. "'.
NATIONAL DRG VALIDATION STUDY: 
SPECIAL REPORT ON PREMATURE DISCHARGES 
1I11 
OFFICE OF INSPECTOR GENERAL 
OFFICE OF ANALYSIS AND INSPECTIONS 
FEBRUARY 1988  Office of Inspector General

The mission of the Office of Inspector General 
(OIG) is to
promote the efficiency, effectiveness and integrity of programs 
in the United states Department of Health and Human Services 
(HHS). It does this by developing methods to detect and prevent
fraud , waste and abuse. 
Created by statute in 1976, the
Inspector General keeps both the Secretary and the Congress fully 
and currently informed about programs or management problems and 
action. 
recommends corrective  The OIG performs its mission by 
conducting audits, investigations and inspections with

approximately 1 200 staff strategically located around the

country. 
Office of Analysis and Inspections

This special report is produced by the Office of Analysis and

Inspections (OAI), one of the three major offices wi 
thin the OIG. 
The other two are the Office of Audit and the Office of 
Investigations. The OAI conducts inspections which are typically 
short term studies designed to determine program effectiveness 
efficiency and vulnerability to fraud or abuse. 
This Report

Enti tled "National DRG Validation Study: Special Report on
Premature Discharges " this study was conducted to determine to 
what extent Medicare beneficiaries were being inappropriately 
discharged from the hospital. The report was prepared by the
Regional Inspector General, Office of Analysis and Inspections
Region V. Participating in this project were the following
people: 
Region V  Headquarters 
William Moran  David Hsia, J.D., M.
Natalie Coen  Mark Krushat, M.
Margaret Shell 
Cathaleen Ahern 
Suzanne Johnson  Mary Hogan

Aquilla Box
 NATIONAL DRG VALIDATION STUDY:

SPECIAL REPORT ON PREMATURE DISCHARGES

RICHARD P. KUSSEROW

INSPECTOR GENERAL

OAI-05-88-00740 
February 1988  EXECUTIVE SUMRY

PURPOSE  One of the undesired manifestations of the Prospective 
Payment System (PPS) that has received national attention has 
been the premature discharge of patients. This study was 
conducted to determine to what extent Medicare beneficiaries were 
hospital. It is 
one in 
being inappropriately discharged from the 
a series of reports resulting from a major study undertaken by 
the Inspector General on the accuracy of diagnosis related group 
(DRG) coding and the appropriateness of medical care performed in

Medicare hospitals.

BACKGROUND  In October 1983, a new method of payment for 
Medicare hospital stays was introduced. It was hoped that by 
providing appropriate financial incentives, hospitals would 
implement economies and efficiencies to help curb escalating 
heal th care costs. Under PPS, hospitals receive a preestablished 
DRGs. Regardless of 
payment based on 1 of 473  the amount of time 
a beneficiary spends in the hospital or the amount of resources 
expended during his or her stay, hospitals receive a fixed 
payment for each specific DRG. The hospital retains any surplus 
from stays costing less than the DRG payment and suffers losses 
on stays consuming more services than the payment. 
These same financial incentives might induce some physicians and

hospi tals to withhold needed services and discharge patients

prematurely, thereby increasing profits, while placing

beneficiaries at risk. Evidence of such occurrences began

appearing shortly after PPS was implemented. Once the issue was

identified, it sparked media attention, congressional hearings

groups. 
and studies by various Government agencies and consumer 
Scrutiny of this area, including two reviews conducted by the

Inspector General, revealed procedural problems in identifying

and handling instances of premature discharges. Also identified

was a lack of understanding by the public and medical community

regarding PPS coverage and patient rights under the new payment

system. However, most importantly, the need for focusing more

attention on the quality of patient care was identified

repeatedly in congressional hearings and Federal reports.

Despi te intense interest in this area, quantifiable data

regarding the actual frequency of premature discharges was

unavailable until this study was undertaken.

MAJOR FINDINGS  This study reviewed the hospital records of

7 , 045 randomly selected Medicare patients discharged during the 
period October 1984 through March 1985. We found that

approximately 1. 
1 percent of the sampled beneficiaries were 
discharged prematurely. Weighted appropriately, this data
 indicates that  . 8 percent of all Medicare discharges were
premature. 
This statistic suggests that the occurrences of 
suspected. 
premature discharges are fewer than previously  While 
the overall number of identified premature discharges was small 
1 in every 5 hospitals reviewed had at least 1 occurrence of a 
premature discharge; 1 in every 3 rural hospitals reviewed had 1 
instances. 
or more identified 
Premature discharges occurred most often in small , rural, non
teaching facilities. Of the patients discharged 
inappropriately, the majority had quality of care issues 
associated with their stay in the hospital. Inadequate treatment 
cases. 
and incomplete therapies characterized premature discharge 
There was no distinguishable pattern in the DRGs assigned to
inappropriate discharge cases. Most cases clustered in DRGs 
relating to the circulatory, respiratory, and digestive systems 
as did the cases in the rest of the sample. 
Besides analyzing hospital and case characteristics, we also 
looked at premature discharges in terms of hospital financial
concerns. 
Under PPS, a hospital is rewarded for accurate DRG 
coding, the elimination of unnecessary services and reduction in 
the length of hospital stays. However, manipulation of DRG 
coding and the premature discharge of patients will cause 
excessive program payments and may improperly place patients in 
medical peril. 
Using ICD-9-CM codes, hospitals must list in correct sequence the 
s case. 
appropriate diagnoses and procedures of a patient'  This 
is necessary for the fiscal intermediary to assign the correct 
DRG and make appropriate payment. Coding errors were found in 15 
of the 74 premature discharge cases (20.3 percent). Of these 15 
miscoded, cases , 11 or 73.3 percent caused overpayments to the
hospitals. In 
the remaining four miscoded cases, the hospital 
was underpaid. In the entire sample of 7 045 cases, a 21 percent 
error rate was identified. In 61. 7 percent of these miscoded 
cases the hospitals were overpaid; the coding errors in 38. 
percent of these cases caused underpayments to be made. 
The majority of the premature discharges occurred on or 
considerably after the mean length of stay (LOS) for the
respective DRG. This leads us to conclude that premature 
discharges resulted not necessarily from an attempt by physicians 
and hospitals to maximize profits. Rather, it seemed to be a 
measure taken to minimize losses on patients whose hospital costs
were nearing or exceeding the DRG payment. Regardless of the 
financial impact on the hospital, patients, when discharged while 
still in need of acute hospital care, were being put at risk.  This study quantifies 
CONCLUSION  , for the first time, the 
frequency of Medicare premature hospital discharges. The number 
does not appear to be as high as previously suspected. In 
addi tion, since the time our sampled patients were discharged 
from the hospital, Peer Review Organizations (PROs) have received 
increased authority to deal with instances of premature 
care. 
discharges and/or poor quality of  Hospital payment for 
subsequent stays in the same hospital, resulting from a premature
discharge 
, can now be denied. Soon, PROs will be able to deny 
payment for identified instances of substandard care. Also, PRO 
screens 
, used to target hospital cases for scrutiny for possible 
premature discharges, have been expanded to include sampling of 
all readmissions occurring wi thin 31 days of the initial
discharge. In addition
, an effort has been underway to fully 
PPS. 
advise beneficiaries of their rights under  They and their 
families should now be aware that a patient cannot be discharged 
from the hospital simply because "the DRG days are up. 
Because these measures have not been fully implemented and their 
effectiveness has not been fully assessed, we do not at this time 
recommend that additional safeguards be established. Also, in 
the spring of 1987 several PRO pilot proj ects were completed that 
addressed various aspects of this issue. We hope that 
information contained in this report along with the results and 
recommendations from the PRO studies will assist the Health Care 
Financing Administration (HCFA) in formulating strategies and 
policies in this area. We support continued vigilance on the 
in: 
part of HCFA and the PROs 
detecting individual cases of inappropriate discharges;

profiling hospitals and physicians to identify aberrant

discharge patterns; 
denying reimbursement for subsequent hospital stays

resul ting from a premature discharge; and

sanctioning of hospitals and physicians engaged in putting

financial concerns above the well being of their patients.

iii
 TABLE OF CONTENTS

Page 
EXECUTIVE SUMRY 
INTRODUCTION

Background

Objectives
Methodology 
II. 
FINDINGS 
General Findings 
Frequency of Premature Discharges 
Case Characteristics 
Financial Implications 
III. 
CONCLUSION 
Sampling and Methodology - Appendix I

Record Collection

Medical Review

Statistical Analysis

Hospi tal Demographics - Appendix II

Frequency of Premature Discharges by

Hospi tal - Appendix III

Discharge Destination by Bed Size 

Appendix IV 
Case Frequency by MDC - Appendix V
 INTRODUCTION 
On October 1, 1983, HCFA, the organization responsible for 
administering the Medicare program, largely replaced its hospital 
PPS. 
cost-based reimbursement system with  Congress mandated this 
change because of the rapid increase in Medicare s payments for
inpatient expenses. 
Under the new system, hospitals receive a 
preestablished payment for each discharge based upon an assigned
DRG. 
Each of the 473 DRGs results in an associated payment 
that represents an average cost for patients having similar
diagnoses. 
Some patient hospital stays consume morel essersv.i ces; 
e., cost more than the payment, while others use  The 
hospi tal retains any surplus from stays costing less than their 
DRG payment and suffers losses on stays consuming more services 
than the payment. 
Congress assumed that a fixed payment per discharge would induce 
unecessary services. 
hospi tals to implement economies and reduce 
At the same time, the total payments to the hospitals would 
provide the same essential resources for patients as the
cost-based system. 
While the intent of Congress was to reduce 
health care costs, it was also concerned that the quality of care 
not diminish under this new system. To protect the integrity of 
PPS and maintain quality of care, Congress established PROs to 
ties. 
PPS acti vi 
moni tor 
Under the new payment system, beneficiaries in 1984 were being
discharged on an average of 2.  1983. 
5 days earlier than in  Some 
were erroneously being told that it was because Medicare would 
not pay for additional days in the hospital. Confused by these 
cogizant of their 
changes and not fully  rights, patients sought 
answers from physicians and hospital personnel who themselves did 
not fully understand the new payment system. 
A somewhat rocky transition period did characterize the change 
Beneficiaries, 
from a cost-based reimbursement system to PPS. 
their physicians and the hospital community were forced, in a 
very short time period, to adjust to one of the most dramatic 
changes in health care reimbursement since the creation of 
Medicare. An early, unintended manifestation of the new payment 
system was the premature discharge of Medicare patients. 
Under the previous reimbursement system, premature discharges 
were not identified as a problem because the longer the patient 
stayed in the hospital the greater amount of payment the hospital 
received. Once the issue was identified it was discussed in the 
news, congressional hearings were conducted and it was examined 
groups. 
by various governmental agencies and consumer  These 
examinations revealed procedural problems in identifying 
premature discharges and dealing appropriately with those 
responsible; a lack of understanding by the public and medical 
communi ty regarding PPS coverage and patient rights under the new  system; and most importantly, they identified the need to focus 
more attention on the quality of patient care under PPS. 
With the advent of prospective payment, the Office of Inspector
General 
(OIG) evaluated PPS and its potential effects on 
utilization and provider behavior in order to detect and prevent 
waste. In 
program fraud, abuse and  analyzing vulnerabilities
that could result in "
gaming " or manipulating PPS, OIG identified
several major concerns. Among these were "upcoding " the DRGs to 
obtain higher reimbursement, admitting patients not in need of 
acute hospital care to maximize DRG payments, and inappropriately 
or prematurely discharging patients before hospital expenditures 
exceeded the DRG payment. Underutilization of hospital resources 
and inappropriate transfers between acute care hospitals and 
exempt units were also areas of concern. 
Based on these concerns, the Inspector General has completed 
three validation studies of DRGs 14, Specific Cerebrovascular 
Disorder Except Transient Ischemic Attack (TIA), DRG 82 
Respiratory Neoplasms, and DRG 88, Chronic Obstructive Pulmonary
Disease. A review of PRO activity in identifying and handling 
cases of inappropriate discharges and transfers was also 
completed early in 1986, along with a study regarding beneficiary 
rights under the new payment system. An ongoing study of 
hospi tal Medicare profits is being conducted by the Office of 
Audit as well as a study of 1-day hospital stays. 
In addition, a major initiative, the National DRG Validation 
Study, was undertaken to survey the accuracy of DRG coding and 
PPS. 
quali ty of care performed by hospitals under  Based on data 
from this national study and 'additional data from other sources, 
several reports will be issued by the Inspector General 
gaming. 
regarding identified areas of manipulation and 
Quali ty
activities,
of care, as well as PRO performance in monitoring PPS 
will also be addressed. This report specifically discusses
premature discharges. 
Background 
Inappropriate physician/hospital behavior can place beneficiaries 
at unnecessar risk and inflate program payments. Because PPS 
bopital a 
gives the  fixed payment regardless of how long the
patient st 
8, the hospital may not only reduce costs, but also 
discharge Medicare patients "quicker and sicker.  Excessive 
hospi tal pressure on physicians for early discharge may 
improperly place patients at medical peril. The beneficiary who 
leaves the hospital clinically unstable, while needing high 
unecessary clinical deterioration
levels of care, risks 
readmission 
, or death. 
Premature discharge increases provider profi tabili ty in 
two ways.
First, the DRG payment represents an average cost that includes
 proper workup and treatment. By sending the patient home 
prematurely, the hospital gains the Iunds not expended on the 
medically-indicated level of services. Second, the premature 
discharge creates an opportunity to earn a second DRG payment for
the patient'  future. 
s readmission in the near 
Also, some hospitals are inappropriately using the DRG average or 
mean LOS. Based on national data, both the arithmetic mean LOS 
and the geometric mean LOS are calculated for each DRG and
published by HCFA. The geometric mean LOS is used in calculating 
outlier
payment for day " " cases. The arithmetic mean LOS is 
calculated by HCFA for comparison purposes only. It is not 
used in payment determinations. 
Outliers were created to provide additional payment for unusual
circumstances. 
These cases are those that have either an 
extremely long LOS or extraordinary costs when compared to most 
discharges in the same DRG. If a case meets the necessary 
criteria for day or cost outliers, the hospitals may receive 
extra payment in addition to the applicable DRG payment. 
Proper use of the mean LOS is made when calculating day outlier 
data. 
payments or analyzing  The DRG mean LOS was never intended 
to be used as a criteria for determining a patient discharge from 
the hospital. However, as documented in this and previous OIG
studies 
, some hospitals appear to have policies encouraging or 
requiring the discharge of patients prior to or at the mean LOS. 
Such arbitrary policies directly link provider profi tabili ty with 
Provider statements to
endangerment of beneficiary health. 
patients to the effect that "
your DRG days are up" improperly 
i ty for 
seek to shift the responsibi  premature discharge to the
Government. 
(AM) report of 
The American Medical Association  its DRG 
monitoring project discussed early discharges both as a 
manifestation of administrative pressures and as a quality
concern. 
Forty-three percent of the surveyed physicians reported 
that there was pressure to discharge patients early, 32 percent 
state that policies had changed for the better, and the remaining 
25 percent stated that they had not noticed a change in hospital 
discharge practices. 
In a study by the American Society of Internal Medicine (ASIM), 
physicians cited the following as examples of hospital imposed

pressures: 
Printed forms appear on the chart 1-2 days before the DRG

expires, strongly suggesting discharge.

When the DRG ' expires ' I am reminded and urged to do
something. "  . "
Pressure to discharge sooner is very great and workup is

often incomplete.

One local hospital details the cost on the front of the 
this. It 
record--the patient is aware of  has created
anxiety. . 
The hospi tal is not exerting pressure on our staff, but 
there is pressure just knowing the hospital' s livelihood
depends on us. 
Under the cost-reimbursed system, the financial incentive was to 
stays. 
maximize services and prolong hospital  This was a 
comfortable environment for physicians. They could provide 
continuity of care, ordering all tests and therapies they deemed 
necessary while keeping the patient in the hospital for, in their
opinion
, an appropriate length of time without interference from 
hospi tal management. Wi th the implementation of PPS, hospitals
began monitoring physician practice patterns in order to identify 
and eliminate costly unnecessary tests and days in the hospitals.
This seemingly intrusive behavior on the part of hospital 
administrations, coupled with a new emphasis on financial 
concerns, was an abrupt change for most physicians. 
Objectives 
This study was conducted to determine to what extent Medicare
patients were being discharged prematurely. 
We evaluated the
patient' 
s condition upon leaving the hospital. If the patient
was medically unready for discharge at that time, the discharge 
was identified as premature., Because a physician decides whether 
to discharge the patient without knowing the beneficiary 
future course, this report identified premature discharge 
regardless of whether the patient subsequently did well, required
prompt readmission, or expired as a result of the initial 
premature discharge. Nei ther the patient' s medical condition at 
the time of initial admission nor at readmission affected the

classification of a discharge as premature.

Methodolog 
Using a rtew-csrtdasge  cluster design, we sampled 7 045 complete
medical  from 239 hospitals stratified by size. The cases 
were drawn from hospital discharges occurring during the period 
1985. 
beginning October 1984 through March  The OIG contracted 
wi th the Health Data Institute (HDI) for medical records 
specialists to code the diagnoses, and for physicians and nurses 
to assess the appropriateness of the discharges. A comprehensive
system of reviews and referrals verified the accuracy of the 
process. 
In assessing appropriateness of care, the patient's condition
 time. 
was evaluated during three points in  The first reference 
was upon admission. Unnecessary admissions were identified at 
this time. The second evaluation of care concerned the treatment 
stay. 
of the patient during his or her hospital  Determinations 
of poor quality of care, unneeded procedures, etc. , were then
made. Finally, a 
decision regarding the appropriateness of 
discharge was reached. Registered nurses initially screened the 
medical records for incidents relating to the appropriateness of

admission , quality of care and appropriateness of the discharge.
If inadequacies were found, the medical record was then referred

to a physician. In general, if, in the physician s judgment, it

was determined that the patient was still in need of acute

hospi tal care 24 hours before his or her release from the

hospi tal, the discharge was determined to be premature.

narrative sumary 
was then prepared describing the nature of the 
deficiencies noted.

The reviewers had instructions to ignore marginal problems or

cases involving honest differences in medical judgment about

appropriate case management and subsequent discharges. 
An OIG 
medical consultant evaluated all narrative sumaries 
and quality
of commentary and found them to be adequate and consistent.

Further information regarding sampling and review methodolog
can be found in Appendix I. 
It should be noted that our mest.h odolog in identifying premature
discharges differs from HCFA' Therefore, comparisons between
HCFA data and our data should be made with caution. During the
time period covered by this sample, PROs were instructed to
identify all readmissions to the same hospital within a 7- to

15-day period from the date of discharge. 
The PROs then

reviewed potentially related hospital stays to determine if the

discharge from the first stay was premature.

The PROs had more information than we did regarding what happened 
to the patient after the first discharge. However
, HCFA' s
screening mechanism did not identify premature discharges that
resul ted 
in admissions to other acute care hospitals or early 
discharges that did not necessitate another hospital admission. 
While we did not track patient outcomes upon leaving the 
hospi tal, we assume not all of the premature discharge cases
identified necessitated a hospital readmission. 
Therefore, this
tyes 
study included some case  that would not have been caught by
PRO screens.

II. 
FINDINGS 
General Findings 
Of the 7, 
045 discharges in the sample, the reviewers identified
74 as premature. 
That is, it was determined that approximately 
l percent of all sampled patients were still in need of acute
 inpatient hospital care at the time of discharge. 
Weighted
appropriately, this data would suggest that . 8 percent of all
Medicare discharges were premature. The premature discharges
were identified in 52 or 21. 8 percent of the 239 hospitals
reviewed. Of the 239 sampled hospitals, 38 percent were rural; 
yet of the 52 hospitals with premature discharges, 60 percent 
were rural. 
More than half of the hospitals in which premature discharges 
occurred were under 100 beds, whereas hospitals under 100 beds 
hospitals. 
represented only one-third of all sample  Data arrayed
in the graphics below suggest that premature discharges occurred 
more frequently in small, non-teaching, rural hospitals. 
More detailed information regarding hospital demographics can be 
II. 
found in Appendix 
ID liD 
(l00 
1" 
(l00 IOS 
Ins 
sa..u  PlfURI DISCMalG HOSPitALS 
tOtaL HospnaLS I" 
n = 23'  n = 51  .. .
TIACHIMC v. HO-TIACHIHC HOSPITALS 
HO-TEACHIMC 
HO T EACH I NG 
EACH I tt

TOtAL HOSPitALS IN S""U:  PRETURE DISCHAIC MOPITALS 
n = 239  " = 52 
".L 
v. 
URBN HOSPI TALI 
URIN 
TOtAL HOSPIULI IN S""U:  PRTURE DISCHAac HOSPITALS
n = 239 
n = 52

The distribution of states with identified early discharges shows

a greater concentration in the southeastern and southcentral

regions. The hospitals in these two southern areas accounted for

35 percent of the 239 sampled hospitals. Twenty-eight of the

eighty-three hospitals in these areas (34 percent) were

prematurely discharging patients. However, these 28 hospitals

accounted for over one-half (28 of 52) of the hospitals

identified as prematurely discharging patients and accounted for

well over one-half (47 of 74) of the inappropriate discharge

cases identified.  Please note that most of the northeastern section of the country 
was excluded from this review because New York, Maryland, New
Jersey and Massachusetts held waivers exempting them from PPS. 
Frequency of Premature Discharges

Fifteen of the fifty-two premature discharge hospitals were 
responsible for one-half of the 74 cases identified. The 
majori ty of hospitals (40 of 52) had only one incidence of 
premature discharge identified in the sampled cases reviewed. 
The highest frequency of inappropriate discharges found in 1 
cases. 
hospi tal was 6 of 30 sampled  Appendix III contains
addi tional information regarding the frequency of premature 
discharges by hospital. The top five hospitals with the most
premature discharges were small 
facili ties.  , rural, publically-owned
These five hospitals also had a large number of
quality concerns associated with the cases reviewed. 
The 
following chart indicates total cases sampled at these hospitals

the number of discharges where the quality of care received by

the patient while hospitalized was questioned and the number of

discharges identified as premature at each hospital.

NUER  NUER  PREMTUE 
HOSPITAL  CASES SAMPLED  QUALITY ISSUES  DISCHARGES 
Because of the nature of the quality issues identified and the 
number of cases evincing quality concerns, four of the above five
hospi tals were referred for potential sanction development. 
Case Characteristics

Most of the 74 prematurely discharged beneficiaries were 
discharged to their homes (48 of 74); 1 in 5 were discharged to 
an intermediate care facility (ICF). The following graph 
compares all sample discharge destinations to that of the
patients discharged prematurely. 
As evinced by the data, a 
disproportionate number of prematurely discharged patients 
compared to all sampled patients went to posthospital care 
settings such as skilled nursing facilities (SNFs), ICFs, home 
agencies 
heal th  (HHAs), and other institutions. Appendix IV
contains case discharge information broken out by hospital bed 
size. Please note that discharge destinations were coded from the
actual hospital bills submitted. 
This data was not verified with 
information contained in the medical records.
 tllCMIC 
tISTIN8TION 
EXI RED

THER 
TOtAL "TIDlS IN CAIILJ "TIDlC PRTU8IY DISCHARGED
n = 704 
n = 74 
Patient quality of care was evaluated separately from
inappropriate discharge.  of 
Quali ty  care determinations were 
made within the context of treatment received during the stay in 
the hospital. The appropriateness of discharge determinations 
considered only the patients condition at discharge. 
Sixty of
the seventy-four premature discharge cases evinced quality

concerns attributable to care received during the course of

treatment in the hospital.

Within the 74 premature discharges, 99 occurrences of

inappropriate or incomplete treatment were identified at the time 
of the discharges. The most frequent occurrences of inadequate 
treatment involved in a premature discharge determination were 
due to incomplete workups (43 of 99), followed by incomplete
therapies provided to the patients (26 of 99 cases). In 
5 of the 
74 cases, the information contained in the medical records

indicated that the patient was nearing or had exceeded the

average length of stay" for the DRG and should be discharged in

order to conserve hospital resources. 
A listing of the generic reasons why patients should not have 
been released from the hospitals and the number of cases falling 
follows: 
into each category is as  (Please note that a single
case could fall into one or more categories.

Category 
Number of Cases 
Incomplete Workup

Prior to Discharge

Incomplete Therapies

Provided Prior to Discharge

Temperature Greater than 100. 2' F 
24 Hours Prior to Discharge  Patient Unstable (Not Other

wise Classified) Prior to

Discharge 
Clinical Condition Worsening

at Discharge

Financial Reasons for Discharge

Intravenous Antibiotic/Therapy Administered

Less than 24 Hours Prior to Discharge

Medical Procedure Deferred Unneces

sarily; Patient Discharged

Surgery Deferred Unnecessarily (Split

Diagnosis/Therapy); Patient Discharged

Appendix V compares the premature discharges by maj 
or diagnostic
category 
(MDC) to the overall sample. Forty-five of the 
seventy-four premature discharges clustered in DRGs relating to 
the circulatory, respiratory and digestive systems as did the DRG 
in the total sample. 
Financial Implications

As discussed earlier, hospitals can increase revenues by

prematurely discharging patients. A better understanding of the

financial considerations that may induce the premature discharge

of patients can be had by looking at hospitals in the context of

mean LOS, accuracy of DRG coding, case mix indices (CMls) and

Medicare profit margins.

In reference to LOS, premature discharges appear to fall into

three categories:

Those patients who were kept for only a few days, when
the DRG mean LOS was several times greater (19 of 74). 
Those patients who were discharged on or about the mean 
LOS for their DRG (42 of 74). 
Those patients who were kept for considerably longer

than the DRG mean LOS (13 of 74.

The data above is based on an analysis of each DRG mean LOS

compared to the patient' s actual LOS in the hospital. The 
following chart arrays the sample mean LOS of each bed size 
category by type of hospital.  MEAN LENGTH OF HOSPITAL STAY

By Bed S1 ze and Type of Hosp1 tal

Number  Number  Number  Number 
Bed S1ze  HLOS Hos  tals  Cases  HLOS Hos 1 tals  Cases 
( 100  2273 
100 - 299  2387 
00 +  . 7  2 85 
The data on the sample mean LOS for large hospitals identified as 
prematurely discharging patients provides some support for the 
theory that in order to maximize DRG payments hospitals and 
physicians would withhold services and discharge patients 
care. 
prematurely after a few days of  These hospitals were
discharging patients on an average of 5 days earlier than their 
peers. However, this does not hold true in small-sized hospitals 
where prematurely discharged patients stayed
, on the average,
almost a day longer than patients appropriately discharged. 
Both analyses of data indicate that the majority of the patients

being prematurely discharged left the hospital on
, about, or
considerably after the DRG mean LOS. This suggests the patients
were not being inappropriately discharged in order for the 
hospi tals to maximize their profits. Rather, it seems they were
being discharged to minimize the hospitals ' financial losses on

patients whose continued cost of care would exceed the DRG
payment. 
Regardless of whether the intent was to maximize 
profi ts or minimize losses, patients were still being put at
risk. 
Under PPS, the accuracy of DRG coding is critical in determining 
fair and accurate payment. Using ICD-9-CM codes, hospitals must
list in correct sequence the appropriate diagnoses and procedures 
s case. 
of a patient'  This is necessary for the fiscal 
intermediar to assign the correct DRG and make appropriate
payment. 
In this study, DRG coding errors were identified in 15 of the 74
premature discharge cases (20. 
27 percent). This is similar to 
the 21.0 percent error rate found in the entire sample of 7 045
cases. Of 
the premature discharges having DRG changes, 11 of the
15 (73.  eighted DRG. This
3 percent) were recoded into a lower 
means the hospitals, by miscoding the DRGs, were overpaid for the
patients ' hospital stays. 
Four of the fifteen cases (26. 
percent) were recoded into higher weighted DRGs which indicates
 .. 
(,) 
+ ,. 
the miscoding in these instances resul 
ted in an underpayment to

the hospital. In the entire sample, 61. 7 percent of the coding

changes resul ted in a lower weighted DRG and in 38.3 percent of
the cases the resultant DRG had a higher weight. 
It appears that

in instances of premature discharges, the miscoding of DRGs

tended to favor the hospitals slightly more often when compared

to effects of coding errors in the entire sample. 
In addition, we compared CMls and Medicare profit margins of

sampled hospitals to hospitals with premature discharges.

According to HCFA, the CMI is a sumary statistic representing
the relative costliness of each hospital'
s mix of cases compared
to the national average mix of cases. Thus, a hospital that
offered less sophisticated services and treated relatively simple 
cases would be expected to maintain a lower CHI than one with 
more specialized services and more complicated 
cases. Small
rural hospitals would be expected to have lower CMls than large,
urban tertiary care hospitals. 
The HCFA calculates and uses regional
, national, and hospital
specific CHIs for calculating DRG payment and in determining 
referral center status. If a rural hospital is designated a
referral center, it receives a higher DRG paYment amount because
the hospital' 
s cases are of a more complex nature than other
rural hospitals. The 
fOllowing chart compares the CHIs of the
sampled hospitals with the 52 hospitals prematurely discharging

patients. 
CA. MIX IHDD 
Ty. of 
8y 884 Si.., Y..r and  Boapi tal 
IlU 
AL  8D.I'f 
. IIs.I'fAL 
8ed She  CI U83  U85"  IDcr....  CI 1913  1,.5  IDcr.... 
nit 
( 100  o. U2'  002'	 o.  o. '707  + 5. 14 , 
(D)  (7')	 (27) 
71'  flU  02' 
100 - 0012  11'5  +10.  o.  085'  +12. 
(D)  (10)  (11)

300 +  1024  2580  +14.11'  0578  2U4  +17.73'

(D)	 (10)

'2'

0190  1273  +10.
(D)	 (23') 
A8 u.ed for paJ8t., ba.84 OD 1981 d.:t.a 
...84 OD 	c:88 billed UDer ... t.rou9b oJ... UII for  1,.5, a.84 
for capital C0t. for8a oay
 As expected 
, the small sample hospitals had lower CMls. However 
all the hospitals with premature discharges had lower CMls 
compared to their peers wi thin the respective bed sizes. 
Theoretically, increases in a hospital' s CMI were anticipated due
to events such as a change in services or specialty, an
increased use of newly developed technology, and increased 
attention to DRG coding, which would identify complicating 
factors in patients ' conditions which had not been coded 
previously. In addition, with many minor surgical procedures 
being moved to outpatient settings, the average inpatient case 
would become marginally more complex. 
The HCFA has calculated hospital CMls based on case experience

during Fiscal Year (FY) 1985 from bills submitted through June

1986. As the previous chart demonstrates, in FY 1985 hospitals

in all categories treated, on the average, more complex cases.

Both medium and large hospitals with premature discharges had 
greater increases in their CMls compared to other hospitals in 
the respective bed size categories. Small hospitals with
identified premature discharges, who were mostly rural in nature 
did not increase their CMls at the rate of their peers,
suggesting that they may not be as financially viable 
as others in an increasingly competitive hospital market. 
Another indicator of a hospital's financial viability is its

margin. 
profi t  This information was not specifically collected 
for all 239 hospitals in this study. However, 97 of the sampled
hospitals were examined in the course of another OIG study 
focusing on hospital Medicare profits in FY 1984. 
The weighted average Medicare profit margin was computed by
adding total hospital Medicare revenues. 
Included were DRG 
paYments, outliers, indirect medical education payments
, and
return on equity. Medicare inpatient operating costs were then

subtracted to arrive at Medicare profit. The profit margin was

calculated by dividing the Medicare profit by Medicare revenues

as weighted by strata. The weighted average Medicare profit

margin was about 15 percent. In dollars, the average Medicare

4 million in revenues. 
hospital netted about $1. The following
chart shows the available weighted average profit margin by bed 
size for 97 of the 239 hospitals in this study compared to the 
weighted average profit margin by bed size of 23 of the 52 
hospi tals which had premature discharges.  HIT PROPIT MAIH 
By Bed Si z e and Type of Hospi tal 
Premture 
All SUlple  Disc:harqe
Bed She  BosDi tals  BosDi tals 
( 100  9.  33t 
(n)  (30)  (13) 
100 - 299  13. 521  14 . 80' 
(n)  (28)  (6) 
300 +  15. '"  li. 24t

(n)  (39)  (4) 
15. 20' 
(n)  (97)  (23) 
While midsized and large hospitals with premature discharges 
managed to accrue profits larger than other hospitals in their
respecti ve 
bed sizes, smaller hospitals who discharged patients 
prematurely had only half the profit margins of their peers. 
While limited conclusions can be drawn based on the above data

it does appear that the majority of hospitals identified as

prematurely discharging patients, (small, rural facilities), may

not be as financially viable as their peers.

III. 
CONCLUSION 
This study quantifies for the first time the frequency of 
premature discharges in a randomly selected, national sample. 
We found approximately . 8 percent of all Medicare discharges to 
be premature. Our study indicated that the problem existed 
primarily in small, rural hospitals who, apparently to minimize 
financial losses, may be discharging patients prematurely. 
the patients discharged inappropriately, the majority had quality 
of care issues associated with their stay in the hospital.
Inadequate treatment . and incomplete therapies characterized most
premature discharge cases. 
There did not appear to be a discernable pattern in the DRGs or 
their respective MDCs assigned to the premature discharge cases. 
These cases reflected the frequencies of occurrence in the entire 
sample. The DRG coding errors were identified in 20.3 percent of  cases. 
the 74 premature discharge  The effect of these coding 
errors tended to favor the hospital slightly more often than the

coding errors found in the entire sample. 
Overall 
, about 1 in 100 sampled beneficiaries were 
inappropriately discharged, indicating that the occurrences of

premature discharges are fewer than previously suspected.
Although the number is small, one in five hospitals reviewed had

at least one occurrence of a premature discharge; one in every

three rural hospitals had one or more identified instances. 
As mentioned previously, this issue has received scrutiny from

congressional committees, consumer groups and governmental

agencies. Many of the recommendations from these studies were

aimed at protecting the quality of patient care under PPS and

have been or will be implemented by HCFA and the PROs. 
Since the time our sampled patients were discharged from the 
hospital (October 1984 through March 1985), PROs have received
increased authorities to deal with instances of premature 
care. 
discharges and/or poor quality of  Hospital paYment for
subsequent stays in the same hospital, necessitated by a
premature discharge, can now be denied. Soon, PROs will be able
to deny payment for identified instances of substandard care.
Also , PRO screens, used to target hospital cases for scrutiny for 
possible premature discharges, have been expanded to include 
sampling of all readmissions occurring within 31 days of the
ini 
tial discharge. In addition, an effort has been underway to
fully advise beneficiaries of their rights under PPS. 
They and
their families should now be aware that a patient cannot be
discharged from the hospital ' simply because " 
the DRG days are
up. " 
Because these measures have not yet been fully implemented

and their effectiveness has not been fully assessed, we do not

recommend at this time that
 addi tional safeguards be 
established. 
AlSO, HCFA is continuing to address the premature discharge
issue. 
Several PRO studies were completed in the spring of 1987. 
These reports concluded that the premature discharge of patients 
was not a pervasive problem in the respective states reviewed.
However , none of the PROs recommended that safeguards to prevent 
such occurrences be relaxed. Rather, the reports: 
recommended that PROs identify and focus review efforts

on patient populations which appear to be more at risk

of being prematurely.discharged (California, Alabama,

Iowa PROs);

suggested changes in the generic discharge screens 
currently being used by PROs (Iowa PRO);  commented on the effectiveness of concurrent discharge

review by the PRO of patients that are to be

transferred to SNFs after their discharge from the

hospi tal (Al abama, Iowa , Arkansas PROs); 
stressed the importance of discharge planning in

preventing readmissions to the hospital (Oregon 
PRO);
and finally

stressed the importance of accurate coding of discharge

destinations on the Medicare bill. 
This information

can help target potential patient populations at risk

of inappropriate discharge (Florida
, Alabama, Arkansas,

California PROs).

We hope that information contained in this report along with the

resul ts and recommendations from the PRO studies will assist HCFA

in formulating policy and strategies in this area. We support
continued vigilance on the part of HCFA and the PROs in: 
detecting individual cases of inappropriate discharges;

profiling hospitals and physicians to identify aberrant

discharge patterns; 
denying reimbursement for subsequent hospital stays

resul ting from a premature discharge; and

sanctioning of hospitals and physicians engaged in putting

financial concerns above the well being of their patients.
 APPENIX I 
Sampling and Methodology

The National DRG Validation Study used a stratified two-stage 
sampling design based on hospitals. The sample divided the 
population of hospitals meeting the study s esliizgeib:i lity criteria 
(outlined below) into 3 groups based on bed  less than 100 
beds , 100 to 299 beds, 300 or more beds. 
The first stage used simple random sampling without replacement 
to select 80 hospitals wi thin each group for a total sample size 
of 240 hospitals. First, it included only acute care, short stay
facili ties. 
This test also excluded specialty institutions, such 
as children s hospitals. Second, as of October 1, 1983, a 
waiver provision exempted New York, New Jersey, Massachusetts and
Maryland from PPS. 
Therefore, the sample excluded facilities in 
these states. Third, the facility had to have contributed data 
to the construction of the initial relative weights assigned to 
PPS. 
DRG categories at the start of  These initial relative 
weights derived from a 20 percent sample of Medicare discharges 
from facilities participating in the program in 1981. To 
included in the sampling frame, a facility had to both contribute 
discharges to the construction of the initial relative weights 
and to participate as a provider at the beginning of PPS, 
October 1, 1983. 
The effective universe of hospitals available for study numbered

913. Of 
the initial sample of 240 hospitals, 1 facility 
terminated its Medicare eligibility between the sampling
time frame and the actual collection of medical records. The 
first-stage sample therefore included 239 (4.9 percent) randomly 
selected, short term, acute care facilities eligible under the 
Medicare program at least since 1981 and not located in a waiver
State. 
The second stage of the design employed systematic random

sampling to select 30 Medicare discharges from each of the 239

hospi tals. The HCFA' s Bureau of Data Management and Strategy

(BDMS) supplied a list of all final bills received by BDMS from

bill 
ntermediaries through April 30, 1985. Each 
the fiscal 

represented one Part A Medicare discharge for the time period 
October 1, 1984, to March 31, 1985. If a facility had less than 
30 discharges during the applicable period, we selected all 
is available Medicare discharges. 
Record Collection

In mid-1986, OIG sent registered letters to the selected

hospi tals, requesting copies of the complete medical record for
 discharges. 
each of the sampled  Administrative subpoenas 
compelled the participation of a few institutions. Of the 
222  396 records available from the 239 hospitals, the sample 
design requested 7 076 (3. 2 percent). The study ultimately
received and reviewed 7, 045 (99. 6 percent) medical records.  The 
hospi tals could not locate the remaining 31 records. 
Medical Review

Physicians experienced in chart review analyzed all cases of

premature discharge. The physician scrutinized the entire

patient record to determine whether the patient required further

talization at the time of discharge. 
hospi 
On discovering an 
instance of premature discharge, the physician dictated a
narrative sumary describing the 
nature of the deficiencies and
ci ting supporting evidence from the patient chart. This
methodolog paralleled the 
process used in local peer review
and by the PROs. 
The reviewers had instructions to ignore 
marginal problems or cases involving honest differences in 
medical judgment about appropriate management, selecting only 
discharges exhibiting major inadequacies under any recognized
standard of care. 
Appropriate medical experts reviewed records presenting specialty 
care issues. Physician panels convened to decide difficult
cases. 
The bulk of reviewing physicians had appropriate Board
certification
, committee experience and recent patient care 
responsibili ty. An OIG physician reviewed the clarity and 
consistency of each medical reviewer s conclusions. 
statistical Analysis

Because of the two-stage sample design, this report evaluated its

data by hospitals rather than by discharges. 
It calculated 
proportions of events as the number of events over the total
number of discharges reviewed wi 
thin each bed size group. 
Estimates for the total sample (weighted proportions) were 
group. 
weighted by the number of hospitals in each  proj ections
to the universe of discharges derived from the inverse of the 
sampling fractions with the estimates and variances calculated
accordingly. 
Poststratification analysis followed HCFA practices for 
classifying bospi tals by their demographic characteristics 
urban versus rural location and teaching status. Urban versus 
rural status depended on whether the hospital' s location fell 
within the boundaries of a standard metropolitan area as defined
by the Census Bureau. 
The HCFA considered a hospital to have 
teaching status if it has an accredited residency program.
These two characteristics warranted logi 
t analysis because they
affected the hospital' 
s payment under PPS.  This survey employed a generalized logi 
t analysis using weighted
least squares for categorical data to test the effects of these 
variables on the various events measured in this study. This
procedure reweighted data to properly represent the effect of 
independent variables not controlled by the appropriate degrees 
of freedom and provided a test of the significance of the model 
parameters and the goodness of fit of the models.  APPENDIX II 
HOSPITAL DEMOGRAHICS 
PREMATURE  ALL  PREMTURE  ALL 
DISCHARGE  SAMLE  DISCHARGE  SAMPLE 
TCHST  URST  SIZE  HOSPITAL  HOSPITALS  CASES  CAS ES 
TEACH URBAN  (100
ING  100
299  449 
300+  1345 
NON/  URBAN  (100 393 
TEACH 100
ING  299  1226 
300+  898 
NON/  RURA  (100 . 63  1821 
TEACH 100
ING  299  712 
300+  142 
TOTAL  , 52  239  7045 
2()
 III 
APPENIX 
FREQUENCY OF PREMATURE DISCHARGES BY HOSPITAL

CASE FREQUENCY OF  # OF  PERCENTAGE OF 
PREMATURE DISCHARGE  HOSPITALS  CASE FREQUENCY 
54. 
18. 
10.    
ey
sc
D) Caen 5  5  e  e 
e (P PD requ 64.  1. 3 21.  1. 3 Non Non
g F
r
a
 
chze al  ne  ne 
isSi ot No No
D  T
 d
ee    
ur B 9') 1')
tl +  8 1
mata 00 8.  ne  ne  1.  ne  ne
 ne  ne  ne 
ei 3 8 o o 1 o o o o o
rp ( N N ( N N N N N
Ps
 o    
t1on ofle by H 100-299  22')(72.  None  None  (22. 22') None  56') ( 5 .  None  None  None 
1p
- E
 sm    
SIZ spobsa 0  45') 6')  3')  40') 3')  8')  6U 
- ED  DiSu  10 57.  4. 2 2. 1 23.  12.  6. 3 one  one  4. 2
- B ( ( ( ( ( ( ( N N (
 
Y
B
V   
X I ON y 
DI TI  nc
PEN TINA Caseeaue 71.  1.86  1.69
P S  r
A E ,F
D  
HARGE  plete  Bed Si Total  5071  158  131  670  119  390
 442  7045 
C ml
S oa  
DI f Cpi t +  86') U)  0')  0')  5')  1\)  5')  0')  8U 
on o Hos 300 1833 (76.  8(0.  (1. 8 136 ( 5. 7 (1. 5 141 9(5.  (0. 2 167 0( 7.  (0. 0 2385 
iy
D1Spos1tSample b 100-299  1739 85') (72.  09\) (2.  72') (1.  238 (9. 9n)  (1. 34\)  125 24\). (5.  (0. 50')  148 (6. 20')  (0. 08')  2387 
 100  499 65. 95')  3. 8n)  On) 2.  96 21\) 13.  2. 20')  24 5. 46')  0. 44')  27 5. 59')  1. 41')  273 
( 1( ( (  2( ( 1( ( 1( ( 2
   
n   n
 o e o
rgeati E  r Caral  r uti t d  A
t 
DischaDestinCode  HOM AnotheAcute HOSDi t SNF  ICF  AnotheInsti t HHA  PatienLeft  Expire Still Patien Total  ......    .. 
( , )  ( , ) 
APPDlrx v 
CAE  BY KX 
Major Dlagnostic Cateory Freqcy  Freqcy 
Co an D(KeJin)ition  DPriestcuqree  Ca  Sin tlh
le  ofle Cteas es
05: Di_se , Disords of  (25. 68')  1660  (23. 56') 
th Circutory Syste

Dise, 
04:  Disords of (20. 27\)  1091  (15. 49') 
th Reiratory Syte 
Dises' 
06:  Disords of (14. 86')  870  (12. 35') 
th 
Digestive Syste 
Dise , 
11:  Disords of  (09 . 46')  (04. 9lt) 
th ltdn an Urina 

fDrine, Nuition
10: , Melic Dise' DiSOs  (OB. 11')  342  C04. 85') 
DiMse , uDitsaos
08: th  C05. 41')  628  C08 . 9lt) 
CC'l 
Syste,  Tiuu 
01: Dthi sNe'e D Sieyos C04. 0St)  601  COl. 53' ) 
DSisUe'  DTi8i0   of th Sk,
C04. 0St)  (02. 56') 
SU 
08 ,
20:  (02. 70')  (00. 43') 
In OZc MIta Di80s 
Di.... 
17:  Diso,  (01. 35\)  (01. 73') 
M8yDro1if erti".  Poly Differ
entite Hea. 
i... 
Inec , Pa 
18:  tic D (01.3St)  COl. 59') 
1..  fi8d 8itM) 
Csystc or 
Dise , 
19: Meta  Di8OS.  (01. 35')  104  C01. 48') 
a;uu 
!C SP (01.35\)  COO.94') 
lltailiu Sy 
07:  Di 8I  197  C02.1O) 
Di.. , 
12: Ma Rlrova  of th 185  C02.63') 
03: 01.. , O1'D80t  d. th (01.83\) 
Ba, .., 8DI  i 
t'.... 
of tb 
(01.50') 
02: 
1'8C  'lc
21: I1DCj1 , 
(01.21') 
of DDm i 
f8 Rlva Sofy tb 
13:  C01.09') 
0E..
16: Blo, 8l Pong  (01.06') 
IIica Di-
8D Di 
hcrs 
23:  Infl18ng BMth Stt\1"  (00.4") 
Ot CCta llth 8Ith SeC1 
22:  (00.07') 
Nern 
15: COtion Ot H8te With COO.Olt) 
Orinating in 
Peinta 
Peiod
045