Figuring out the Codes: Inpatient Rehabilitation Facilities and the Transfer Policy

Inpatient rehabilitation facilities (IRFs) are hospitals (or subunits of a hospital) that offer intensive rehabilitation services to the inpatient population. The Centers for Medicare & Medicaid Services (CMS) reimburses IRFs according to the patient discharge status code indicated on the claim. Claims with a patient status code indicating that a beneficiary was discharged to a home will receive a higher repayment ( i.e. full federal prospective payment) then claims that demonstrate that a patient was transferred to another IRF, long‐term care hospital (LTCH), acute care inpatient hospital, or nursing home (i.e. adjusted federal prospective payment resulting in a per diem payment). The Department of Health and Human Services Office of Inspector General (OIG) continues to be concerned regarding IRFs’ compliance with the transfer policy under the Code of Federal Regulations (CFR) 42 section 412.602.  Previous audits conducted by the OIG resulted in an estimated $12 million in overpayments. Therefore, the OIG is gravely concerned about “the extent to which coding errors for claims that should have been paid as transfers have resulted in [IRFs submitting] improper claims under the Medicare payment system for inpatient rehabilitation facilities.” The submission of improper claims results in not only excessive and unnecessary payments to IRFs but also has a negative impact on the federal health programs and beneficiaries.

IRF Transfer Policy
When a patient is admitted to an IRF, the patient is assigned one of 100 clinically distinct case mixed groups (CMGs). A CMG “categorize[s] patients according to primary diagnosis, functional level and age… which are weighted to account for variance in the resources used.” Each CMG has a specified prospective payment rate which is determined by CMS and used to calculate the prospective payment. In addition, each CMG has an average length of stay (LOS). The average LOS is one component used to determine if a beneficiary’s stay qualifies as a transfer.

There are two criteria that must be fulfilled for a beneficiary’s stay to qualify as a transfer:

  • First, the beneficiary’s IRF stay must be shorter than the average stay for a CMG; and
  • Second, the beneficiary must be transferred to another IRF, LTCH, acute‐care inpatient hospital or a nursing home facility accepting Medicare or Medicaid payment.