Published: Jan 06, 2023
Revenue Cycle Management

Transfer DRG Underpayments: A Big Reimbursement Opportunity

Rex H.
Rex H.
8 minute read
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Healthcare managers, CFOs, and other executives in the healthcare industry know all too well the importance of accurate payments for all medical services. Unfortunately, billing errors can prevent hospitals and other facilities from receiving adequate reimbursement for their services. The processes of billing Medicare and Medicaid can be particularly challenging, and hospitals across the country often find themselves underpaid for the treatment of Medicare and Medicaid patients.

When this occurs, healthcare managers will need to understand the nuances of Medicare and Medicaid billing to recover all payments to which they are entitled. One particular source of Medicare underpayments is transfer DRGs, which can cost hospitals and medical officers millions of dollars per year in underpayments. Read on to learn about transfer DRGs, and how workflow automation technology can help you recover revenue lost in transfer DRG underpayments.


What is transfer DRG, and why does it often lead to underpayment?

The Centers for Medicare and Medicaid Services (CMS) use Diagnosis Related Group (DRG) identification to determine the exact amount of reimbursement paid to hospitals and medical providers. Transfer DRGs are a specific type of DRG that involves situations in which a hospital or medical office provides partial treatment to a patient before transferring them to another facility.

The initial justification for transfer DRGs was to help CMS avoid paying double for one patient. In these situations, a hospital would admit a patient for a specific treatment plan but transfer them to another facility before completing the treatment. Once the patient was transferred, the hospital would bill CMS for the entire cost of the treatment. The facility to which the patient was transferred would bill CMS again for the same treatment. When this occurred, CMS would end up paying both facilities for the same patient's treatment.

As a result, CMS created the Post-Acute Care Transfer (PACT) rule, which sought to limit the amount it paid to hospitals for partial or incomplete patient care. Using a transfer DRG billing protocol, CMS pays a hospital a per diem rate for the patient's treatment instead of paying out the full rate for an incomplete treatment. Theoretically, this DRG prevents CMS from being overcharged for single treatments across multiple hospitals or medical facilities.

However, transfer DRGs have often resulted in situations where CMS underpays hospitals and medical officers for the treatment of a single patient. This most often occurs when a hospital discharges a patient with a prescribed follow-up treatment plan or post-transfer plan for ongoing care. In these situations, the patient may not follow up on these treatments or might not otherwise receive them. If this occurs, CMS may use a transfer DRG to reduce how much it pays the hospital for the patient's treatment. In other situations where a patient receives comprehensive treatment at a hospital but is transferred to a post-care facility, the hospital may also face transfer DRG underpayments.

How many transfer DRGs are there?

As CMS revised and implemented PACT over the years, it gradually increased the number of affected DRGs. In 1999, only ten DRGs fell under the PACT rule and were potentially affected by CMS's Transfer Rule. However, over the past 20 years, that number has increased substantially as CMS continues to review and identify cases where it believes it paid out too much for partial care. Today, there are 275 transfer DRGs that could result in a hospital or medical provider receiving lower payments for a patient's treatment.

Transfer DRG payment calculation

In general, CMS follows a few key criteria when determining whether or not to reduce a hospital's payment under a transfer DRG. Hospitals might expect to see their transfer DRG payments reduced if:

  • A patient's length of stay is one day or less than the geometric mean of an average length of stay under the relevant DRG
  • The patient transfers to another hospital or a post-acute treatment facility
  • The patient is transferred to a hospital or medical facility that does not participate in Medicare
  • The patient is transferred to a Critical Access Hospital (a designation used for rural hospitals or hospitals in remote communities)

How much revenue is on the table with transfer DRG underpayments?

Since their inception, transfer DRGs have become an increasingly common source of underpayment for hospitals seeking reimbursement from CMS. Today, around 52% of Medicare discharges from hospitals and medical facilities end up coded as transfer DRGs. When a hospital is hit with a transfer DRG payment from CMS, it can lose significant revenue over time. Hospitals across the country lose hundreds of millions of dollars in Medicare and Medicaid payments each year.

If a hospital receives a lower rate of reimbursement from CMS due to a transfer DRG claim, it will often need to take proactive steps to recover the missing payments that it is owed. Hospitals will first need to identify any transfer DRG underpayments, validate all post-acute and post-transfer care for each patient, adjust its codes, track its payment statuses, and comply with all necessary Medicare and Medicaid regulations.

Fortunately, the recovery process can successfully recover underpayments due to transfer DRG classifications. On average, a transfer DRG review claim can recover around $2,800 for each patient. Studies have found that about 2% of a hospital's Medicare discharges are eligible for a transfer DRG recovery. While this may not seem like much on the surface, the number of Medicare discharges that a hospital sees each year, combined with the amount of underpaid reimbursement that can be recovered, will cumulate to millions of dollars in recovered revenue.

Workflow automation: The solution to maximizing reimbursement for underpaid claims with TDRGs

The number of transfer DRG denials and underpayments has increased over the past few years. As a result, hospitals and medical facilities need to invest in the best tools for identifying, reviewing, and reclaiming all cases of transfer DRG underpayments. Not only that, but hospitals must ensure that they are receiving the maximum reimbursement that they are entitled to when seeking recovery for transfer DRG underpayments. Even when hospitals succeed in recovering some underpaid revenue from transfer DRGs, they often fail to identify all potential areas where CMS underpaid them. As a result, they still lose the payment they are entitled to.

Workflow automation technology is one of the best tools hospitals have at their disposal for identifying, recovering, and maximizing their reimbursement for transfer DRG underpayments. It offers front-end and back-end solutions for healthcare managers who need to recover significant amounts of revenue from underpaid Medicare claims.

For example, one of the biggest hurdles to full recovery of all transfer DRG underpayments is the complex and murky classification system of DRG billing codes that may be subject to PACT rule underpayments. Workflow automation technology can help healthcare managers navigate these classification systems and identify all necessary DRG classifications needed for accurate and comprehensive payments. Once hospitals can automate their DRG classification organization, they can quickly identify areas of underpayment and dedicate necessary resources away from tedious manual data entry.

Features of automated TDRG detection solutions

Workflow automation technology can easily classify all 278 DRGs that follow PACT rules and quickly and efficiently compare each patient's case against each relevant DRG. In doing so, the workflow automation program can identify instances of valid underpayment much more quickly than when done by humans. Moreover, the program can apply relevant PACT rules against each DRG and identify cases of transfer DRG underpayment that a human employee may have missed.

Workflow automation technology uses Common Working Files (CWFs) as master records, allowing healthcare managers easy access to all relevant DRG cases where they may have an underpayment recovery claim. Plus, these programs can help healthcare managers quickly look up the Medicare Beneficiary Identifier (MBI) for each patient to handle Medicare payments and underpayment claims much more easily. By quickly accessing each patient's MBI, a hospital can identify all Medicare DRG payment cases submitted to CMS and find any instances of transfer DRG underpayments with fewer resources expended.

Benefits of this type of workflow automation for transfer DRGs

When a hospital or medical provider's office uses this type of workflow automation technology for transfer DRG underpayment claims, it can free up the human workforce to work on more nuanced issues, increasing staff productivity and freeing up resources. Plus, the greater efficiency and accuracy in handling transfer DRG recovery claims means that hospitals, medical facilities, and medical provider's offices will see the maximum underpayment reimbursements they are entitled to.

Automatically detect all your transfer DRG underpayments and rework claims with MD Clarity's RevFind

If you are a healthcare manager who needs better solutions for transfer DRG underpayment recovery, you need the best workflow automation technology at hand. MD Clarity's innovative RevFind program offers comprehensive back-end solutions that can automatically detect any transfer DRG underpayments that your practice may have experienced. RevFind can track and analyze all Medicare payments on the encounter level, track your revenue and profitability, digitize all payer policies, and report on reimbursement trends.

With MD Clarity's RevFind, you can be sure that you are not missing out on any CMS reimbursement you may be entitled to. What's more, you can manage all ongoing transfer DRG claims in a user-friendly back-end format that will reduce your dependence on manual labor and time-consuming data entry. If your healthcare organization needs to improve its protocols for finding and recovering Medicare or Medicaid underpayments due to transfer DRGs, get in touch with MD Clarity to see how RevFind can help.

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