Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

MEDICARE AND 

BENEFICIARIES COULD 

REALIZE SUBSTANTIAL 

SAVINGS IF THE DRG 

WINDOW WERE EXPANDED 

Daniel R. Levinson 

Inspector General 

February 2014 

OEI-05-12-00480 
 

EXECUTIVE SUMMARY: MEDICARE AND BENEFICIARIES COULD REALIZE 

SUBSTANTIAL SAVINGS IF THE DRG WINDOW WERE EXPANDED 

OEI-05-12-00480 

WHY WE DID THIS STUDY 

The “DRG window” policy defines when outpatient services related to inpatient admissions are not 

paid for separately, but rather are considered to be included in the inpatient lump-sum payment. 

(This payment is known as the Medicare Severity Diagnosis Related Group (DRG) payment, hence 

the term “DRG window.”) Under the current DRG window, Medicare and beneficiaries do not pay 

separately for related outpatient services delivered within 3 days of an inpatient admission in a 

setting owned by the admitting hospital. Services that are provided by hospitals that share a 

common owner (i.e., multiple hospitals owned by the same corporation, hereinafter called affiliated 

hospitals) are not subject to the DRG window. 

HOW WE DID THIS STUDY 

We used 2010 and 2011 claims to identify the number of related outpatient services delivered both 

on the days prior to the DRG window at settings owned by admitting hospitals and on the days prior 

to the inpatient admission at affiliated hospital groups. We also used 2010 and 2011 claims to 

calculate the amounts Medicare and beneficiaries paid for these services. 

WHAT WE FOUND 

Medicare and beneficiaries could realize substantial savings if the DRG window were expanded. In 

2011, Medicare and beneficiaries paid an estimated $263 million for 4.3 million related outpatient 

services provided at settings owned by admitting hospitals in the 11 days prior to the DRG window. 

Medicare and beneficiaries could also realize savings if the DRG window were applied to other 

hospital ownership structures. In 2011, Medicare and beneficiaries paid an estimated $45 million 

for 777,000 related outpatient services provided at hospitals affiliated with, but not owned by, 

admitting hospitals during the 3 days prior to inpatient admissions. Finally, Medicare and 

beneficiaries could realize additional savings if an expanded DRG window were applied to other 

hospital ownership structures. In 2011, Medicare and beneficiaries paid an estimated $10 million 

for 157,000 related outpatient services provided at affiliated hospitals during the 11 days prior to the 

start of the DRG window. 

WHAT WE RECOMMEND 

DRG payments include many related outpatient services, but millions of related outpatient services 

are being paid for as separate services, even when they are provided in settings owned by admitting 

hospitals or at affiliated hospitals. To better ensure that more related outpatient services are covered 

by the DRG window, we recommend that CMS seek legislative authority to (1) expand the DRG 

window to include additional days prior to the inpatient admission and (2) expand the DRG window 

to include other hospital ownership arrangements, such as affiliated hospital groups. CMS did not 

concur with either recommendation. 
 

TABLE OF CONTENTS 

Objectives ....................................................................................................1 

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

Methodology................................................................................................5 

Findings......................................................................................................12 

Medicare and beneficiaries could realize substantial savings if the 

DRG window were expanded ........................................................12 

Medicare and beneficiaries could realize savings if the DRG 

window were applied to other hospital ownership structures ........15 

Conclusion and Recommendations ............................................................18 

Agency Comments and Office of Inspector General Response .....20 

Appendixes ................................................................................................21 

A: Types of Inpatient and Outpatient Diagnosis Code Matches ...21 

B: Related Outpatient Services Provided at Settings Owned by 

Admitting Hospitals .......................................................................22 

C: Related Outpatient Services Provided at Affiliated Hospitals .24 

D: Agency Comments ...................................................................26 

Acknowledgments......................................................................................28 

Medicare and Beneficiaries Could Save If the DRG Window Were Expanded (OEI-05-12-00480) 
 

 

 

 

OBJECTIVE 

To determine how much money Medicare and its beneficiaries paid in 

2011 for services related to inpatient admissions but not captured by the 

current DRG window policy. 

BACKGROUND 

The “DRG window” policy defines when outpatient services related to an 

inpatient admission are not paid for separately, but rather are considered 

part of the inpatient lump-sum payment. 1, 2 This lump-sum payment, 

known as the Medicare Severity Diagnosis Related Group (hereinafter 

referred to as the “DRG”) payment, represents all operating costs 

associated with the inpatient admission, including costs for routine nursing 

services, radiology services, and laboratory services.3 

DRG Window Criteria 

If a Medicare beneficiary receives an outpatient service just prior to an 

inpatient admission, Medicare considers the service to be an extension of 

the inpatient admission and does not pay for it separately. Generally, 

Medicare does not pay separately for outpatient services so long as the 

services are (1) delivered within 3 days of an inpatient admission in an 

acute care hospital, (2) related to the upcoming inpatient admission, and 

(3) delivered in a setting wholly owned or operated by the admitting 

hospital.4 Payment for these outpatient services is included in the DRG 

payment for the inpatient admission. 

Preadmission Services Delivered More Than 3 Days Before the 

Inpatient Admission 

Although Congress determined that the DRG window should include 

services delivered within 3 days of the inpatient admission, 3 days is not a 

medical standard. The medical community has identified benefits to 

providing certain preadmission services weeks and sometimes months 

prior to an inpatient stay, notably for surgical inpatient admissions. For 

example, hematology experts from Stanford University encourage 

physicians to provide diagnostic services 30 days prior to a surgery. 

1

 Ambulance services and maintenance renal dialysis services are the only outpatient 

services excluded from this rule. The Centers for Medicare & Medicaid Services (CMS) 

separately pays for ambulance services and maintenance renal services and never bundles 

these services into the DRG payment. 

2

 Certain hospitals (such as psychiatric hospitals, rehabilitation hospitals, and children’s 

hospitals) are subject only to a 1-day DRG window. Social Security Act §§ 1886(a)(4) 

and (d)(1)(B). 

3

 42 CFR § 412.2(c). 

4

 Ibid. 

Medicare and Beneficiaries Could Save If the DRG Window Were Expanded (OEI-05-12-00480) 1 
 

 

 

 

 

 

They claim this timeframe enables physicians to better identify and 

manage blood diseases such as anemia.5 Similarly, physicians from Yale 

University state that certain diagnostic services could be delivered 30 (and 

sometimes 90 or 180) days prior to a surgery.6 

Services Related to the Inpatient Admission 

Preadmission services can be either diagnostic or nondiagnostic. 

Diagnostic services are used to make diagnoses and include services such 

as laboratory testing and imaging services. Nondiagnostic services are 

used to treat diseases and include services such as minor surgical 

procedures. CMS defines diagnostic services using specific revenue codes 

and Current Procedural Terminology (CPT) codes.7, 8 All services that 

CMS does not define as diagnostic are considered nondiagnostic. 

CMS uses different methods to determine whether diagnostic or 

nondiagnostic services are related to an inpatient admission. The agency 

considers all diagnostic services performed within 3 days of an inpatient 

admission to be related to the inpatient admission.9 CMS considers all 

nondiagnostic services performed within 3 days of an inpatient admission 

to be related to the inpatient admission, unless the hospital indicates on the 

claim that the service is unrelated.10 

Settings Subject to the DRG Window 

Three types of settings are subject to the current DRG window: settings 

that are wholly owned by admitting hospitals, settings that are wholly 

operated by admitting hospitals, and admitting hospitals themselves. 

A setting is wholly owned by the hospital if the hospital is the sole 

owner.11 An example of a setting that is wholly owned is an outpatient 

clinic that is owned by a hospital. 

A setting is wholly operated by the hospital if the hospital has exclusive 

responsibility for conducting and overseeing the setting’s routine 

operations, regardless of whether the hospital also has policymaking 

5

 L.T. Goodnough, et al., “Management of preoperative anaemia in patients undergoing 

elective surgery,” ISBT Science Series, Vol. 5, pp. 120–124, 2010. 6

 Thomas M. Halaszynski, M.D., et al., “Optimizing postoperative outcomes with 

efficient preoperative assessment and management,” Critical Care Medicine, Vol. 32,
 

No. 4, 2004. 

7

 Revenue codes describe hospital accommodations and services. CPT codes are a set of 

codes, descriptions, and guidelines that describe procedures and services performed by
 

physicians and other qualified health care providers.
 8

 CMS, Medicare Claims Processing Manual, Pub. No. 100-04, ch. 3 § 40.3.
 9

 42 CFR § 412.2(c)(5)(ii). 

10 42 CFR § 412.2(c)(5)(iv).
 11 42 CFR § 412.2(c)(5)(i). 

Medicare and Beneficiaries Could Save If the DRG Window Were Expanded (OEI-05-12-00480) 2 
 

control over the setting. 12 An example of a wholly operated setting is a 

hospital-operated physician office. See Figure 1 for an example of 

settings wholly owned or operated by a hospital. 

Figure 1: Example of Settings Wholly Owned or Operated by a Hospital 

Source: Office of Inspector General (OIG) interpretation of CMS definition of “wholly owned or operated.” 

For the remainder of this report, we will refer to all three of these settings 

(wholly owned by the admitting hospital, wholly operated by the 

admitting hospital, and the admitting hospital itself) as “owned by 

admitting hospitals.” 

CMS uses different methods to determine whether hospital outpatient 

settings or physicians’ offices are owned by admitting hospitals. For 

hospital outpatient settings, CMS staff said they use an identification 

number unique to each hospital to identify claims where the outpatient 

setting is owned by the admitting hospital. In July 2012, CMS began 

requiring physicians’ offices to indicate whether the offices are owned by 

the admitting hospital when billing for a service that is subject to the DRG 

window policy.13 Physicians’ offices indicate this by placing a modifier on 

the claim. 

12 Ibid. 

13 CMS, Medicare Claims Processing Manual, Pub. No. 100-04, ch. 12 §§ 90.7 and
 

90.7.1. 

Medicare and Beneficiaries Could Save If the DRG Window Were Expanded (OEI-05-12-00480) 3 
 

Other Hospital Ow nership Structures 

The current DRG window does not apply to at least one common 

ownership structure: hospitals that are owned by the same organization 

(here inafter called affiliated hospitals).14 

Af filiated hospitals make up an increasing portion of the current hospital 

m arket. In 2011, almost half of all acute-care hospitals and critical access 

hospitals reported being part of a chain or ganization.15 Further, an analysis 

of hospital acquisitions f ound that hospital consolidation had increased 

fro m 2009 to 2011.16 See Figure 2 for an example of a group of affiliated 

hospita ls. 

Figure 2: Example of a Group of Affiliated Hospitals 

           

       

Outpt

dept

Hospital

A

Outpt

dept

Outpt

clinic

Doc’s

office

Hospital

B

Outpt

clinic

Outpt

clinic

Doc’s

office

Owns

Corporation

Wholly owned or operated Wholly owned or operated

Not wholly owned or

operated

Source: OIG interpretation of CMS definition of “wholly owned or operated” and “not wholly owned or operated.” 

Related Reports 

OIG has a body of work related to the DRG window, spanning over 

20 years. In this body of work, OIG has documented savings for Medicare 

if the DRG window were expanded beyond 3 days. In 1994, OIG found 

that Medicare and its beneficiaries could save a total of $121 million on 

hospital outpatient services if Medicare expanded the DRG window to 

14 76 Fed. Reg. 73026, 73286 (Nov. 28, 2011). 15 OIG analysis of fiscal year (FY) 2011 cost reports. We considered an organization to
 

be a “chain organization” if it owned more than one hospital.
 16 Irving Levin Associates Inc., The Health Care Acquisition Report: 18th Edition, 2012.
 

Medicare and Beneficiaries Could Save If the DRG Window Were Expanded (OEI-05-12-00480) 4 
 

 

 

7 days prior to an inpatient admission.17 In 2003, OIG found that 

Medicare and Medicare beneficiaries could save a total of $72 million on 

hospital outpatient services for 10 select DRGs if the DRG window were 

expanded to 14 days.18 

In both reports, OIG recommended that CMS consider seeking legislative 

authority to expand the DRG window. CMS concurred with this 

recommendation in 2003. However, CMS has not sought legislative 

authority to expand the DRG window beyond 3 days. 

METHODOLOGY 

We analyzed inpatient and outpatient claims and Medicare cost reports to 

identify how much Medicare and beneficiaries paid in 2011 for services 

related to inpatient admissions but not captured by the current DRG 

window policy. We included two types of services not captured by the 

current DRG window policy in our analysis: (1) those provided in settings 

owned by admitting hospitals on the days preceding the start of the DRG 

window and (2) those provided by hospitals affiliated with, but not owned 

by, admitting hospitals on the days preceding the inpatient admissions. 

Scope 

For this evaluation, we analyzed related services delivered in hospital 

outpatient settings. We did not analyze related services delivered in 

physicians’ offices, as we were unable to confidently determine which 

physicians’ offices were owned by admitting hospitals in 2011. 

Sample Selection 

The population we sampled consisted of all inpatient admissions to 

acute-care hospitals in the 2011 inpatient Standard Analytic File (SAF) 

that met the following four conditions: 

1.	 The hospitals were subject to the 3-day DRG window (i.e., we 

excluded hospitals subject only to a shorter, 1-day DRG window, 

such as psychiatric hospitals, and hospitals not subject to any DRG 

window policy, such as critical access hospitals).19, 20 

17 OIG, Expansion of the Diagnosis Related Group Payment Window, A-01-92-00521, 

July 1994. 

18 OIG, Expansion of the Diagnosis Related Group Payment Window, A-01-02-00503, 

August 2003. 

19 Hospitals that were not subject to any DRG window policy were excluded from our 

analysis only when we identified inpatient admissions. They were included in our 

analysis when we searched for related outpatient services. Hospitals that were subject to 

a shorter, 1-day DRG window were not included when we searched for either inpatient 

admissions or related outpatient services. 

20 Critical access hospitals are small rural hospitals that are paid 101 percent of their 

reasonable costs for most inpatient and outpatient services. 

Medicare and Beneficiaries Could Save If the DRG Window Were Expanded (OEI-05-12-00480) 5 
 

 

2.	 The hospitals were located in one of the 50 U.S. States or 

Washington, D.C. 

3.	 The beneficiaries were not enrolled in a Medicare managed-care 

plan. 

4. Medicare paid for the admission. 

The population consisted of 10.6 million inpatient admissions and 

6.6 million Medicare beneficiaries. From this population, we selected a 

sample of 76,742 beneficiaries associated with 122,868 inpatient 

admissions by selecting all claims for approximately 1 percent of 

beneficiaries, using the eighth and ninth digits of the beneficiaries’ 

Medicare numbers to identify members of our sample. We treated this 

sample as a simple random sample to make population estimates. 

Data Collection 

Standard Analytic File. We used the 2010 and 2011 outpatient SAF to 

identify outpatient services delivered up to 14 days prior to the inpatient 

admissions in our sample. We also used the 2010 and 2011 outpatient 

SAF to describe the types of related outpatient services provided outside 

the DRG window. 

Medicare cost reports. We used FY 2011 cost-report data to identify 

groups of affiliated hospitals.21 

Data Analysis 

Identifying related outpatient services provided at settings owned by 

admitting hospitals outside the DRG window. We used the following steps 

to identify related outpatient services provided at settings owned by 

admitting hospitals outside the DRG window: 

1.	 We identified all 2011 acute care inpatient admissions subject to 

the DRG window. 

2.	 Using these inpatient admissions, we identified any outpatient 

services delivered between 4 and 14 days prior to an inpatient 

admission to the same beneficiary. We selected this timeframe 

because OIG had previously recommended expanding the DRG 

window to 14 days prior to the inpatient admission. We performed 

this analysis using the Medicare number, date of admission for the 

21 Hospitals submit cost reports based on their fiscal years rather than calendar years. 

Because the start of fiscal years varies across hospitals, cost reports are submitted at 

different times. 

Medicare and Beneficiaries Could Save If the DRG Window Were Expanded (OEI-05-12-00480) 6 
 

inpatient claim, and the date of service for the corresponding line 

item on the outpatient claim.22 

3.	 Next, for these outpatient services, we determined whether they 

were provided at settings owned by admitting hospitals. We did 

this by using an exact match of the hospital identification number 

on the outpatient and inpatient claims. According to CMS staff, 

the agency uses the hospital identification number in its claims 

processing systems to determine whether claims submitted during 

the DRG window were performed at outpatient settings owned by 

admitting hospitals. 

4.	 Using the same outpatient services identified previously, we 

determined whether these services were related to the upcoming 

inpatient admission. We made this determination on the basis of a 

match of the first three digits of the admitting, primary, or 

secondary diagnosis codes for hospital inpatient and outpatient 

claims.23 We did not match all five digits of the diagnosis codes 

for two reasons. First, the World Health Organization (the body 

that develops diagnosis codes) states that the first three digits of a 

diagnosis code appropriately describe the major disease category, 

while the fourth and fifth digits provide additional detail and 

specificity.24 Second, CMS believes that the five-digit match 

would “impermissibly limit” the number of outpatient services 

related to an inpatient admission.25 Approximately 50 percent of 

related outpatient services were identified because the primary 

diagnosis code on the outpatient claim matched the primary 

diagnosis code on the inpatient claim. See Appendix A for the 

number and percentage of each combination of inpatient and 

outpatient diagnosis code matches included in this dataset. 

We relied on these four steps, rather than other data in the claims or 

current CMS policies, to determine whether diagnostic and nondiagnostic 

services were related to inpatient admissions beyond the DRG window. In 

the DRG window, CMS considers all diagnostic services to be related to 

22 Multiple line items can be billed on a claim. Each line item represents a unique 

service. 

23 A match between the first three digits of the admitting, primary, or first-listed 

secondary diagnosis codes on the inpatient claim and the first three digits of the primary 

or first-listed secondary diagnosis codes on the outpatient claim were classified as related 

for this analysis. 

24 World Health Organization, International Statistical Classification of Diseases and 

Related Health Problems 10th Revision Volume 2 Instruction Manual, ch. 6.8.
 25 Prior to June 2010, CMS used a five-digit match to determine whether nondiagnostic 

services were related to an inpatient admission. 76 Fed. Reg. 51476, 51707 

(August 18, 2011). 

Medicare and Beneficiaries Could Save If the DRG Window Were Expanded (OEI-05-12-00480) 7 
 

 

the inpatient admission. Additionally, in the DRG window, CMS 

considers nondiagnostic services to be related to an inpatient admission 

unless hospitals indicate that a service is unrelated using a specific code on 

the claim. Hospitals do not use this code outside the DRG window. 

We ultimately identified 50,475 related outpatient services provided at 

settings owned by admitting hospitals and matched them to 5,662 inpatient 

admissions. These inpatient admissions represent 5 percent of all 

admissions in our sample. 

Identifying related outpatient services provided at affiliated hospitals. We 

used the steps previously described to identify related outpatient services 

provided at affiliated hospitals outside the DRG window, with the 

following exceptions: 

1.	 We used chain ownership information provided in each hospital’s 

FY 2011 cost report to identify groups of affiliated hospitals. We 

considered hospitals to be affiliated with one another if they 

provided the name and address of the same chain owner. 

2.	 In step 2, we did not limit our matches to services delivered 4 or 

more days prior to the admissions. Rather, we included services 

provided on the date of admission and on the 14 days prior to 

admission (or, all services delivered within the timeframe of the 

DRG window, as well as during the 11 days prior to the start of the 

DRG window). 

3.	 In step 3, we matched hospital identification numbers that were in 

the same group of affiliated hospitals, instead of using exact 

matches of the hospital identification numbers to find settings 

owned by admitting hospitals. We excluded exact matches so that 

settings owned by admitting hospitals were not included in this 

analysis. 

FY 2011 cost reports were not available for 249 of the 4,029 hospitals in 

our sample. We considered each of these hospitals as not belonging to an 

affiliated group. Of the remaining 3,780 hospitals in our sample, 

2,135 reported being owned by 1 of 326 separate chain owners. 

We ultimately identified 10,929 related outpatient services provided at 

affiliated hospitals and matched them to 790 inpatient admissions. These 

inpatient admissions represent 0.6 percent of all admissions in our sample. 

Approximately 54 percent of related outpatient services were identified 

because the primary diagnosis code on the outpatient claim matched the 

primary diagnosis code on the inpatient claim. See Appendix A for the 

number and percentage of each combination of inpatient and outpatient 

diagnosis code matches included in this dataset. 

Medicare and Beneficiaries Could Save If the DRG Window Were Expanded (OEI-05-12-00480) 8 
 

Number of related outpatient services provided outside the DRG window 

at settings owned by admitting hospitals and at affiliated hospitals. Using 

the matched dataset described above, we counted the number of related 

outpatient services to calculate the number of services provided at settings 

owned by admitting hospitals on the 11 days preceding the DRG window 

and at affiliated hospitals on the 14 days preceding the inpatient 

admission. We calculated point estimates and 95-percent confidence 

intervals to make population estimates from the sample counts for: 

1.	 the total number of related services provided at settings owned 

by admitting hospitals during the 11 days preceding the DRG 

window; 

2.	 the total number of related services provided at settings owned 

by admitting hospitals on each of the 11 days preceding the 

DRG window; 

3.	 the total number of related services provided at affiliated 

hospitals during the time period of the DRG window (the day 

of the inpatient admissions and the 3 days prior); 

4.	 the total number of related services provided at affiliated 

hospitals on each day covered by the DRG window, including 

the day of the inpatient admissions and the day immediately 

preceding the inpatient admissions, and on the 2nd and 3rd days 

preceding the inpatient admissions; 

5.	 the total number of related services provided at affiliated 

hospitals during the 11 days preceding the DRG window; and 

6.	 the total number of related services provided at affiliated 

hospitals during both the timeframe of the DRG window and 

during the 11 days preceding the DRG window. 

We present point estimates and confidence intervals for multiple days to 

increase the precision of these estimates, as the sample sizes for some 

individual days were too small to calculate reliable estimates. 

Amounts that Medicare and beneficiaries paid for related outpatient 

services provided at settings owned by admitting hospitals and at affiliated 

hospitals. Using the matched dataset described above, we summed 

Medicare payments to providers to calculate the amount Medicare paid for 

related outpatient services. These related outpatient services were 

provided at settings owned by admitting hospitals on the 11 days 

preceding the DRG window or at affiliated hospitals on the days included 

in the DRG window and the 11 days preceding the DRG window. 

Medicare and Beneficiaries Could Save If the DRG Window Were Expanded (OEI-05-12-00480) 9 
 

Medicare and Beneficiaries Could Save If the DRG Window Were Expanded (OEI-05-12-00480) 10 

 

Similarly, we summed beneficiary deductible and coinsurance payments to 

providers to calculate the amount beneficiaries paid for related outpatient 

services provided at settings owned by admitting hospitals on the 11 days 

preceding the DRG window or at affiliated hospitals on the days included 

in the current DRG window and the 11 days preceding the DRG window. 

We calculated 95-percent confidence intervals for figures in the six 

scenarios described previously. 

Types of related outpatient services provided at settings owned by 

admitting hospitals and at affiliated hospitals. We used the matched 

dataset described above and a list of diagnostic services from CMS to 

classify services as diagnostic or nondiagnostic. Then, we counted the 

number of each type of service provided at settings owned by admitting 

hospitals during the 11 days preceding the DRG window and at affiliated 

hospitals during the timeframe of the current DRG window, as well as 

during the 11 days preceding the DRG window. Finally, we calculated 

95-percent confidence intervals for figures in the six scenarios described 

previously. 

Additionally, we grouped the Healthcare Common Procedures Coding 

System (HCPCS) codes into Berenson-Eggers Type of Service (BETOS) 

categories. 26 We then summed the number of services in each BETOS 

category to identify the most common types of diagnostic and 

nondiagnostic services provided at settings owned by admitting hospitals 

on the 11 days preceding the DRG window and at affiliated hospitals on 

the days included in the current DRG window, as well as on the 11 days 

preceding the DRG window. 

Limitations 

We likely underestimated the number of services provided outside the 

DRG window. This happened for three reasons. First, as previously 

stated, we excluded physicians’ offices owned by admitting hospitals from 

our analysis. Second, we were likely unable to identify all settings owned 

by admitting hospitals. CMS staff have acknowledged that there may be 

instances when a hospital outpatient setting is owned by the admitting 

hospital but bills using a separate identification number. Third, we may 

not have identified all related outpatient services by matching diagnosis 

codes on the inpatient and outpatient claims. We did not perform a 

medical record review on the claims in our sample to ensure that we had 

identified all related outpatient services provided outside the DRG 

window. 

26 HCPCS codes are used to describe outpatient services on claims. BETOS categories 

are used to group similar types of HCPCS codes into broad classes of services. 
 

We may also have included some services in our analysis that were not 

related to the inpatient admission. We believe that our diagnosis code 

matching criteria resulted primarily in the identification of services that 

were related to the inpatient admission. However, as mentioned 

previously, we did not perform a medical record review on the services 

included in this analysis to confirm that the matching successfully 

identified related services in all cases. The number of services that we 

excluded from our analysis likely outweighs the number of nonrelated 

services that we may have included. 

Finally, we likely underestimated the number of services that were 

provided at affiliated hospitals. FY 2011 cost reports were not available 

for 249 of the 4,029 hospitals in our sample. We were unable to determine 

whether these hospitals were affiliated with any other hospitals. 

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. 

Medicare and Beneficiaries Could Save If the DRG Window Were Expanded (OEI-05-12-00480) 11 
 

FINDINGS 

Medicare and beneficiaries could realize substantial 

savings if the DRG window were expanded 

If the DRG window were expanded to include more days preceding the 

inpatient admission, Medicare and beneficiaries could realize substantial 

saving by no longer paying for some outpatient services related to 

inpatient admissions. During the 11 days prior to the DRG window in 

2011, Medicare and beneficiaries paid an estimated $263 million for an 

estimated 4.3 million services provided at outpatient settings owned by 

admitting hospitals. See Figure 3 for per-day estimates of related services 

provided at settings owned by admitting hospitals. Additionally, see 

Appendix B for estimates of the number of services provided, the number 

of diagnostic and nondiagnostic services provided, and the amounts paid 

by Medicare and beneficiaries for related outpatient services provided at 

settings owned by admitting hospitals during the 11 days prior to the DRG 

window in 2011. 

Figure 3: Estimated Number of Related Services Provided at Settings 

Owned by Admitting Hospitals During the 11 Days Prior to the DRG 

Window 

         

700,000

600,000

500,000

400,000

300,000

200,000

100,000

‐

DRG WINDOW

11 10 9 8 7 6 5 4 3 2 1

Days Prior to the DRG Window

Source: OIG analysis of inpatient and outpatient claims, 2013. 

Medicare and beneficiaries would likely realize the highest cost savings 

during the 4 days immediately preceding the start of the DRG window. 

During the first 4 days preceding the DRG window, Medicare spent an 

Medicare and Beneficiaries Could Save If the DRG Window Were Expanded (OEI-05-12-00480) 12 
 

 

estimated average of $24 million per day for related outpatient services, 

compared to an estimated average of $15.9 million per day for services 

provided on the remaining days. Similarly, beneficiaries spent an 

estimated average of $6.5 million per day for related outpatient services 

provided on the 4 days immediately preceding the DRG window, 

compared to an estimated average of $4.3 million per day for services 

provided on the remaining days. See Table 1 for the point estimates and 

confidence intervals for the amounts Medicare and beneficiaries spent on 

the first 4 days compared to the remaining days preceding the DRG 

window. Additionally, see Figure 4 for estimates of per-day Medicare and 

beneficiary payments for related services provided at settings owned by 

admitting hospitals. 

Table 1: Estimated Average Daily Amounts Paid by Medicare and 

Beneficiaries for Related Services Provided at Settings Owned by 

Admitting Hospitals During the 11 Days Prior to the DRG Window 

First 4 days immediately prior to 

the DRG window 

Remaining days prior to the DRG 

window 

Amount paid by Point estimate 95% confidence 

interval Point estimate 95% confidence interval 

Medicare $23,900,828* $21,270,201– 

$26,531,456 $15,881,926* $14,462,994– 

$17,300,859 

Beneficiaries $6,494,965* $5,931,567– 

$7,058,364 $4,286,652* $3,953,269– $4,620,036 

Source: OIG analysis of inpatient and outpatient claims, 2013. 

*These point estimates are significantly different at the 95-percent confidence level.
 

Medicare and Beneficiaries Could Save If the DRG Window Were Expanded (OEI-05-12-00480) 13 
 

Figure 4: Estimated Amounts Paid by Medicare and Beneficiaries for 

Related Services Provided at Settings Owned by Admitting Hospitals 

During the 11 Days Prior to the DRG Window 

         

$30,000,000

$25,000,000

$20,000,000

$15,000,000

$10,000,000

$5,000,000

$0

DRG WINDOW

11 10 9 8 7 6 5 4 3 2 1

Medicare paid Days Prior to the DRG Window

Beneficiaries paid

Source: OIG analysis of inpatient and outpatient claims, 2013. 

Medicare and beneficiaries paid more for related nondiagnostic services 

than for diagnostic services during the 11 days prior to the DRG window 

even though beneficiaries received more related diagnostic services during 

that period. Of the estimated $263 million Medicare and beneficiaries 

paid, an estimated $180 million was for 1.4 million related nondiagnostic 

services. Examples of such services include the administration of drugs, 

minor procedures, and emergency room or office visits. The remaining 

$83 million was for 2.9 million related diagnostic services. Examples of 

these services include laboratory tests, electrocardiograms, and imaging. 

See Table 2 for the point estimates and confidence intervals for the 

number of services received and amounts paid by Medicare and 

beneficiaries for diagnostic and nondiagnostic services. 

Medicare and Beneficiaries Could Save If the DRG Window Were Expanded (OEI-05-12-00480) 14 
 

 

Table 2: Estimated Services Received and Amounts Paid by Medicare and 

Beneficiaries for Diagnostic and Nondiagnostic Services Provided at 

Settings Owned by Admitting Hospitals During the 11 Days Prior to the 

DRG Window 

Services received by beneficiaries Amounts paid by Medicare 

and beneficiaries 

Point estimate 95% confidence 

interval 

Point 

estimate 

95% 

confidence 

interval 

All services 4,315,769 4,149,200– 

4,482,339 $262,763,221 $244,474,290– $281,052,151 

Diagnostic services 2,940,366* 2,831,977– 

3,048,756 $82,819,478* $77,983,456– $87,655,500 

Nondiagnostic 

services 1,375,403* 1,296,801– 1,454,005 $179,943,743* $163,120,038– $196,767,447 

Source: OIG analysis of inpatient and outpatient claims, 2013. 

*These point estimates are significantly different at the 95-percent confidence level. 

Medicare and beneficiaries could realize savings if the 

DRG window were applied to other hospital ownership 

structures 

If the current, 3-day DRG window policy were applied to groups of 

affiliated hospitals, Medicare and beneficiaries could save millions by no 

longer paying for some outpatient services that are related to inpatient 

admissions. During the timeframe of the current DRG window (the date 

of the inpatient admission and the preceding 3 days), Medicare and 

beneficiaries paid an estimated $45 million for an estimated 

777,000 related outpatient services provided at affiliated hospitals. See 

Appendix C for estimates of the number of services provided, the number 

of diagnostic and nondiagnostic services provided, and the amounts paid 

by Medicare and beneficiaries for those services provided at affiliated 

hospitals during the timeframe of the current DRG window in 2011. 

Most of the services provided at affiliated hospitals were provided on the 

day of the inpatient admission or on the day immediately preceding the 

inpatient admission. On those 2 days, Medicare and beneficiaries paid an 

estimated $42 million for an estimated 723,000 services. See Table 3 for 

the point estimates and confidence intervals for the amounts spent by 

Medicare and beneficiaries on the first 2 days compared to the remaining 

days preceding the inpatient admission. 

Medicare and Beneficiaries Could Save If the DRG Window Were Expanded (OEI-05-12-00480) 15 
 

 

Table 3: Estimated Average Daily Amounts Paid by Medicare and 

Beneficiaries for Related Services Provided at Affiliated Hospitals During 

the Timeframe of the Current DRG Window 

The day of the inpatient admission 

and the day immediately 

preceding it 

The remaining 2 days in the DRG 

window timeframe 

Point estimate 95% confidence 

interval Point estimate 95% confidence interval 

Amount paid by 

Medicare and 

beneficiaries 

$42,448,200* $37,736,578– 

$47,159,823 $2,858,334* $1,779,369– $3,937,299 

Source: OIG analysis of inpatient and outpatient claims, 2013. 

*These point estimates are significantly different at the 95-percent confidence level. 

Medicare and beneficiaries paid more for related nondiagnostic services 

than for diagnostic services during the timeframe of the current DRG 

window, even though beneficiaries received more diagnostic services 

during that period. Of the estimated $45 million that Medicare and 

beneficiaries paid, an estimated $27 million was for 293,000 related 

nondiagnostic services. Examples of such services provided during these 

4 days include minor procedures, the administration of drugs, and 

emergency room or office visits. The remaining $18 million was for 

484,000 related diagnostic services. Examples of these services include 

laboratory tests, electrocardiograms, and imaging. See Table 4 for the 

point estimates and confidence intervals for the number of services 

received and the amounts spent by Medicare and beneficiaries for 

diagnostic and nondiagnostic services provided at affiliated hospitals. 

Medicare and Beneficiaries Could Save If the DRG Window Were Expanded (OEI-05-12-00480) 16 
 

 

Table 4: Estimated Services Received and Amounts Paid by Medicare and 

Beneficiaries for Diagnostic and Nondiagnostic Services Provided at 

Affiliated Hospitals During the Timeframe of the Current DRG Window 

Services received by beneficiaries Amounts paid by Medicare 

and beneficiaries 

Point estimate 95% confidence 

interval 

Point 

estimate 

95% 

confidence 

interval 

All services 777,223 702,135–852,312 $45,306,534 $40,366,899– 

$50,246,170 

Diagnostic services 484,461* 436,511–532,410 $18,465,170* $16,084,467– 

$20,845,873 

Nondiagnostic 

services 292,763* 262,517–323,009 $26,841,365* $23,722,530– 

$29,960,199 

Source: OIG analysis of inpatient and outpatient claims, 2013. 

*These point estimates are significantly different at the 95-percent confidence level. 

Finally, Medicare and beneficiaries would realize even more savings if an 

expanded DRG window were applied to groups of affiliated hospitals. In 

2011, an estimated 157,000 related outpatient services were provided at 

hospitals other than the admitting hospitals during the 11 days preceding 

the DRG window. These other hospitals were affiliated with the admitting 

hospitals. Medicare and beneficiaries paid an estimated $10 million for 

these services. See Appendix C for a description of the number of services 

provided, the number of diagnostic and nondiagnostic services provided, 

and the amounts paid by Medicare and beneficiaries for those services 

provided at affiliated hospitals during the 11 days prior to the DRG 

window. 

Medicare and Beneficiaries Could Save If the DRG Window Were Expanded (OEI-05-12-00480) 17 
 

 

 

CONCLUSION AND RECOMMENDATIONS 

The DRG window was intended to ensure that Medicare and beneficiaries 

were not paying the same organization twice for preadmission services 

that had been included in the DRG payment. However, the DRG window 

does not capture all preadmission services, as Medicare and beneficiaries 

paid the same organizations for millions of services that were related to 

inpatient admissions during the 11 days prior to the start of the DRG 

window in 2011. The DRG window may not have captured these related 

services because of evolving medical practices (e.g., performing 

preadmission services further from the date of admission to allow for 

treatment of any issues discovered). 

Medicare and beneficiaries are paying admitting hospitals for related 

outpatient services provided on the days immediately preceding the start 

of the DRG window. In 2011, Medicare and beneficiaries paid 

$263 million for related outpatient services provided at settings owned by 

admitting hospitals during the 11 days prior to the DRG window. 

Medicare and beneficiaries are also paying organizations that own groups 

of affiliated hospitals for related outpatient services provided at hospitals 

affiliated with, but not owned by, admitting hospitals. In 2011, Medicare 

and beneficiaries paid $55 million for related outpatient services provided 

at affiliated hospitals both during the timeframe of the current DRG 

window and during the 11 days prior. 

If the DRG window policy were expanded to include more days, or 

expanded to include other hospital ownership structures, the policy would 

cover more related outpatient services. As a result, Medicare and 

beneficiaries could save money. To better ensure that the DRG window 

covers more related outpatient services, we recommend that CMS: 

Seek legislative authority to expand the DRG window to 

include additional days prior to the inpatient admission 

Medicare and beneficiaries would realize millions of dollars in savings for 

each additional day that the DRG window covered. In 2011, more than 

4.3 million related outpatient services were provided at settings owned by 

admitting hospitals in the 11 days preceding the DRG window. The 

majority of those services were performed during the 4 days immediately 

preceding the start of the DRG window. 

Although CMS has concurred with previous OIG recommendations to 

include additional days in the DRG window, CMS has also expressed 

concern that doing so may compromise beneficiaries’ quality of care— 

specifically, that adding more days to the DRG window may incentivize 

providers to perform preadmission services too far in advance of the 

Medicare and Beneficiaries Could Save If the DRG Window Were Expanded (OEI-05-12-00480) 18 
 

 

admission date to be useful. However, guidance from the medical 

community suggests performing many preadmission services weeks or 

months in advance of an admission so that any problems can be identified 

and corrected. This guidance suggests that expanding the DRG window 

may not compromise the quality of care Medicare beneficiaries receive. 

Seek legislative authority to expand the DRG window to 

include other hospital ownership arrangements, such as 

affiliated hospital groups 

Almost half of all acute-care hospitals in the United States belong to a 

group of affiliated hospitals. However, services provided at affiliated 

hospitals are not covered by the current DRG window. CMS should 

expand the DRG window to treat affiliated hospital groups the same as 

settings owned by admitting hospitals. This would help to ensure that 

Medicare and beneficiaries are not paying the same organization—here, 

the chain owner of the affiliated hospital group—separately for related 

outpatient services. 

Medicare and Beneficiaries Could Save If the DRG Window Were Expanded (OEI-05-12-00480) 19 
 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

CMS did not concur with our first recommendation, to seek legislative 

authority to expand the DRG window to include additional days prior to 

the inpatient admission. CMS noted that adopting this recommendation 

would require legislation and that such a proposal is not currently included 

in the FY 2014 President’s Budget. CMS also noted that we did not 

specify the number of days that the DRG window should be expanded. 

CMS also did not concur with our second recommendation, to seek 

legislative authority to expand the DRG window to include other hospital 

ownership arrangements. CMS noted that adopting this recommendation 

would require legislation and that such a proposal is not included in the 

FY 2014 President’s Budget. 

We continue to recommend that CMS draft, and submit for review, two 

legislative proposals—one that expands the DRG Window to include 

additional days and one that expands the DRG Window to include other 

hospital ownership arrangements—for consideration for inclusion in 

future budget and legislative agendas. While CMS cannot dictate what 

legislative proposals are included in the President’s Budget, CMS does 

have the authority to develop legislative proposals for Medicare. We look 

forward to CMS’s final management decision in light of this clarification 

of the intent of our recommendations. 

We leave the number of days that should be included in an expanded DRG 

window to CMS’s discretion. Any number of days added to the DRG 

window would likely result in savings to Medicare and beneficiaries. 

For the full text of CMS’s comments, see Appendix D. 

Medicare and Beneficiaries Could Save If the DRG Window Were Expanded (OEI-05-12-00480) 20 
 

 

 

APPENDIX A 

Types of Inpatient and Outpatient Diagnosis Code Matches 

Table A-1: Types of Inpatient and Outpatient Diagnosis Code Matches in the Datasets Used To 

Identify Related Services Performed Outside of the DRG Window 

Dataset used to identify related services performed outside the DRG window at: 

Type of match (inpatient 

to outpatient) 

Settings owned by the admitting 

hospitals 

Settings affiliated with the admitting 

hospitals 

Primary to primary 25,183 (50%) 5,888 (54%) 

Primary to secondary 12,556 (25%) 1,531 (14%) 

Admitting to primary 7,473 (15%) 2,411 (22%) 

Admitting to secondary 3,478 (7%) 829 (8%) 

Secondary to primary 754 (2%) 161 (2%) 

Secondary to secondary 1,031 (2%) 109 (2%) 

Source: OIG analysis of inpatient and outpatient claims, 2013. 

Medicare and Beneficiaries Could Save If the DRG Window Were Expanded (OEI-05-12-00480) 21 
 

 

APPENDIX B 

Related Outpatient Services Provided at Settings Owned by Admitting Hospitals 

Table B-1: Related Outpatient Services Provided at Settings Owned by Admitting Hospitals During the 11 Days 

Prior to the DRG Window 

Total number of 

related services Amount paid by Medicare Amount paid by beneficiaries 

Total number of 

related diagnostic 

services 

Total number of 

related 

nondiagnostic 

services 

Day N 

Point estimate 

(95% confidence 

interval) 

Point estimate 

(95% confidence interval) 

Point estimate 

(95% confidence 

interval) 

Point estimate 

(95% confidence 

interval) 

Point estimate 

(95%confidence 

interval) 

1 785 514,045 

(466,190–561,899) 

$26,327,570 

($18,514,191–$34,140,949) 

$6,108,497 

($5,129,731–$7,087,263) 

353,213 

(318,918–387,509) 

160,831 

(141,600–180,063) 

2 749 452,824 

(410,321–495,328) 

$19,876,918 

($16,794,375–$22,959,462) 

$5,631,796 

($4,716,881–$6,546,710) 

305,588 

(275,909–335,267) 

147,236 

(128,018–166,455) 

3 863 502,587 

(459,311–545,864) 

$21,547,899 

($18,024,613–$25,071,184) 

$5,994,013 

($5,028,420–$6,959,607) 

357,831 

(325,894–389,768) 

144,757 

(126,190–163,323) 

4 956 602,284 

(553,204–651,364) 

$27,850,926 

($23,503,372–$32,198,481) 

$8,245,554 

($6,883,178–$9,607,930) 

426,490 

(390,109–462,870) 

175,794 

(154,691–196,898) 

5 659 381,087 

(342,380–419,795) 

$18,512,217 

($15,058,849–$21,965,585) 

$5,008,833 

($4,095,940–$5,921,725) 

253,089 

(226,432–279,747) 

127,998 

(108,873–147,124) 

6 488 302,938 

(266,754–339,121) 

$13,475,968 

($11,094,171–$15,857,766) 

$3,868,070 

($3,116,785–$4,619,356) 

198,709 

(173,476–223,943) 

104,228 

(87,649–120,808) 

7 486 276,517 

(243,181–309,854) 

$11,619,738 

($9,782,853–$13,456,624) 

$3,072,185 

($2,557,819–$3,586,551) 

181,609 

(158,200–205,018) 

94,908 

(80,409–109,408) 

8 478 275,577 

(243,029–308,125) 

$13,531,657 

($10,706,588–$16,356,726) 

$3,860,863 

($3,074,076–$4,647,650) 

181,780 

(158,735–204,825) 

93,797 

(79,134–108,460) 

9 510 274,379 

(242,567–306,192) 

$12,888,968 

($9,990,899–$15,787,037) 

$3,534,244 

($2,811,478–$4,257,009) 

194,263 

(170,281–218,245) 

80,116 

(67,253–92,980) 

10 595 354,923 

(317,271–392,576) 

$17,988,444 

($14,221,441–$21,755,448) 

$4,905,350 

($4,034,026–$5,776,675) 

234,193 

(208,026–260,360) 

120,730 

(103,038–138,423) 

11 625 378,608 

(340,480–416,735) 

$23,156,489 

($17,513,902–$28,799,076) 

$5,757,020 

($4,777,269–$6,736,772) 

253,602 

(226,549–280,656) 

125,006 

(107,427–142,584) 

Source: OIG analysis of inpatient and outpatient claims, 2013. 

Medicare and Beneficiaries Could Save If the DRG Window Were Expanded (OEI-05-12-00480) 22 
 

Table B-2: Summary of Related Outpatient Services Provided at Settings Owned by Admitting Hospitals During 

the 11 Days Prior to the DRG Window 

Total number of 

related services 

Amount paid by Medicare and 

beneficiaries 

Total number of related 

diagnostic services 

Total number of related 

nondiagnostic services 

Day n 

Point estimate 

(95% confidence 

interval) 

Point estimate 

(95% confidence interval) 

Point estimate 

(95% confidence interval) 

Point estimate 

(95% confidence interval) 

All 

days 5,279 4,315,769 (4,149,200–4,482,339) 

$262,763,221 

($244,474,290–$281,052,151) 

2,940,366 

(2,831,977–3,048,756) 

1,375,403 

(1,296,801–1,454,005) 

Source: OIG analysis of inpatient and outpatient claims, 2013. 

Medicare and Beneficiaries Could Save If the DRG Window Were Expanded (OEI-05-12-00480) 23 
 

 

APPENDIX C 

Related Outpatient Services Provided at Affiliated Hospitals 

Table C-1: Related Outpatient Services Provided at Affiliated Hospitals During the Timeframe of the Current DRG 

Window 

Total number of 

related services 

Amount paid by Medicare 

and beneficiaries 

Total number of related 

diagnostic services 

Total number of related 

nondiagnostic services 

Day n 

Point estimate 

(95% confidence 

interval) 

Point estimate 

(95% confidence interval) 

Point estimate 

(95% confidence interval) 

Point estimate 

(95% confidence interval) 

Inpatient Admission 

and DRG day 1 509 723,014 (651,598–794,430) 

$42,448,200 

($37,736,578–$47,159,823) 

449,404 

(403,816–494,992) 

273,610 

(244,834–302,386) 

DRG 

days 2-3 67 54,209 (36,008–72,410) 

$2,858,334 

($1,779,369–$3,937,299) 

35,056 

(23,282–46,830) 

19,153 

(11,727–26,578) 

Source: OIG analysis of inpatient and outpatient claims and cost reports, 2013. 

Table C-2: Summary of Related Outpatient Services Provided at Affiliated Hospitals During the Timeframe of the 

Current DRG Window 

Total number of 

related services 

Amount paid by Medicare and 

beneficiaries 

Total number of related 

diagnostic services 

Total number of related 

nondiagnostic services 

Day n 

Point estimate 

(95% confidence 

interval) 

Point estimate 

(95% confidence interval) 

Point estimate 

(95% confidence interval) 

Point estimate 

(95% confidence interval) 

All 

days 551 777,223 (702,135–852,312) 

$45,306,534 

($40,366,899–$50,246,170) 

484,461 

(436,511–532,410) 

292,763 

(262,517–323,009) 

Source: OIG analysis of inpatient and outpatient claims and cost reports, 2013. 

Table C-3: Summary of Related Outpatient Services Provided at Affiliated Hospitals During the 11 Days Prior to 

the DRG Window 

Total number of related 

services 

Amount paid by Medicare and 

beneficiaries 

Total number of related 

diagnostic services 

Total number of related 

nondiagnostic services 

Day n 

Point estimate 

(95% confidence 

interval) 

Point estimate 

(95% confidence interval) 

Point estimate 

(95% confidence interval) 

Point estimate 

(95% confidence interval) 

All 

days 223 157,240 

(124,627–189,853) 

$9,561,618 

($7,225,066–$11,898,169) 

98,671 

(79,129–118,212) 

58,570 

(41,439–75,700) 

Source: OIG analysis of inpatient and outpatient claims and cost reports, 2013. 

Medicare and Beneficiaries Could Save If the DRG Window Were Expanded (OEI-05-12-00480) 24 
 

Table C-4: Summary of Related Outpatient Services Provided at Affiliated Hospitals During the Timeframe of the 

DRG Window and the 11 Days Prior to the DRG Window 

Total number of related 

services 

Amount paid by Medicare and 

beneficiaries 

Total number of related 

diagnostic services 

Total number of related 

nondiagnostic services 

Day n Point estimate 

(95% confidence interval) 

Point estimate 

(95% confidence interval) 

Point estimate 

(95% confidence interval) 

Point estimate 

(95% confidence interval) 

All days 741 934,463 

(849,140–1,019,787) 

$54,868,152 

($49,233,160–$60,503,144) 

583,131 

(529,478–636,784) 

351,332 

(314,825–387,840) 

Source: OIG analysis of inpatient and outpatient claims and cost reports, 2013. 

Medicare and Beneficiaries Could Save If the DRG Window Were Expanded (OEI-05-12-00480) 25 
APPENDIX D 

Agency Comments 

.,..,.....,'«s ... 

(-/- DEPARTMENT OF HEALTH & HUMAN SERVICES Centers for Medicare & Medicaid Services 

Administrator 

Washington, DC 20201 

DATE: DEC 1 3 2013 

TO: 	 Daniel R. Levinson 

Inspectw General 

FROM: 	 Mal'i.lyn TaVenner 

Administrator 

SUBJECT: 	Office of Inspector General (OIG) Draft Report: "Medicare and 


Beneficiaries Could Realize Substantial Savings If the Diagnosis Related 


Group Window (DRG) Were Expanded, OEI-05-12-00480" 


The Centers for Medicare & Medicaid Services (CMS) appreciates the opportunity to review and 

comment on above subject OIG Draft Report. OIG's objective for this report was to identify 

how much money Medicare and its beneficiaries paid in 2011 for services related to inpatient 

admissions but not captured by the current DRG window policy. Under the current DRG 

window, Medicare's hospital inpatient prospective payment system includes payment for all 

diagnostic services and related non-diagnostic services provided by the hospital (or by an entity 

wholly owned or operated by the hospital) to the patient during the 3-days immediately 

preceding the date of the patient's admission. The study calculated the potential savings 

associated with expanding the 3-day payment window to include more days preceding the 

inpatient admission and expanding it to affiliated hospitals. 

OIG determined that in 2011, Medicare and beneficiaries paid $263 million for related outpatient 

services provided at settings owned by admitting hospitals during the 11-days prior to the DRG 

window. Medicare and beneficiaries are also paying organizations that own groups of affiliated 

hospitals for related outpatient services provided at hospitals affiliated with, but not owned by, 

admitting hospitals. In 2011, Medicare and beneficiaries paid $55 million for related outpatient 

services provided at affiliated hospitals both during the timeframe of the current DRG window 

and during the 11-days prior. 

The O!G recommendations and CMS responses to those recommendations are discussed below. 

OIG Recommendation 

The OIG recommends that CMS seek legislative authority to expand the DRG window to include 

additional days prior to the inpatient admission. 

CMS Response 

The CMS does not concur with this recommendation. As OIG's recommendation indicates, 


adopting this recommendation would require legislation and such a proposal is not currently 


Medicare and Beneficiaries Could Save If the DRG Window Were Expanded (OEI-05-12-00480) 26 
 

Medicare and Beneficiaries Could Save If the DRG Window Were Expanded (OEI-05-12-00480) 27 
 

ACKNOWLEDGMENTS 

This report was prepared under the direction of Ann Maxwell, Regional Inspector General for 

Evaluation and Inspections in the Chicago regional office; Thomas Komaniecki, Deputy 

Regional Inspector General; and Laura Kordish, Deputy Regional Inspector General. 

Lisa Minich served as the team leader for this study, and Beth McDowell served as the lead 

analyst. Other Office of Evaluation and Inspections staff from the Chicago regional office who 

conducted the study include Elliot Curry and Brian Jordan. Central office staff who provided 

support include Kevin Farber, Kevin Manley, Christine Moritz, and Sherri Weinstein. 

Consolidated Data Analysis Center staff who provided support include Mara Werner. 

Medicare and Beneficiaries Could Save If the DRG Window Were Expanded (OEI-05-12-00480) 28 
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 

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legal support for OIG’s internal operations. OCIG represents OIG in all civil and 

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enforcement authorities.