Hospitals With a High Number  

of Readmissions Immediately After the Fixed-Day Period  

by State, 2010 and 2011 .................................................................30 

D: Number and Percentage of Co-Located Long-Term Care 

Hospitals by Medicare Administrative Contractor Jurisdiction, 

2010 and 2011 ................................................................................31 

E: Agency Comments  ...................................................................32 

Acknowledgments......................................................................................36 

   
   
OBJECTIVES 
1. 	  To describe billing of interrupted stays and readmissions in long-term  
care hospitals (LTCHs). 
2. 	  To determine the extent to which Medicare made inappropriate 
payments for interrupted stays in LTCHs. 
3. 	  To determine the extent to which additional Medicare payments were 
made because LTCHs readmitted beneficiaries immediately after the 
fixed-day period or after multiple short stays at intervening facilities.  
4. 	  To determine the extent to which co-located LTCHs reported their 
co-located status and exceeded the 5-percent readmission threshold.  
BACKGROUND 
Patients that require continued medical care after a hospitalization receive  
post-acute care. Post-acute care can be provided in skilled nursing 
facilities (SNFs), inpatient rehabilitation facilities, the home, or LTCHs.  
LTCHs are intended to treat patients with complex medical conditions that  
require prolonged post-acute hospital-level care.  Therefore, LTCHs are 
the most expensive post-acute care setting and are paid at rates higher than 
those paid to acute-care hospitals (i.e., hospitals).1  To qualify for and 
receive Medicare payments as an LTCH, a facility must meet Medicare 
conditions of participation for hospitals and have an average length of stay 
greater than 25 days for its Medicare beneficiaries.2  In 2010 and 2011, 
Medicare paid $10.3 billion to 449 LTCHs for services billed on behalf of 
approximately 254,000 beneficiaries.3    
LTCHs are located in almost all States, but are not distributed evenly 
throughout the country.  Over 50 percent of LTCHs are located in 
seven States. Texas and Louisiana have the most LTCHs, with 18 percent 
and 9 percent of the national amount, respectively.  (See Appendix A for 
the number of LTCHs by State in 2010 and 2011.)  Further, two major 
 
1 The Medicare  Payment Advisory Commission (MedPAC), Report to the Congress:  
Variation and Innovation  in Medicare, June 2003, pp. 71, 84.  Accessed at 
http://www.medpac.gov/publications/congressional_reports/June03_Ch5.pdf on  
August 27, 2013.  See also MedPAC, Assessing Payment Adequacy and Updating 
Payments:  Hospital Inpatient and Outpatient Services, December 12, 2013.  Accessed at 
http://www.medpac.gov/transcripts/hospital dec 2013 public presentation.pdf on  
December 20, 2013. 
2 Social Security Act,  1861(ccc), 42 U.S.C. 1395x(ccc).  42 CFR pt. 482 defines the  
conditions of participation for hospitals.  42  CFR pt. 489 specifies the terms of provider 
agreement for hospitals.  42 CFR  412.23(e)(2) defines LTCHs as having an average 
length of stay greater than  25 days for Medicare beneficiaries. 
3 OIG analysis of 2010 and  2011 Part A Standard  Analytical Files, 2013. 
Vulnerabilities in Medicares Interrupted-Stay Policy for Long-Term Care Hospitals (OEI-04-12-00490)  1 
   
   
LTCH companies (i.e., chains) own more than half of all LTCHs.  Many of 
the remaining LTCHs belong to smaller chains.4  
From 2004 to 2007, Medicare spending on LTCH services increased by 
22 percent, from $3.7 billion to $4.5 billion.5   The number of LTCHs also 
increased by 22 percent during this time.6 In December 2007, Congress 
established a moratorium on new LTCHs and on new beds in existing 
LTCHs, questioning whether this dramatic growth was due to an increase 
in clinical need or a means to gain Medicare profits.7   The LTCH 
moratorium expired in December 2012, but LTCH chains appear to be  
opening new facilities or increasing the number of beds in existing LTCHs 
at low rates, rather than at the high rates seen before.8, 9    
Medicare Prospective Payment System for LTCHs 
In October 2002, the Centers for Medicare & Medicaid Services (CMS) 
established a prospective payment system for LTCHs.10   This prospective 
payment system uses the inpatient Medicare severity diagnosis related 
group (MS-DRG) classification system that hospitals use, with 
 
4 MedPAC, Report to the Congress:  Medicare Payment Policy, March 2012, pp. 258, 
267. Accessed at http://www.medpac.gov/chapters/Mar12_Ch10.pdf on November 13, 

2013. 

5  Ibid., p. 267. 

6  Ibid., p. 266. 
  
7 The Medicare, Medicaid, and SCHIP Extension  Act of 2007, P.L. No. 110-173, 

 114(d).  The Patient  Protection  and Affordable  Care Act (ACA), P.L.  No. 111-148, 

 3106(b) and 10312(b), extended the moratorium through  2012.  See also Pete Stark,  

Introduction of the LTCH Moratorium Act, Congressional Record, Volume  150, 

Number 16  (February 10, 2004).  Accessed  at http://www.gpo.gov/fdsys/pkg/CREC-
2004-02-10/html/CREC-2004-02-10-pt1-PgE135-3.htm on December 3, 2013. 

8 ACA,  3106(b) and 10312(b).   

9 MedPAC, Report to the Congress:  Medicare Payment Policy, March 2014, p.  275.  

Accessed at http://www.medpac.gov/documents/Mar14_entirereport.pdf on  April 3, 

2014. 

10 A prospective payment system  is a method  of reimbursement in  which Medicare pays 
 
providers on the basis of a predetermined, fixed amount.  The payment amount  for a  
particular service is derived from the classification system for that service (e.g.,  diagnosis  
related group).  CMS, Prospective Payment SystemsGeneral Information. Accessed at 
http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ProspMedicareFee 
SvcPmtGen/index.html?redirect=/prospmedicarefeesvcpmtgen/ on October 10, 2013.   
Vulnerabilities in Medicares Interrupted-Stay Policy for Long-Term Care Hospitals (OEI-04-12-00490)  2 
   
   
relative weights to account for resource utilization specific to LTCHs (i.e., 
MS-LTC-DRG).11, 12    
Each beneficiarys stay is grouped into an MS-LTC-DRG based on 
diagnoses (including secondary diagnoses), procedures performed, age, 
gender, and discharge status.13   This grouping reflects the typical resources 
used for treating an LTCH beneficiary.  Each MS-LTC-DRG has a 
predetermined average length of stay, which CMS updates annually 
according to LTCH discharge data.  LTCHs are paid according to each 
beneficiarys MS-LTC-DRG and do not receive per diem payments.14, 15   
Therefore, excluding adjustments, the LTCH receives the same payment  
for all stays with a certain MS-LTC-DRG, regardless of the length of 
stay.16    
Interruptions and Readmissions in LTCHs 
Beneficiaries may leave an LTCH during their stay and return to the LTCH 
at a later date.  A return to the same LTCH will result in either an 
interrupted stay or a readmission, depending on how long the beneficiary 
was away from the LTCH and where he/she received additional services, 
if any.   The LTCH interrupted-stay policy aims to save Medicare money 
by treating certain LTCH stays before and after an absence (an  
 
11 The Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of  1999, 
P.L. No. 106-113  123, as amended by the Medicare, Medicaid, and SCHIP Benefits  
Improvement and Protection Act of  2000, P.L. No. 106-554   307.  See also:  CMS,  
Elements of LTCH PPS. Accessed at http://www.cms.gov/Medicare/Medicare-Fee-for-
Service-Payment/LongTermCareHospitalPPS/elements_ltch.html on December 20, 2013.    
12 Two LTCHs in Maryland are paid in accordance with  demonstration projects under the 
Maryland  hospital waiver and are thus not subject to  payments under the prospective 
payment system.  Novitas Solutions, Provider Audit & Reimbursement Part A:  Maryland 
Waiver.  Accessed at https://www.novitas-solutions.com/parta/arcenter/reimb-ref/md-
waiver.html on August 27, 2013.  (Note:  Link no longer  works.)   These LTCHs are not  
included in  our analysis. 
13 CMS, Medicare Learning Network Fact Sheet,  Long  Term Care Hospital Prospective 
Payment System:  Interrupted  Stay, December 2012, p. 2.  Accessed at 
http://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-
MLN/MLNProducts/downloads/ltch-intstay.pdf on  August 22, 2013. 

14 42 CFR   412.521.  

15 A beneficiarys MS-LTC-DRG may change  during an LTCH stay.  In such a case, 

LTCHs are paid according to  the beneficiarys MS-LTC-DRG on the discharge date. 
 
16 Adjustments include facility-level and case-level adjustments.  Facility-level 

adjustments include adjustments for differences in area wages and cost  of living for
  
LTCHs in  Hawaii and Alaska.  CMS,  Elements of LTCH PPS. Accessed at 

http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/LongTermCare  
HospitalPPS/elements_ltch.html  on August 26, 2013.  Case-level  adjustments include  
short-stay outlier payments, which  are reduced  payments for certain shorter LTCH stays; 
and high-cost outlier payments, which are increased payments for LTCH stays that meet  
a cost threshold. CMS, Medicare Claims Processing  Manual, Pub.  100-04, ch. 3 
 150.9.1.1 and 150.9.1.5.   
Vulnerabilities in Medicares Interrupted-Stay Policy for Long-Term Care Hospitals (OEI-04-12-00490)  3 
   
   
interruption) as a single episode of care, rather than paying LTCHs for two 
separate stays. 
Interruptions. An interruption occurs when a beneficiary leaves an LTCH 
and returns to the same LTCH for further medical treatment within a 
specific number of days.17   During the interruption, the beneficiary may 
receive services at an intervening facility that are not available at the 
LTCH.  An intervening facility may be a hospital, an inpatient 
rehabilitation facility, or a SNF or swing bed.18 The interruption begins 
on the first day that the beneficiary is away from the LTCH and continues 
until the beneficiary returns to the same LTCH.19  A beneficiary may have 
multiple interruptions during one LTCH stay.  The term interrupted stay 
refers to an LTCH stay with one or more interruptions. 
There are two types of interruptions in LTCH stays, defined by the length 
of the interruption: 3-day-or-less interruptions and greater-than-3-day 
interruptions. Excluding any adjustments, the total Medicare payment to 
the LTCH is the same for a stay with a 3-day-or-less interruption and a 
stay with a greater-than-3-day interruption.  However, the method of 
paying intervening facilities differs. 
During a 3-day-or-less interruption, beneficiaries may receive services 
from one or more intervening facilities or return home without receiving 
additional services before returning directly to the LTCH.  CMS considers 
this interruption to be part of a single LTCH stay.  CMS makes one 
payment to the LTCH based on the beneficiarys MS-LTC-DRG at 
discharge.20   The LTCH must pay the intervening facility, or facilities, 
under arrangements for any services provided during the interruption.21   
CMS has system edits (i.e., automated system processes) to prevent 
payments to intervening facilities for services provided during a 
 
17 42 CFR   412.531.  See also CMS, Medicare Learning Network Fact Sheet, Long Term 
Care Hospital Prospective Payment System:  Interrupted Stay, December 2012, p. 1.  
Accessed at http://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-
MLN/MLNProducts/downloads/ltch-intstay.pdf on  August 22, 2013. 
18 A swing  bed is a hospital  bed for which reimbursement is made for skilled nursing  
services.  Hospitals that have received approval from CMS use swing beds to provide 
hospital- or SNF-level care, as needed.  Social  Security Act,  1883, 42 U.S.C.  1395tt. 
19 CMS, Medicare Learning Network Fact Sheet,  Long  Term Care Hospital Prospective 
Payment System:  Interrupted  Stay, December 2012, p. 5.  Accessed at 
http://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-
MLN/MLNProducts/downloads/ltch-intstay.pdf on  August 22, 2013. 

20  42  CFR  412.531(b)(1)(ii)(A). 
   
21 Under arrangements means that the LTCH bills and is paid  by Medicare for a 

beneficiarys stay, and the LTCH is then  responsible for paying the intervening  facility or 
 
facilities. Medicare does not make a separate payment to intervening facilities for 

services provided  during a 3-day-or-less interruption.   See Social Security Act, 

 1861(w), 42 U.S.C.  1395x (w).  

Vulnerabilities in Medicares Interrupted-Stay Policy for Long-Term Care Hospitals (OEI-04-12-00490)  4 
   
   
3-day-or-less interruption.22  See Appendix B for an example of payments 
for a stay with a 3-day-or-less interruption. 
During a greater-than-3-day interruption, beneficiaries receive services 
from one intervening facility and do not return home before returning 
directly to the LTCH.  CMS makes a separate payment to the intervening 
facility for services provided during a greater-than-3-day interruption.23  If 
a beneficiarys return to the same  LTCH occurs between 4 days and a 
certain maximum number of days (i.e., the fixed-day period), CMS 
considers it a continuation of the original LTCH stay and will pay the 
LTCH for one stay upon the beneficiarys discharge.  The fixed-day period 
varies by the type of intervening facility from which the beneficiary 
receives services: 
   49 days for hospitals, 
   427 days for inpatient rehabilitation facilities, and  
   445 days for SNFs or swing beds.24  
For these stays, Medicare makes one payment to the LTCH based on the 
beneficiarys MS-LTC-DRG at discharge and a separate payment to the 
intervening facility.  CMS has system edits to prevent payments to LTCHs 
for a new stay if a beneficiary returns to the LTCH within the fixed-day 
period.25      
Readmissions. If a beneficiary returns to the same LTCH after the 
fixed-day period, CMS considers it a readmission rather than an 
 
22 CMS Manual System, Pub. 100-04 Medicare Claims Processing, Transmittal 1001, 
July 21, 2006.  Accessed at http://www.cms.gov/Regulations-and-
Guidance/Guidance/Transmittals/Downloads/R1001CP.pdf on  August  22, 2013.  Edits  
validate claims data by detecting errors or potential errors and verifying that certain  data 
are consistent and appropriate.  CMS, Medicare Administrative Contractor Workload 
Implementation Handbook (Legacy-to-MAC), pp.  48.  February 2012.  Accessed at 
http://www.cms.gov/Medicare/Medicare-Contracting/Medicare-Administrative-
Contractors/Downloads/Handbooks/Legacy2MACImp.pdf  on  October 10, 2013. 
23 CMS, Medicare Learning Network Fact Sheet,  Long  Term Care Hospital Prospective 
Payment System:  Interrupted  Stay, December 2012, p. 4.  Accessed at 
http://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-
MLN/MLNProducts/downloads/ltch-intstay.pdf on  August 22, 2013.     
24 If a beneficiary returns to an  LTCH after spending 3 or more days at home, CMS 
considers this to  be a readmission rather than an interrupted stay.  CMS, Medicare 
Learning Network Fact Sheet, Long Term Care Hospital Prospective Payment System:  
Interrupted Stay, December 2012, p. 4.  Accessed at http://www.cms.gov/Outreach-and-
Education/Medicare-Learning-Network-MLN/MLNProducts/downloads/ltch-intstay.pdf  
on  August  22, 2013.   

25 CMS Manual System, Pub. 100-04 Medicare Claims Processing, Transmittal 1001, 

July 21, 2006.  Accessed at http://www.cms.gov/Regulations-and-
Guidance/Guidance/Transmittals/Downloads/R1001CP.pdf  on August 22,  2013. 
 
Vulnerabilities in Medicares Interrupted-Stay Policy for Long-Term Care Hospitals (OEI-04-12-00490)  5 
   
   
interruption and will pay the LTCH for two separate stays.26  CMS also 
makes a separate payment to the intervening facility.  See Figure 1 for an 
example of payments for a stay with a greater-than-3-day interruption 
versus payments for a readmission for a common MS-LTC-DRG.27  
Figure 1:  Comparison of Total Payments to an LTCH for a Stay With a 
Greater-Than-3-Day  Interruption and  Payments for a Readmission for 
MS-LTC-DRG 207  
 
Stay With  a Greater-Than-3-Day Interruption   Readmission  
 
LTCH stay  LTCH stay 
Payment to LTCH for 
Length: 30 days  No payment to LTCH  Length: 30 days  MS-LTC-DRG 207* 
$80,158.22 
Intervening-hospital stay within the          Intervening-hospital stay greater than the 
fixed-day period  fixed-day period 
CMS pays hospital for services  CMS pays hospital for services 
Length:  5 days  Length: 10 days 
provided  provided 
Continued LTCH stay  New LTCH stay 
Payment to LTCH for  2nd payment to LTCH for 
Length: 20 days  MS-LTC-DRG 207:  Length: 20 days  MS-LTC-DRG 207: 
$80,158.22  $80,158.22 
Total Medicare payments to LTCH:   Total Medicare payments to LTCH:  
$80,158.22  $160,316.44 
      
*Payments  reflect  fiscal year (FY) 2011 LTCH Prospective Payment System rates and do not include any potential  case-level or 

facility-level adjustments. 

Source:  Office of  Inspector General (OIG) analysis of interrupted-stay policy and 2011 LTCH Prospective Payment System 

Reimbursement Rates, 2013. 

 
Additionally, if a beneficiary returns to the LTCH within the fixed-day 
period but has received services from more than one intervening facility, 
 
26 In this  report, unless otherwise stated, the term readmission refers specifically to 
direct readmissions or those involving  one LTCH and one intervening facility with no  
days between discharge  and readmission. 
27 MS-LTC-DRG  207 is for respiratory system diagnosis with ventilator support for 
96+ hours.  This was the most common MS-LTC-DRG  in 2010 and 2011, accounting for 
11 percent of all LTCH stays during this period.  
Vulnerabilities in Medicares Interrupted-Stay Policy for Long-Term Care Hospitals (OEI-04-12-00490)  6 
   
   
CMS considers the return to be a readmission, regardless of the total 
length of stay at the intervening facilities.28   
Policies for Co-Located LTCHs 
An LTCH can be freestanding or co-located with another provider (e.g., a 
hospital or SNF).  A co-located LTCH  is located in the same building as 
another provider or in a separate building on the same campus as another 
provider.29   An LTCH may also have a satellite facility, which operates as 
part of the LTCH but in a separate location.30   A satellite facility can also 
be co-located with another provider. 
Interrupted Stays for Co-Located LTCHs. In 2002, CMS established a 
payment adjustment that applies if the number of discharges and 
readmissions between an LTCH and a co-located provider exceeds 
5 percent of the LTCHs total Medicare discharges to that provider during 
a cost-reporting period.  If an LTCH exceeds this threshold, all 
readmissions from the co-located provider are to be paid for as interrupted 
stays, regardless of the number of days spent away from the LTCH.31  For 
example, if an LTCH discharged 40 patients to a co-located hospital and 
readmitted 10 of those patients during the same cost-reporting period, the 
LTCH exceeded the 5-percent threshold because it readmitted 25 percent 
of the patients discharged to a co-located hospital.  Therefore, all 10 of the 
stays will be treated as interrupted stays rather than readmissions, and the 
LTCH will be subject to a payment adjustment and receive only 1 payment 
for each of the 10 stays instead of 2 payments.  CMS calculates the 
5-percent readmission threshold separately for (1) all discharges and 
readmissions between co-located LTCHs and hospitals; and (2) all 
discharges and readmissions between co-located LTCHs and inpatient 
rehabilitation facilities, SNFs or swing beds, and/or psychiatric facilities.32  
 
28 CMS, Medicare Learning Network Fact Sheet,  Long  Term Care Hospital Prospective 

Payment System:  Interrupted  Stay, December 2012, p. 4.  Accessed at 

http://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-
MLN/MLNProducts/downloads/ltch-intstay.pdf on  August 22, 2013. 

29 42 CFR  413.65.  Campus means the physical area immediately adjacent to the 

providers main buildings, other areas and structures that are not strictly contiguous to the 

main buildings but are located within 250 yards of the main buildings, and  any other 

areas that the CMS regional office determines (on an individual-case basis) to be part  of 

the providers campus. 
 
30 42 CFR   412.22(h).  

31  67  Fed.  Reg. 55954, 5605356054 (August 30, 2002), codified  at 42  CFR   412.532.  

A similar payment adjustment was established in 1999 specifically for LTCHs that were 

located within a hospital.  67 Fed.  Reg. 5600556007.  
  
32 42 CFR   412.532(c)(d).  There is  no interrupted-stay  policy or fixed-day period for 

psychiatric facilities.  However, CMS includes these facilities in the 5-percent 

readmission threshold for co-located LTCHs. 
 
Vulnerabilities in Medicares Interrupted-Stay Policy for Long-Term Care Hospitals (OEI-04-12-00490)  7 
   
   
Reporting Requirements for Co-Located LTCHs. A co-located LTCH 
must notify its Medicare Administrative Contractor (MAC) about the 
provider(s) with which it is co-located within 60 days of its first 
cost-reporting period.33,  34   Additionally, an LTCH must report a change in 
co-located status within 60 days of the change.  The MAC should notify 
the appropriate CMS regional office of an LTCHs co-located status.35  
Related OIG Work  
In 2004, OIG found that 19 of 87 hospitals-within-hospitalsi.e., 
LTCHs that are co-located specifically with acute-care hospitals 
exceeded the 5-percent threshold for readmissions from their host 
hospitals at least once during their fiscal years ending in September 2000 
through December 2002.36   Additionally, OIG found that CMS lacked a 
system to detect readmissions over the 5-percent threshold.  In its response 
to this 2004 report, CMS stated that it was formulating an effective 
program to enable claims processing contractors to enforce this threshold.  
Further, in 2008, OIG found that discharge patterns for short-stay 
outliersi.e., stays that end before they reach five-sixths of the average 
length of stay for the patients MS-LTC-DRGin LTCHs raised questions 
as to whether financial incentives, rather than beneficiaries condition, 
triggered discharges.37    
In 2009, OIG found that 448 of 986 inpatient rehabilitation facilities did 
not bill correctly for interrupted stays during 2004 and 2005; as a result,  
Medicare made overpayments of $4.2 million.38   These inpatient 
rehabilitation facilities incorrectly billed for interrupted stays as two or 
more stays instead of single stays.  
Finally, in March 2013, OIG issued an early alert memorandum to CMS to 
report the preliminary finding that co-located LTCHs remained 
 
33 42 CFR   412.532(i).  See also:  CMS, Medicare Claims Processing  Manual,  
Pub.  100-04, ch. 3,  150.9.1.4.  CMS uses contractors known as MACs and Fiscal 
Intermediaries to process Part A claims.  The Medicare Prescription Drug, Improvement, 
and Modernization Act of 2003, P.L.  No. 108-173  911, required CMS to replace Fiscal 
Intermediaries with MACs.  CMS was completing this transition at the time of our 
review.  In this report, we refer to both types of contractors as MACs.    
34 A cost-reporting period is an annual period  selected by  providers for Medicare 
cost-reporting purposes.  Cost-reporting periods vary among providers.  CMS, Medicare  
Provider Reimbursement Manual, Part  2,  ch. 1,   102.   
35 CMS, Medicare Claims Processing Manual, Pub. 100-04, ch. 3,  150.9.1.4. 
36 OIG,  Long-term Care Hospitals-within-Hospitals, OEI-01-02-00630, July 2004. 
37 OIG,  Long Term Care Hospital  Short-Stay Outliers, OEI-01-07-00290, March 2008. 
38 OIG,  Review of Interrupted  Stays at  Inpatient Rehabilitation  Facilities for Calendar 
Years 2004 and  2005, A-01-08-00502, April 2009. 
Vulnerabilities in Medicares Interrupted-Stay Policy for Long-Term Care Hospitals (OEI-04-12-00490)  8 
   
   
unidentified and that potential overpayments could result. 39 Since this 
early alert memorandum was issued, CMS has begun to review the co-
located status of the LTCHs identified in this report.  Additionally, CMS 
cited the report in its 2014 LTCH Prospective Payment System Final Rule, 
published in August 2013, and urged co-located LTCHs that had not 
fulfilled the reporting requirement to do so immediately.40  
METHODOLOGY 
We analyzed the population of 310,860 claims submitted by LTCHs from 
CMS National Claims History Part A  Standard Analytical Files for 2010 
and 2011.  We also analyzed intervening facility claims from 2010 and 
2011, which included claims submitted by hospitals, inpatient 
rehabilitation facilities, SNFs or swing beds, and psychiatric facilities for 
beneficiaries who had LTCH stays in 2010 and/or 2011.   
We were generally unable to identify 3-day-or-less interruptions using 
Medicare claims data because these types of interruptions are not 
identified on claims, and intervening facilities should not submit claims  
for services provided during these interruptions.41   Therefore, unless 
otherwise specified, the term interruption hereinafter refers to a 
greater-than-3-day interruption. 
Identifying Interruptions 
We analyzed claims submitted by LTCHs and intervening facilities from  
2010 and 2011 to identify interruptions.  We first identified LTCH claims  
indicating that a leave of absence occurred during the stay.42  We analyzed 
claims from  intervening facilities to identify those that had the same  
service dates as the leave of absence from the LTCH stay.  If an LTCH 
claim had a corresponding intervening-facility claim with service dates 
that matched the leave of absence, we considered it to be an interruption.   
We determined the number of LTCH stays with interruptions in 2010 and 
2011 and their length.  We also determined the number of LTCHs, the 
types of intervening facilities, and the MS-LTC-DRGs associated with 
interruptions. 
  
 
39 OIG,  Early Alert Memorandum Report:  Co-Located Long-Term Care Hospitals 
Remain  Unidentified, Resulting in  Potential Overpayments, OEI-04-12-00491, 
March 2013. 
40  78  Fed.  Reg. 50496, 5077150772 (August 19, 2013). 

41 In some cases, intervening facilities inappropriately submitted claims for 3-day-or-less 

interruptions, enabling  us to identify some 3-day-or-less interruptions.  OIG analysis of 

2010 and 2011 Part  A Standard  Analytical Files, 2013. 

42 Span code 74  on a Part  A claim indicates a leave of absence. 

Vulnerabilities in Medicares Interrupted-Stay Policy for Long-Term Care Hospitals (OEI-04-12-00490)  9 
   
   
Identifying Inappropriate Payments for Interrupted Stays 
We analyzed claims submitted by LTCHs and intervening facilities to 
identify two types of inappropriate payments: 
(1)  to LTCHs for readmissions after stays at intervening facilities within 
the fixed-day period (i.e., stays that should have been paid as 
interruptions rather than readmissions) and  
(2)  to intervening facilities for services provided during 3-day-or-less 
interruptions (i.e., services that should have been paid for by the LTCH 
under arrangements rather than paid by CMS to the intervening 
facility).  
First, to identify readmissions, we selected three consecutive claims for 
beneficiaries:  (1) an LTCH claim, (2) a claim from an intervening facility, 
and (3) a claim from the original LTCH.  If the length of the intervening 
facility stay was within the fixed-day period, we estimated inappropriate 
payments by summing the reimbursement amounts of the second LTCH 
claim.43  
Second, using the same claims sequences, we identified 
intervening-facility claims with lengths of stay of 3 days or less.44   We also 
identified intervening-facility claims that overlapped with LTCH stays and 
had lengths of stay of 3 days or less.  We considered both types of 
payments to intervening facilities to be inappropriate and summed the 
reimbursement amounts.   
Identifying LTCHs With a High Number of Readmissions 
Immediately  After the Fixed-Day Period  
Using the service dates on the hospital claim, we determined the length of 
stay at an intervening hospital for all interruptions and readmissions. We  
limited this analysis to interruptions and readmissions involving hospitals  
because there were few interruptions and readmissions involving inpatient  
rehabilitation facilities, SNFs, or swing beds.45  We compared the number 
of beneficiary returns to each LTCH on the 9th day (i.e., the last day of the 
fixed-day period for hospitals) and 10th day (i.e., immediately after the 
 
43 The services provided  during the second LTCH stay should  have been included in the  
claim for the first LTCH stay.  Therefore, the total reimbursement for the second LTCH 
stay  may not equal the total amount of inappropriate payments after adjusting the claim  
for the first stay to reflect all services.  
44 These stays should have resulted in a single  stay with a 3-day-or-less interruption 
rather than three separate stays.  Therefore,  we considered  the payment to the intervening  
facility to be inappropriate, as well as the payment for the second  LTCH stay.  
45 In  2010 and 2011, there were 19 interruptions and 3 readmissions involving inpatient  
rehabilitation facilities.  There were 118 interruptions and  228 readmissions involving  
SNFs or swing beds.  However, there were approximately 9,000 interruptions and 
approximately  5,000 readmissions  involving hospitals.    
Vulnerabilities in Medicares Interrupted-Stay Policy for Long-Term Care Hospitals (OEI-04-12-00490)  10 
   
   
fixed-day period for hospitals) of a hospital stay and identified LTCHs 
with a high number of readmissions on the 10th day. These readmissions 
resulted in additional LTCH payments.   
We analyzed LTCHs with a high number of readmissions immediately 
after the fixed-day period by State and chain.  We identified chains using 
Web sites and information from the National Plan and Provider 
Enumeration System (e.g., legal business name, authorized official, and 
business address). For example, LTCHs that are part of the same chain 
often share a legal business name and/or have the same authorized official 
and business address. 
Identifying LTCHs With a High Number of Readmissions 
Following Multiple Short Stays in Intervening Facilities 
If a beneficiary receives services consecutively from two or more 
intervening facilities and then returns to the same LTCH after 3 days, the 
beneficiarys return is considered a readmission and results in an 
additional LTCH payment, regardless of the combined lengths of stay at 
the intervening facilities.    
To identify short stays in separate intervening facilities, we identified 
sequences of four claims for beneficiaries with no days in between:  (1) an 
LTCH claim, (2) an intervening facility claim, (3) a claim from a different 
intervening facility, (4) a claim from the original LTCH.  We also analyzed 
sequences of five claims to identify readmissions occurring after three 
intervening facility claims.  We considered stays at intervening facilities to 
be short if the combined length of stay was greater than 3 days, but less 
than or equal to 9 days (i.e., the shortest fixed-day period).46  We identified 
LTCHs with a high number of these readmissions and analyzed them by 
State and chain. We summed the reimbursement amount for the second 
LTCH claim in the sequence to estimate the potential savings to Medicare 
had these stays been paid for as interrupted stays, rather than 
readmissions.47     
 
 
46 If the combined length of stay was 3  days or less, this should  be considered a 
3-day-or-less interruption, during which beneficiaries may receive services from  multiple  
intervening  facilities that should not separately bill Medicare.  We did  not identify any 
payments for short stays with  a total length  of  3  days or less.   
47 The services provided  during the second LTCH stay would be included in the claim for 
the first LTCH stay. Therefore, the total reimbursement for the second LTCH stay may  
not equal the total amount  of potential savings after adjusting the claim for the first  stay  
to reflect all services. 
Vulnerabilities in Medicares Interrupted-Stay Policy for Long-Term Care Hospitals (OEI-04-12-00490)  11 
   
   
Determining the Co-Located Status of LTCHs and the Extent to 
Which Co-Located LTCHs Exceeded the 5-Percent 
Readmission Threshold  
We requested information on LTCHs  co-located status from MACs and 
then independently determined their co-located status to validate MAC 
responses. To determine whether LTCHs were co-located, we obtained 
addresses from the Services Tracking, Analysis, and Reporting System  
(STARS) database for LTCHs; hospitals; inpatient rehabilitation facilities; 
SNFs or swing beds; and psychiatric hospitals that billed Medicare in 
2010 and/or 2011.48   We used LTCHs  Web sites to obtain addresses of 
their satellite facilities.  We then used BatchGeo and Google Maps to 
determine whether an LTCHs campus was less than 250 yards away from  
another providers campus pursuant to 42 CFR  413.65.49, 50    
To determine the number of co-located LTCHs that exceeded the 5-percent 
readmission threshold, we first calculated the number of discharges an 
LTCH made to each co-located provider during its cost-reporting period.  
We then calculated the number of readmissions between an LTCH and 
each of its co-located providers and determined whether this number was 
greater than 5 percent of the total discharges to that provider.    
Limitations 
We were unable to identify the addresses of satellite facilities for all 
hospitals, independent rehabilitation facilities, and SNFs.  Therefore, we 
may have underestimated the number of co-located LTCHs and/or the 
number of providers with which they are co-located.  Further, our findings 
are based on an analysis of claims data, rather than medical 
documentation; we did not determine whether the lengths of stay at 
intervening facilities were appropriate.  
Standards 
This study was conducted in accordance with the Quality Standards for 
Inspection and Evaluation issued by the Council of the Inspectors General 
on Integrity and Efficiency. 
   
 
48 Five  LTCHs that billed Medicare in 2010 and/or 2011were not in the STARS database.  
We obtained the address of these LTCHs  using the National Plan & Provider 
Enumeration Systems online National Provider Identifier Registry. 
49 BatchGeo is a  free online mapping tool that  generates maps from location data saved in  
spreadsheets. 

50 Google Maps  is a free online mapping tool that produces street maps and satellite 

images of requested locations and can measure distance between selected geographic 

points.  

Vulnerabilities in Medicares Interrupted-Stay Policy for Long-Term Care Hospitals (OEI-04-12-00490)  12 
   
   
FINDINGS 
Nearly all interruptions and readmissions occurred 
between LTCHs and hospitals 
Returning to an LTCH after an intervening-facility stay results in an 
interrupted stay or a readmission, depending on the length of stay at the  
intervening facility.    
 	  Of the 449 LTCHs that billed Medicare in 2010 or 2011, 422 had at 
least 1 interrupted stay.  In 2010 and 2011, 8,823 interruptions  
occurred during 8,350 interrupted stays, representing 3 percent of all 
LTCH stays.  The number of interruptions for each LTCH ranged 
from 1 to 209. 
 	  In 2010 and 2011, 427 LTCHs had at least 1 readmission.  There 
were 5,659 readmissions in 2010 and 2011, representing 2 percent 
of all LTCH stays.  The number of readmissions for each LTCH 
ranged from 1 to 95.  
For nearly all interruptions and readmissions in 2010 and 2011, the  
intervening facility was a hospital.  Table 1 shows the number of 
interruptions and readmissions by type of intervening facility for 2010 and 
2011. 
Table 1:  Interruptions and Readmissions by  Type  of Intervening Facility, 
20102011 
Type of Intervening Facility   Interruptions   Readmissions  
Hospital  8,686   5,428  
Inpatient Rehabilitation Facility   19  3 
SNF or Swing Bed  118  228 
     Total   8,823   5,659  
Source:  OIG analysis of 2010 and 2011 Part  A Standard Analytical Files, 2013.  
 
Medicare inappropriately paid $4.3 million to LTCHs 
and intervening facilities for interrupted stays  
From 2010 to 2011, Medicare inappropriately paid $4.3 million for 
interrupted stays in LTCHs.  The inappropriate payments were  
(1)  to LTCHs for readmissions after stays at intervening facilities within 
the fixed-day period (i.e., stays that should have been paid for as 
interruptions rather than readmissions) and  
Vulnerabilities in Medicares Interrupted-Stay Policy for Long-Term Care Hospitals (OEI-04-12-00490)  13 
   
   
(2)  to intervening facilities for services provided during 3-day-or-less 
interruptions (i.e., services that should have been paid for by the LTCH 
under arrangements rather than paid directly by Medicare to the 
intervening facilities).  
Medicare inappropriately paid $3.8 million to LTCHs for 
readmissions after stays at intervening facilities within the 
fixed-day period 
If a beneficiary receiving services at an intervening facility returns to the 
same LTCH within the fixed-day period, then CMS considers it an 
interrupted stay rather than a readmission and should pay the LTCH for 
one stay rather than two stays. However, Medicare inappropriately paid 
an estimated $3.8 million to 87 LTCHs in 2010 and 2011 because it paid 
LTCHs for a second stay, or readmission, after a beneficiary returned from  
an intervening facility within the fixed-day period.51 This represents less 
than one-tenth of a percent of all Medicare payments to LTCHs.  Most 
(96 of 132) of these inappropriately paid readmissions followed 
intervening SNF stays. 
Medicare inappropriately paid approximately $523,000 to 
intervening facilities for services provided during interruptions 
of 3 days or less 
Intervening facilities should not submit claims to Medicare for services 
provided during 3-day-or-less interruptions, as these facilities are paid for 
the services by the LTCH under arrangements.  However, Medicare 
inappropriately paid $523,079 to 50 intervening facilities for services 
provided during 3-day-or-less interruptions in 2010 and 2011.  For nearly 
all (58 of 59) of these 3-day-or-less interruptions for which Medicare 
inappropriately paid, the intervening facility was a hospital.52  
Financial incentives in the interrupted-stay policy may 
influence the readmission decisions of some LTCHs 
Returning to the same LTCH after an intervening-facility stay results in an  
interrupted stay or a readmission, depending on the length of stay at the 
intervening facility.   Medicare pays LTCHs for a new stay following a 
readmission to the LTCH after the fixed-day period.  Therefore, 
readmitting beneficiaries immediately after the fixed-day period, rather 
than during the fixed-day period, results in additional Medicare payments 
to the LTCHs.   
 
51 This figure is an estimate because CMS must adjust the claim for the first stay to 
reflect services provided  during both LTCH  stays.  

52 For the remaining inappropriate payment, the intervening facility was an independent 

rehabilitation facility. 
 
Vulnerabilities in Medicares Interrupted-Stay Policy for Long-Term Care Hospitals (OEI-04-12-00490)  14 
   
   
Fifty-nine LTCHs had a high number of readmissions from hospitals 
immediately after the fixed-day period, allowing them to receive 
additional payments more often than other LTCHs.  This raises concerns 
about whether financial incentives, rather than beneficiaries conditions,  
influenced readmission decisions of some LTCHs.  In 2010 and 2011, 
Medicare paid $12 million for readmissions immediately after the fixed-
day period in these 59 LTCHs.53   
Additionally, CMS considers it a readmission, which results in an 
additional LTCH payment, if beneficiaries receive services at more than 
one intervening facility, regardless of whether the combined length of stay 
at the intervening facilities is within the fixed-day period.  In 2010 and 
2011, Medicare paid LTCHs $8.2 million for 259 readmissions that 
occurred after 2 or more short stays at intervening facilities.        
Fifty-nine LTCHs had a high number of readmissions 
immediately after the fixed-day period; as a result, additional 
LTCH payments were made  
In 2010 and 2011, beneficiaries left LTCHs to receive services from  
intervening hospitals and returned to the same LTCHs approximately 
14,000 times.  Of these returns, 5,428 occurred after the fixed-day period 
for hospitals and resulted in readmissions, and second payments, for 
424 LTCHs.  Most (264 of 424) LTCHs had the same number or fewer 
returns after a 10-day hospital stay (i.e., immediately after the fixed-day 
period) than after a 9-day hospital stay (i.e., the last day of the fixed-day 
period). Sixty-nine LTCHs had 1 more, and 32 LTCHs had 2 more returns 
immediately after the fixed-day period than on the last day of the 
fixed-day period. We considered the remaining 59 LTCHs with at least 
3 more returns immediately after the fixed-day period to have a high 
number of these readmissions.  See Figure 3 for a comparison of the 
percentage of intervening hospital stays ending during and after the 
fixed-day period for these 59 LTCHs and all other LTCHs with at least 
1 readmission.  
   
 
53 Medicare paid $31.2 million  to the 365 LTCHs with  2  or fewer returns immediately 
after the fixed-day period, resulting in a total of $43.2 million for all returns immediately  
after the fixed-day period.  
Vulnerabilities in Medicares Interrupted-Stay Policy for Long-Term Care Hospitals (OEI-04-12-00490)  15 
   
   
Figure 3:  Percentage of Interruptions  and Readmissions by  Length of 
Intervening  Hospital Stay, 2010 and 2011 
16%  Fixed-Day Period Ends 
Interruptions  Readmissions* 
s 14% 
n
o
si
s
mi12% 
d
a
e
R
d 10%  LTCHs With  Three or 
n
a More Readmissions 
s 
n Immediately After the 
o
ti 8%  Fixed-Day Period 
p
u
r
r
e LTCHs  With Two or 
t 6% 
n
of I FImemweerd iRaetealdy mAifstesrio tnhse  
e  Fixed-Day Period 
g 4% 
a
t
n
e
c
r
e 2% 
P
0% 
4  5  6  7 8   9 1 0 11  12  13  14  15   
Length of Intervening-Hospital Stay  (Days) 
*Additionally, 17 percent (556) and 14 percent  (1,529) of returns occurred after intervening hospital stays lasting
  
16 days or longer for LTCHs with a high number of readmissions immediately after the  fixed-day period and all 

remaining LTCHs, respectively.  

Source:  OIG analysis of 2010 and 2011 Part  A Standard Analytical Files, 2013. 

 
For the 59 LTCHs with a high number of readmissions immediately after 
the fixed-day period, 12 percent (380 of 3,222) of all returns took place 
immediately after the fixed-day period compared to only 5 percent 
(578 of 10,817) for the remaining 365 LTCHs.  Medicare paid $12 million 
in 2010 and 2011 for readmissions occurring immediately after the 
fixed-day period in the 59 LTCHs with a high number of these 
readmissions.  Therefore, only 14 percent of LTCHs with at least 
1 readmission (59 of 424 LTCHs) accounted for approximately 38 percent 
of all Medicare payments for readmissions occurring immediately after the 
fixed-day period. While the payments for these readmissions may be 
appropriate, they raise concerns about whether financial incentives in the 
interrupted-stay policy drive readmission decisions, rather than 
beneficiaries conditions.  Retaining beneficiaries in intervening facilities 
until immediately after the fixed-day period results in an additional 
Vulnerabilities in Medicares Interrupted-Stay Policy for Long-Term Care Hospitals (OEI-04-12-00490)  16 
   
   
payment to LTCHs, which could essentially double an LTCHs overall 
Medicare reimbursement.  
Forty-five of the 59 LTCHs were part of a chain, and 23 of these LTCHs 
were part of the same chain.  The 23 LTCHs in this chain accounted for 
38 percent of the 380 readmissions immediately after the fixed-day 
period.54  Further, Medicare paid $4.9 million to these 23 LTCHs for 
readmissions immediately after the fixed-day period, or 41 percent of the 
$12 million paid to LTCHs with a high number of readmissions 
immediately after the fixed-day period.      
Additionally, the number of returns to these 59 LTCHs increased by over 
200 percent immediately after the fixed-day period.  For 50 of these 
59 LTCHs, the number of returns doubled immediately after the fixed-day 
period. Three LTCHs had more than 10 more returns immediately after 
the fixed-day period than on the last day of the fixed-day period.  These 
59 LTCHs were located in 24 States, with the highest concentrations in 
Texas, California, Ohio, Florida, and Massachusetts.  See Appendix C for 
the number of LTCHs with a high number of readmissions immediately 
after the fixed-day period, by State.   
Twenty-four LTCHs had a high number of readmissions 
following multiple short stays at intervening facilities; as a 
result, additional LTCH payments were made 
In 2010 and 2011, 259 readmissions occurred after multiple stays at 
intervening facilities with combined lengths of stay of 9 days or less (i.e., 
the shortest fixed-day period); as a result additional LTCH payments were 
made.55  For 86 percent of these readmissions, the beneficiary was 
discharged to a SNF and then to a hospital, or two separate hospitals, 
before returning to the LTCH.  Medicare paid $8.2 million to 144 LTCHs 
for these readmissions.   
Of the 144 LTCHs with at least 1 of these readmissions, most 
(120 LTCHs) had 2 or less.  However, there were 24 LTCHs with 3 or 
more of these readmissions in 2010 and 2011.  We considered these 
LTCHs to have a high number of readmissions following multiple short 
stays at intervening facilities.  Medicare paid these 24 LTCHs $3.1 million 
for readmissions following multiple short stays at intervening facilities.  
While the payments for these readmissions may be appropriate, they raise 
questions about whether financial incentives in the interrupted-stay policy 
 
54 This chain represented 29 percent of all LTCH readmissions from hospitals from 2010  
to 2011. 

55 Of these 259  readmissions, 257 occurred after 2 short stays at intervening facilities and 
 
2  occurred after 3 short stays at intervening  facilities. 
 
Vulnerabilities in Medicares Interrupted-Stay Policy for Long-Term Care Hospitals (OEI-04-12-00490)  17 
   
   
drive discharge and readmission decisions for intervening facilities and 
LTCHs, rather than beneficiaries  medical conditions.  Eight of these 
24 LTCHs also had a high number of readmissions immediately after the 
fixed-day period and 12 were part of the same chain.  These LTCHs were 
located in nine States; the highest concentrations were in California, Ohio, 
and Texas.56  
Approximately one-third of co-located LTCHs 
exceeded the 5-percent readmission threshold, but 
CMS lacks the information to apply a payment 
adjustment  
Of the 449 LTCHs that billed Medicare in 2010 and 2011, we identified 
329 that were co-located with at least 1 other provider.57   The number of  
providers with which LTCHs were co-located ranged from  one to nine.  Of 
the 329 co-located LTCHs, 88 (27 percent) reported their co-located status 
to MACs.  Further, 35 percent of co-located LTCHs exceeded the 5-percent 
readmission threshold.  Without complete information on LTCHs  
co-located status, CMS cannot enforce the 5-percent readmission threshold 
and apply payment adjustments to these LTCHs.   
Co-located LTCHs had a total of 537 readmissions that should 
have been treated as interruptions 
CMS is supposed to apply a payment adjustment to decrease  
reimbursements for co-located LTCHs that exceed the 5-percent 
readmission threshold.  Thirty-five  percent (116 of 329) of co-located 
LTCHs exceeded the 5-percent threshold for readmissions from co-located 
hospitals during a cost reporting period in 2010 and 2011.58  These 
116 LTCHs had a total of  537 readmissions from co-located providers that  
should have been treated as interruptions;  only 1 payment should have been  
made to the LTCH rather than 2.  Approximately 31 percent (36 of 116) of 
the LTCHs that exceeded this threshold had reported their co-located status  
 
56 Florida, Illinois, Louisiana, Massachusetts, New Jersey, and Nevada contained two  or 
fewer LTCHs with a high  number of  readmissions  following multiple short stays at 
intervening facilities. 
57 In March  2013, OIG issued  an early alert memorandum to CMS to  report the 
preliminary finding that co-located LTCHs remained unidentified and that overpayments 
could result.  For the early alert memorandum, OIG determined the co-located status of 
211  LTCHs.  This finding updates the information in the early alert based  on an analysis 
of all 449 LTCHs.  See OIG, Early Alert Memorandum Report:  Co-Located Long Term  
Care Hospitals Remain Unidentified Resulting in Potential Overpayments, 
OEI-04-12-00491, March  2013. 
58 An additional 55 co-located  LTCHs exceeded the 5-percent threshold by readmitting  
only  1 beneficiary discharged  to a hospital.   We did not include these LTCHs in this total  
because there were so few readmissions from  the hospital with  which the LTCH was  
co-located. 
Vulnerabilities in Medicares Interrupted-Stay Policy for Long-Term Care Hospitals (OEI-04-12-00490)  18 
   
   
to a MAC. Eighteen LTCHs readmitted at least 40 percent, or 8 times the 
threshold, of the beneficiaries discharged to a co-located hospital.  Four of 
these eighteen LTCHs were located in  Texas.  Further, three LTCHs 
exceeded the threshold with three different co-located hospitals, and 
five LTCHs exceeded the threshold with two different co-located hospitals.  
No co-located LTCHs exceeded the threshold for readmissions from co-
located SNFs, inpatient rehabilitation facilities, swing beds, and psychiatric 
hospitals. 
Eighty-two percent of the co-located LTCHs that exceeded the 5-percent 
threshold were part of a chain.59  One chain represented 33 percent 
(38 of 116) of the co-located LTCHs that exceeded the 5-percent threshold 
and 30 percent of the 537 readmissions that should have been treated as 
interruptions.60    
Additionally, although the threshold does not apply to freestanding 
LTCHs, 195 freestanding LTCHs readmitted more than 5 percent of  
beneficiaries discharged to a single hospital.61 Eighty-one percent of these 
LTCHs were part of a chain.  Fifty-six freestanding LTCHs readmitted at 
least 50 percent, or 10 times the threshold, of the beneficiaries discharged 
to a single hospital.  Two freestanding LTCHs exceeded the 5-percent 
threshold with a SNF.  
CMS lacked information to identify co-located LTCHs that 
exceeded the 5-percent readmission threshold; as a result, 
overpayments were made 
LTCHs are required to notify MACs of their co-located status.  MACs are 
then required to report this information to CMS regional offices.  However,  
in 7 of the 14 claims-processing jurisdictions, no co-located LTCHs notified 
their MAC of their co-located status.  We identified 96 co-located LTCHs in  
these 7 jurisdictions. Additionally, two of these seven MACs stated that  
they do not monitor the co-located status of LTCHs in their jurisdictions.  
See Appendix D for the number and percentage of co-located LTCHs in  
each MAC jurisdiction in 2010 and 2011.   
For 11 of the 14 jurisdictions, less than half of the co-located LTCHs that 
we identified reported their co-located status.  Additionally, some LTCHs 
that reported their co-located status did not follow reporting requirements.  
 
59 Seventy-four  percent  of all co-located LTCHs were part  of a chain.  
60 This chain represented 15 percent of all LTCH discharges  during a cost-reporting 
period from 2010 to  2011.  
61 An additional 235  freestanding LTCHs readmitted more than 5 percent of beneficiaries 
discharged to a single hospital by  readmitting only 1  beneficiary discharged to that 
hospital.  We did not include these LTCHs in this total because there were so few 
readmissions from the hospital.  
Vulnerabilities in Medicares Interrupted-Stay Policy for Long-Term Care Hospitals (OEI-04-12-00490)  19 
   
   
Specifically, 1 hospital chain provided the co-located status of 79 LTCHs to 
1 MAC, although none of these LTCHs were in that MACs jurisdiction.   
We were unable to determine whether the appropriate payment adjustments  
have been or will be made for the LTCHs that exceeded the 5-percent 
readmission threshold in 2010 and 2011.  According to CMS, the 
adjustments would be made during the cost-report settlement process, which 
had not been completed at the time of this review.  However, CMS did not 
know the co-located status of most LTCHs.  Further, CMS has not 
instructed MACs or CMS regional offices to identify co-located LTCHs that 
exceed the 5-percent readmission threshold and has not created system edits 
to identify these LTCHs since the threshold was established in 2002.    
 
Vulnerabilities in Medicares Interrupted-Stay Policy for Long-Term Care Hospitals (OEI-04-12-00490)  20 
   
   
CONCLUSION AND RECOMMENDATIONS 
Medicare paid $10.3 billion to 449 LTCHs for services billed on behalf of  
approximately 254,000 beneficiaries in 2010 and 2011.  The number of 
LTCHs increased dramatically prior to  a 2007 moratorium on their growth.  
This moratorium ended in 2012.  The LTCH interrupted-stay policy is 
intended to save Medicare money by treating the LTCH stays before and 
after an interruption as a single stay, rather than paying LTCHs for two 
separate stays. However, our evaluation identifies several vulnerabilities in 
the LTCH interrupted-stay policy,  including inappropriate payments, 
financial incentives to delay readmissions, and potential overpayments to 
co-located LTCHs.   
Medicare inappropriately paid $4.3 million to LTCHs and intervening 
facilities for interrupted stays.  Additionally, financial incentives created by 
the interrupted stay payment policy may influence the readmission 
decisions of some LTCHs.  For example, LTCHs can increase their 
reimbursement if beneficiaries stay at  an intervening facility longer than the 
fixed-day period because this results in a readmission and an additional 
payment for the new LTCH stay.  Specifically, 59 LTCHs had a high 
number of readmissions  immediately after the fixed-day period.  Medicare 
paid $12 million for these readmissions.  LTCHs also receive an additional  
payment for a new stay if beneficiaries receive services from multiple 
intervening facilities before returning to the LTCH.  Twenty-four LTCHs 
had a high number of readmissions following multiple short stays at 
intervening facilities. Medicare paid $3.1 million for these readmissions.  
A high number of either of these types of readmissions raises questions as to 
whether financial incentivesrather than beneficiaries medical 
conditionsinfluenced readmission decisions.   
Finally, CMS does not have the information needed to apply payment 
adjustments to the one-third of co-located LTCHs that exceeded the 
5-percent readmission threshold; as  a result, overpayments were made.  
CMS has not developed a process to identify co-located LTCHs that exceed 
the 5-percent readmission threshold since this threshold was established in  
2002. 
We recommend that CMS: 
Review existing safeguards to determine whether 
additional action is needed to prevent future 
inappropriate payments for interrupted stays  
CMS should determine why its existing safeguards did not prevent all 
inappropriate payments to LTCHs and intervening facilities for interrupted 
stays. CMS inappropriately paid a total of $4.3 million to (1) LTCHs for 
Vulnerabilities in Medicares Interrupted-Stay Policy for Long-Term Care Hospitals (OEI-04-12-00490)  21 
   
   
readmissions after stays at intervening facilities within the fixed-day period 
and (2) intervening facilities for services provided during interruptions of  
3 days or less.  CMS should address any issues it identifies to prevent future 
inappropriate Medicare payments for interrupted stays. 
Conduct additional analysis to determine the extent to 
which financial incentives influence LTCH readmission 
decisions  
CMS should conduct additional analysis of LTCH readmissions to 
determine the extent to which financial incentives, rather than beneficiaries  
conditions, influence LTCH readmission decisions.  If it determines that this 
is an issue, CMS should consider ways to decrease the financial incentives 
created by the interrupted-stay policy.  For example, CMS could consider 
imposing a readmission threshold on all LTCHs.  If an LTCH exceeds the 
threshold, CMS could treat the readmissions as interruptions, which would 
decrease the financial incentive for readmissions.  CMS could also consider  
expanding the interrupted-stay policy to include multiple short stays at 
different intervening facilities.   
Develop a system to enforce the 5-percent 
readmission threshold 
OIG continues to recommend that CMS develop a system to enforce the  
5-percent readmission threshold.  MACs should consistently collect and 
store information on the co-located status of LTCHs and immediately share 
it with CMS regional offices.  CMS or MACs could survey LTCHs on a 
recurring basis to identify co-located LTCHs and changes in co-located 
status. CMS should also continue to educate LTCHs on the requirement to 
notify MACs of their co-located status.  This education could help ensure 
that LTCHs report this information to the appropriate MAC.  CMS should 
then use this information to determine which LTCHs exceeded the 5-percent 
readmission threshold and recover overpayments to these LTCHs. 
Take appropriate action regarding LTCHs with a high 
number of readmissions immediately after the 
fixed-day period and LTCHs with a high number of 
readmissions following multiple short stays at 
intervening facilities 
In a separate memorandum, we will refer to CMS for appropriate action 
(1) the LTCHs with a high number of readmissions immediately after the  
fixed-day period, (2) the LTCHs with a high number of readmissions 
following multiple short stays at intervening facilities, and (3) the 
intervening facilities associated with these readmissions.  Appropriate action 
may include determining whether all days at the intervening facilities and 
Vulnerabilities in Medicares Interrupted-Stay Policy for Long-Term Care Hospitals (OEI-04-12-00490)  22 
   
   
readmissions to these LTCHs were appropriate, by conducting medical  
record reviews and/or site visits and/or implementing prepayment reviews.  
If fraudulent or abusive activity is discovered, CMS should refer the LTCHs 
and/or intervening facilities to law enforcement for investigation.  Further,  
CMS should monitor LTCHs with a high number of these readmissions and 
ensure that they do not use these methods to inappropriately receive 
additional payments.   
Take appropriate action on inappropriate payments for 
interruptions and overpayments to co-located LTCHs 
that exceeded the 5-percent readmission threshold 
In the aforementioned memorandum, we  will also refer to CMS the claims 
associated with inappropriate payments to LTCHs and intervening facilities.  
CMS should review and recover these inappropriate payments, as 
appropriate. We will also refer to CMS the co-located LTCHs that exceeded 
the 5-percent readmission threshold and the claims associated with 
readmissions that should have been treated as interrupted stays. CMS 
should identify and recover overpayments to these LTCHs, as appropriate.   
 
   
Vulnerabilities in Medicares Interrupted-Stay Policy for Long-Term Care Hospitals (OEI-04-12-00490)  23 
   
   
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL  
RESPONSE 
In its comments on our draft report, CMS concurredcontingent on 
receiving more information from OIGwith two of our recommendations 
and nonconcurred with three recommendations.  Noting that recently 
enacted legislation established a new LTCH Prospective Payment System  
payment structure beginning in FY 2016, CMS stated that it is examining 
whether the 5-percent readmission threshold will continue to be necessary 
under this new system. 
In several places in its comments, CMS stated that it needs to review OIG 
data before concurring, or fully concurring, with our recommendations.  
OIGs Office of Evaluation and Inspections does not provide detailed 
evaluation data and analyses to agencies prior to the finalization of a report, 
and we do not believe that the decision to concur or noncur with our 
recommendations requires a full review of these data and analyses.  After  
the release of the final report, OIG will provide CMS with all appropriate  
data and analyses to support CMSs efforts to address the vulnerabilities 
identified by our evaluation.   
With regard to our first recommendation, CMS concurred contingent on 
OIGs providing information that indicates that existing program  
safeguards are not preventing inappropriate payments.  CMS stated that it 
would need to review OIGs data to determine whether it agrees that 
inappropriate payments were made.  Our analyses indicate that 
inappropriate payments did occur.  After issuing the final report, we will 
provide the appropriate information in a separate memorandum.  We  
encourage CMS to review this information and the agencys existing 
safeguards to determine whether additional action is needed to prevent 
future inappropriate payments for interrupted stays.     
With regard to our second recommendation, CMS stated that it 
nonconcurred at this time. CMS agreed that LTCH prospective payment 
system policies should not provide incentives for LTCH readmission 
decisions to be based on financial benefit.  However, CMS stated that it 
cannot agree that additional analyses are warranted until OIG provides it 
with information to enable additional financial review.  CMS stated that it 
would need to investigate ownership and/or control relationships between 
referring hospitals and the LTCHs in question and evaluate whether there 
is a pattern of behavior over several years.  CMS also stated that it would 
need further information from OIG suggesting that Medicare payment 
policy is influencing LTCH readmission decisions.  We will provide CMS 
with ownership information for LTCHs as well as data and analyses 
Vulnerabilities in Medicares Interrupted-Stay Policy for Long-Term Care Hospitals (OEI-04-12-00490)  24 
   
   
concerning readmissions between LTCHs and hospitals for the 2 years 
included in this evaluation.  We will not conduct or provide any additional 
analyses at this time.  We continue to recommend that CMS conduct 
additional analyses to determine the extent to which financial incentives  
influence readmission decisions. 
With regard to our third recommendation, CMS nonconcurred and stated 
that it is examining whether the 5-percent readmission threshold will 
continue to be necessary under the new LTCH payment system, which 
will begin in FY 2016.  OIG reiterates that CMS should enforce the 
current policy until the new prospective payment policy is in effect.  Not 
doing so would prevent CMS from collecting any overpayments 
associated with the current policy during the periodmore than a year 
before the new policy takes effect, in addition to any overpayments that it 
has failed to collect since the current policy was implemented in 2003.  
Further, OIG believes that CMS currently does not have the information 
necessary (e.g., number of co-located LTCHs, identity of co-located 
LTCHs and host facilities, number of discharges to host facilities) to 
determine whether the 5-percent threshold should remain in effect under 
the new payment system.  We will refer to CMS the information that we 
collected regarding co-located LTCHs and host facilities, and we 
encourage the agency to use this information when making this 
determination.   
With regard to our fourth recommendation, CMS stated that it 
nonconcurred at this time. CMS said that it cannot determine what, if any, 
appropriate actions are necessary with regard to LTCHs with a high 
number of readmissions immediately after the fixed-day day period or 
following multiple short intervening-facility stays because neither 
necessarily indicate improper practice or inappropriate payment.  Our 
report states that payment for these readmissions  may be appropriate; 
however, having a high number of either type of readmission raises 
questions as to whether financial incentivesrather than beneficiaries 
medical conditionsdrove readmission decisions.  We will refer to CMS 
the LTCHs, intervening facilities, and claims associated with these 
readmissions to determine the most appropriate action for the LTCHs that 
we identified.  
With regard to our fifth recommendation, CMS concurred on the condition 
that it can validate OIGs assertion that hospitals were overpaid because 
CMS did not apply the 5-percent readmission threshold.  CMS requests 
that OIG provide specific information for each of the identified claims, 
including the overpayment amount.  We will provide specific claims  
information, but we are unable to provide an overpayment amount for 
these claims.  The 5-percent readmission threshold policy requires that 
Vulnerabilities in Medicares Interrupted-Stay Policy for Long-Term Care Hospitals (OEI-04-12-00490)  25 
   
   
certain claims be adjusted after an LTCH exceeds the threshold to reflect 
an interrupted stay rather than a separate readmission.  This adjustment 
could trigger other payment adjustments (e.g., a high-cost outlier payment 
or the reversal of a short-stay outlier payment), and OIG cannot calculate 
the exact overpayment amounts in these cases.  Further, CMS was unable 
to provide its methodology for calculating these overpayments, suggesting 
that it has not made these calculations since the current prospective 
payment policy was implemented in 2003 and thus has missed the 
opportunity to collect 7 years of potential overpayments. We encourage 
CMS to use the information that we refer to it to calculate and collect 
overpayments made to LTCHs that exceeded the 5-percent readmission 
threshold. 
We support CMSs efforts to address these issues and encourage it to 
continue making progress in these areas.  For the full text of CMSs 
comments, see Appendix E. 
Vulnerabilities in Medicares Interrupted-Stay Policy for Long-Term Care Hospitals (OEI-04-12-00490)  26 
   
   
APPENDIX A 
                Number of LTCHs by State, 2010 and 2011  
 
  Number of  Percentage of 
State  LTCHs*   LTCHs 
  Texas  82   18%  
  Louisiana  39   9%  
  Ohio  25   6%  
  Pennsylvania  23   5%  
  California  20   4%  
  Florida  20   4%  
  Michigan  19   4%  
  Georgia  15   3%  
  Massachusetts  15   3%  
  Indiana  14   3%  
  Oklahoma  14   3%  
  Missouri  12   3%  
  Mississippi  10  2% 
  North Carolina   9  2%  
  Tennessee  9  2%  
  Alabama  8  2%  
  Arkansas  8  2%  
  Arizona  8  2%  
  Colorado  8  2%  
  Illinois  8  2%  
  New Jersey   8  2%  
  Kentucky  6  1%  
  Nevada  6  1%  
  South Carolina   6  1%  
  Virginia  6  1%  
  Kansas  5  1%  
  Wisconsin  5  1%  
  Maryland  4  1%  
  New York   4  1%  
  Connecticut  3  1%  
  Idaho  3  1%  
  New Mexico   3  1%  
  Utah  3  1% 
  Washington, 
2  <1% 
D.C. 
  Continued on next page  
 
Vulnerabilities in Medicares Interrupted-Stay Policy for Long-Term Care Hospitals (OEI-04-12-00490)  27 
   
   
Appendix A  (Continued)  
                       
 
  Number of  Percentage of 
State  LTCHs  LTCHs 
  Iowa  2  <1% 
  Minnesota  2  <1% 
  North Dakota   2  <1% 
  Nebraska  2  <1% 
  Washington  2  <1% 
  West Virginia  2   <1%  
  Alaska  1  <1% 
  Delaware  1  <1% 
  Hawaii  1  <1% 
  Montana  1  <1% 
  Oregon  1  <1% 
  Rhode Island   1  <1% 
  South Dakota   1  <1% 
    Total  449   100%  
  *This column indicates the number of LTCHs that  billed Medicare in both 

2010 and 2011. 

Source:  OIG analysis of 2010 and 2011 Part  A Inpatient Standard 
 
Analytical Files, 2013. 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Vulnerabilities in Medicares Interrupted-Stay Policy for Long-Term Care Hospitals (OEI-04-12-00490)  28 
   
   
APPENDIX B 
Example of Total Payments to an LTCH for  
a Stay With a 3-Day-or-Less Interruption for   
MS-LTC-DRG 207  
 
LTCH stay 
Length: 30 days  No payment to LTCH 
Stay of less than 3 days at an 
intervening facility 
LTCH pays intervening facility for 
Length:  2 days  services provided under 
arrangements 
Continued LTCH stay 
Payment to LTCH for 
Length: 20 days  MS-LTC-DRG 207: 
$80,158.22 
Total payments to LTCH:  $80,158.22 
 
*Payments  reflect FY 2011 LTCH Prospective Payment System rates and do not include any potential case-level 

or facility-level adjustments. 

Source:  OIG analysis of interrupted-stay policy and 2011  LTCH Prospective Payment System Reimbursement 
 
Rates, 2013. 

   
Vulnerabilities in Medicares Interrupted-Stay Policy for Long-Term Care Hospitals (OEI-04-12-00490)  29 
   
   
APPENDIX C 
Number of LTCHs With a High Number of Readmissions Immediately After 
the Fixed-Day  Period by  State, 2010 and 2011  
 
Number of LTCHs with a 
High Number  of 
State 
Readmissions Immediately  
After the Fixed-Day Period  
Texas  10 
California  6 
Ohio  6 
Florida  4 
Massachusetts  4 
Illinois  3 
Louisiana  3 
Oklahoma  3 
Michigan  2 
North Carolina   2 
Tennessee  2 
Virginia  2 
Alabama  1 
Colorado  1 
Kentucky  1 
Mississippi  1 
Montana  1 
Nebraska  1 
Nevada  1 
New Jersey   1 
New Mexico   1 
New York   1 
Utah  1 
Wisconsin  1 
   Total   59 
Source:  OIG analysis of 2010 and 2011 Part  A Inpatient 
Standard Analytical Files, 2013. 
Vulnerabilities in Medicares Interrupted-Stay Policy for Long-Term Care Hospitals (OEI-04-12-00490)  30 
   
   
APPENDIX D 
Number and Percentage of Co-Located LTCHs by  MAC Jurisdiction, 2010 
and 2011  
Percentage of  
Co-Located  Percentage of  
Number LTCHs  Number of  
Number of   LTCHs That  LTCHs That 
MAC  That Reported   Co-Located 
LTCHs   Reported  Are  
Being Co-Located   LTCHs  
Being  Co-Located  
Co-Located  
A  65*  105  121  62%   87%  
B  10  18  20  56%   90%  
C  1  2  8  50%   25%  
D  3  10  11  30%   91%  
E  5  17  19  29%   89%  
F  2  9  14  22%   64%  
G  2  72  109  3%   65%  
H  0  3  7  0%   43%  
I  0  4  6  0%   67%  
J  0  4  7  0%   57%  
K  0  4  11  0%   36%  
L  0  6  12  0%   50%  
M  0  8  14  0%   57%  
N  0  67  90  0%   74% 
     Total   88**  329  449  27%   73%  
*The 65 LTCHs that reported their  co-located status  in this  jurisdiction did so  to a different MAC.  

**MACs reported that 99 LTCHs had notified them of being co-located.  Of these 99, 88 LTCHs were co-located and submitted 
 
claims to Medicare  in 2010 and/or 2011. 

Source:  OIG analysis of MAC responses, co-location information, and 2010 and 2011 Part A Inpatient Standard Analytical 

Files, 2013.  

 
 
 
   
Vulnerabilities in Medicares Interrupted-Stay Policy for Long-Term Care Hospitals (OEI-04-12-00490)  31 
  APPENDIX E 
Agency Comments 
l l
r<iO"'<'l:s 
DEPARTMENT OF HEALlli & HUMAN SERVJCES  Centers for Medicare & Medicaid Services
Administrator 
Washington, DC 20201 
DATE: 	 MAR Z 8 Z014 
TO: 	 Daniel R. Levinson 

l.llspecte>r General 

FROM: 	 Mar{Tyn U!vemrer 

Admltustrator 

SUBJECT: 	 Office of Inspector General (OIG) Draft Report: Vulnerabilities in 
Medicare's Interrupted Stay Policy (OEI-04-12-00490) 
The Centers for Medicare & Medicaid Services (CMS) thanks OIG for the opportunity to review 
and comment on the above subject draft report.  OIG's objectives for this study were to--(1) 
describe billing of interrupted stays and readmissions in long-term care hospitals (LTCHs); (2) 
determine the extent to which Medicare made inappropriate payments for interrupted stays in 
LTCHs; (3) determine the extent to which LTCHs readmitted beneficiaries immediately after the 
fixed-day period or after multiple short intervening facility stays, resulting in an additional 
LT  CH payment; and ( 4) determine the extent to which co-located LT CHs reported their co
located status and exceeded the 5-percent readmission threshold. 
The OIG analyzed data from Long Term Care Hospitals (LTCHs) and intervening facility claims 
in 2010 and 2011 to identify inappropriate payments for interrupted stays in LTCHs. 
Additionally, OIG identified LTCHs with a high number of readmissions immediately after the 
fixed-day period and after multiple short intervening facility stays. OIG also identified co
located LTCHs billing in 2010 and 2011 and determined whether they reported their status and 
whether they exceeded the 5-percent readmission threshold. OIG concluded that CMS has 
vulnerabilities in the LTCH interrupted stay policy, including inappropriate payments, financial 
incentives to delay readmissions, and potential overpayments to co-located LTCHs. OIG 
concluded that in 2010 and 2011, Medicare inappropriately paid $4.3 million to LTCHs and 
intervening facilities for interrupted stays. Additionally, 59 LTCHs had a high number of 
readmissions immediately after the fixed-day period and 24 L TCHs had a high number of 
readmissions following multiple short intervening facility stays. Medicare paid $12 million and 
$3.1 million, respectively, for these readmissions. While OIG indicates that these readmissions 
may be appropriate, they raised concerns about whether financial incentives, rather than 
beneficiaries' medical conditions, may have influenced readmission decisions of some LT CHs. 
They also found that CMS did not know the co-located status of most LTCHs, preventing it from 
applying a payment adjustment to the 35 percent of co-located LTCHs that exceeded the 
5-percent readmissions threshold. 
We note that recently enacted legislation establishes a new LTCH Prospective Payment System 
(PPS) payment structure beginning in fiscal year (FY) 2016 that specifies clinical criteria for 
Vulnerabilities in Medicare's Interrupted-Stay Policy for Long-Term Care Hospitals (OEI-04-12-00490)  32   
   
 
 
 
 
 
 
Vulnerabilities in Medicares Interrupted-Stay Policy for Long-Term Care Hospitals (OEI-04-12-00490)  33 
   
   
 
Vulnerabilities in Medicares Interrupted-Stay Policy for Long-Term Care Hospitals (OEI-04-12-00490)  34 
   
   
 
 
Vulnerabilities in Medicares Interrupted-Stay Policy for Long-Term Care Hospitals (OEI-04-12-00490)  35 
   
   
ACKNOWLEDGMENTS 
This report was prepared under the direction of Dwayne Grant, Regional 
Inspector General for Evaluation and Inspections in the Atlanta regional 
office, and Jaime Durley, Deputy Regional Inspector General.  
Sarah Langford served as the lead analyst.  Other Office of Evaluation and 
Inspections staff from the Atlanta regional office who conducted the study 
include Rachel Bessette. Central office staff who provided support 
include Althea Hosein, Scott Manley, and Christine Moritz.  
 
Vulnerabilities in Medicares Interrupted-Stay Policy for Long-Term Care Hospitals (OEI-04-12-00490)  36 
   
Office of Inspector General
http://oig.hhs.gov  
 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as  
amended, is  to protect the integrity of the Department of  Health and Human Services  
(HHS)  programs, as well as the health and welfare of beneficiaries  served by those 
programs.  This statutory mission  is  carried  out through  a nationwide network  of  audits, 
investigations, and inspections conducted by the  following operating components: 
Office of Audit Services 
The Office  of  Audit Services  (OAS) provides auditing services  for HHS, either by  conducting  
audits  with its own audit resources or by  overseeing  audit work done by others.  Audits  
examine the performance of HHS programs and/or its grantees and contractors in carrying  
out their respective responsibilities and are intended  to provide independent assessments of 
HHS programs and operations.  These assessments help reduce waste, abuse, and  
mismanagement and promote economy and efficiency  throughout  HHS. 
Office of Evaluation and Inspections 
The Office  of  Evaluation and Inspections (OEI)  conducts national evaluations to  provide 
HHS, Congress, and the public with timely, useful, and reliable information on significant 
issues.  These evaluations focus on preventing fraud,  waste, or abuse  and promoting  
economy, efficiency, and effectiveness of departmental programs.  To promote impact, OEI 
reports also present practical recommendations for improving program operations.  
Office of Investigations 
The Office of Investigations (OI) conducts criminal, civil, and administrative investigations  
of  fraud and misconduct  related to HHS programs, operations, and beneficiaries.  With 
investigators working in all 50 States and the District of Columbia, OI  utilizes its resources 
by actively  coordinating with the Department  of Justice  and other Federal, State, and local 
law enforcement authorities.  The investigative efforts of OI often lead to  criminal 
convictions, administrative sanctions,  and/or  civil monetary  penalties.  
Office of Counsel to the Inspector General 
The Office of Counsel to the  Inspector  General (OCIG) provides general legal services to 
OIG, rendering  advice and opinions on HHS programs and operations and  providing all  
legal support for OIGs  internal operations.  OCIG represents  OIG in all civil and 
administrative fraud and abuse cases involving HHS programs,  including False Claims Act, 
program exclusion, and civil monetary penalty cases.  In  connection with these cases, OCIG 
also negotiates and monitors corporate integrity agreements.  OCIG renders advisory 
opinions, issues compliance program  guidance, publishes fraud alerts, and provides other  
guidance  to  the health care industry concerning the anti-kickback statute and other  OIG  
enforcement authorities.