July 9, 2007

Making an ImPACT — Expanded PACT Creates New Challenges for Hospitals
By Selena Chavis
For The Record
Vol. 19 No. 14 P. 28

The addition of more than 150 DRGs to the policy has meant facilities need to reevaluate their reimbursement strategy.

In 2005, there were 30 diagnosis-related groups (DRGs) that fell under Medicare’s post-acute care transfer (PACT) policy. That number underwent an expansion in 2006 when the number swelled to 182, presenting significant compliance and revenue issues for many healthcare entities.

Originally enacted in 1998 with a mere 10 DRGs, the PACT program had seen minor changes up until last year. “The largest expansion really came about in 2006. It was just tremendous,” says Sandy Nicholson, CEO of Atlanta-based consulting company HCR Solutions. “In the past, it didn’t affect reimbursement except with a handful of DRGs. What we are looking at now is a much higher volume.”

Sheryl Spohn, director of coding assurance within compliance at Georgia-based Wellstar Health System, notes that the changes came about when Medicare research suggested post-acute care was being used as a substitute for acute care. “They felt they were paying for the same care in two separate places,” she says.

Offering a hip replacement as an example, Spohn suggests that patients would often be discharged from a hospital setting to a skilled nursing facility (SNF) before the 4.1 geometric mean length of stay (GLOS), but the hospital would still receive the full DRG payment. Before the PACT program, both the hospital and the skilled nursing facility would subsequently receive a full payment. “In essence, [Medicare] paid two full PPS [prospective payment system] payments,” Spohn says.

Another issue that surfaced from Medicare research conducted in the early 1990s suggests there were more repeat hospitalizations as a result of discharging patients too early. “Then it became a question of whether we were seeing quality-of-care issues,” Spohn says.

The most recent expansion to the PACT program came about when more recent Medicare research revealed a PPS acute care hospital payment increase of $2.4 billion in 2006, prompting one of several initiatives to improve payment accuracy. According to Spohn, the changes were somewhat expected by the industry, and further expansions will likely be coming. “We initially thought they would include all DRGs, but they whittled it down to 182,” she says.

Industry experts agree that hospitals now have many issues to contend with following the expansion—most notably revenue and compliance. “The changes going through this year on the inpatient side are exploding our current DRG structure,” Spohn emphasizes, adding that Medicare now pays per diems for all DRGs that fall under the PACT program, potentially presenting significant revenue issues.

A review by Health and Human Services’ Office of Inspector General (OIG) of 400 cases from 2001 and 2002 suggests that compliance issues will also become paramount. Nicholson says of the 400 cases reviewed, 381 were improperly coded, representing a potential overpayment of more than $1 million at a time when only 10 DRGs were in the program.

The New Balancing Act
For years now—since the introduction of the Medicare PPS system—healthcare providers have been trained to think of inpatient stays in terms of decreasing the length of stay (LOS). In some ways, the introduction of the PACT policy requires a reversal of that behavior, says Nicholson. “They [hospitals] have been driving to reduce their LOS. Now, they have the potential of reducing the amount of money that is paid if they transfer cases too early,” she emphasizes. “What you see in some hospitals is that they are not necessarily relaxing the push to get patients out, but there may be some patients staying longer.”

Previously, providers would receive the full payment available for a DRG regardless of the LOS. Under the PACT policy, DRGs are paid on a per diem basis, which means that the longer patients stay, the more money a facility receives (up to the full DRG payment). To adequately compensate providers for upfront expenses, hospitals receive twice the daily per diem on the first day. “Payment for the first day is front-loaded on the first day to cover the increased resource consumption on the first day,” Spohn notes. “Then it decreases down to a lower per diem rate.”

Nicholson and Spohn offer the following example of reimbursement under the PACT system. A patient is admitted to a hospital with a severe cough and shortness of breath, and pneumonia is noted on the chest x-ray. The patient is then stabilized on day three and transferred out of the acute setting for continued intravenous therapy.
Before falling under the PACT policy, the hospital would have been paid the full DRG payment that equates to more than $6,400 based on a precalculated GLOS of 6.7 days. Because the patient was transferred on day three, the hospital will receive a daily per diem payment that equates to a little more than $3,800.

Medicare calculates the GLOS by counting the total number of patients for a given DRG and then dividing it by the total number of days they spent in the hospital. Hospital stays that are on either the very high or low end are not included so the calculation doesn't get distorted.

Nicholson noted that 13 of the 182 PACT DRGs are classified as “special pay,” where reimbursement is higher on the front end. Under the special-pay classification, hospitals receive 50% of the full DRG payment on the first day. “You are in essence getting most of your DRG on the first day,” Nicholson says, adding that this classification is especially helpful in cases where a smaller hospital may have to transfer a patient to a larger acute care facility that can handle a particular issue more appropriately.

Nicholson points out that PACT affected reimbursement for only a handful of DRGs before 2006, and now hospitals may face notable reimbursement issues if they are not prepared for the changes. “It has the potential of being significant from a financial standpoint,” she emphasizes.

In fact, a review of a large Southwest healthcare system by Nicholson and a team of industry professionals revealed the potential for a negative impact of more than $4 million annually. The financial impact for the 19 hospitals covered by the system ranged anywhere from $16,000 to $675,000 annually, depending on the entity’s size.

Nicholson notes that certain DRGs, including those for sepsis, ventilator use, respiratory failures, and simple pneumonia, seemed to stand out as problematic across the board.

Compliance Considerations
Paramount to compliance under the PACT policy, hospitals must report the correct discharge disposition code, which determines whether the patient is reported as a transfer or a discharge. “Facilities that are going to have a difficult time are those that didn’t identify where they had a compliance risk or quality risk during the last expansion,” Spohn says, referencing the smaller expansions of 2003 and 2004.

Because the discharge disposition ultimately affects reimbursement, Nicholson warns that there is the potential for overpayment if coding is not correct. “More hospitals are looking at the quality of their discharge assignment. HIM departments are monitoring the discharge disposition more than they ever have in the past,” she emphasizes, adding that industry expectations suggest that discharge dispositions will become an OIG emphasis in the near future. “That’s a compliance issue—it’s going to be a target.”

Of particular concern is the three-day window for referrals to postacute settings. According to Spohn, if a hospital learns that a patient who was assumed to have been discharged home was admitted to another acute care facility the same day or to a skilled nursing facility or home health services within three days of discharge, an adjusted claim must be submitted with the correct discharge disposition.

Facing the Challenge
According to Spohn, hospitals need to take a proactive approach to compliance by looking at their overall trends rather than attempting to address challenges on a case-by-case basis. “They are probably going to need a year’s worth of data,” she suggests, adding that healthcare entities will need to begin by looking at their length of stay patterns by DRG. “Do we have a revenue risk? Do we have a compliance risk?”

Nicholson concurs, noting hospitals that are meeting the compliance challenge are working with outside post-acute care entities to make sure that communication channels stay open after a patient is discharged. Referencing the need to know if a patient is admitted to an agency such as home health or skilled nursing after discharge from an acute inpatient stay, she says “the really effective hospitals are educating physicians and home health on this particular issue.”

Spohn notes that in her experience, facilities that create a communication form for area post-acute care providers to fax back to the hospital when services are initiated are utilizing the best practice. “The challenge comes in large areas where a facility may use one of 10 to 15 home health providers,” she acknowledges.

Implementing checks and balances via a multidisciplinary approach throughout the hospital will also help identify problems. Nicholson and Spohn suggest that case management identify the discharge disposition in their progress notes while communicating the plan with the interdisciplinary team throughout the inpatient stay.

“The case managers have a very tough job. They need to understand the impact of the PACT policy on their documentation,” Nicholson says.

Following discharge, follow-up duty should be assigned to the case manager or a nurse to confirm the discharge plan and identify any potential changes or transfers to other providers. “Facilities that are doing well have defined whose documentation is to be used for determining discharge dispositions,” Nicholson says. “The discharge planner really holds the key to all of this.”

Checks and balances should also become part of the HIM department’s responsibilities, says Nicholson. “When an HIM department performs a quality review, they should also include an appropriate discharge status review,” she suggests.

Spohn emphasizes that some facilities are finding success locating problems on the back-end through automated technology, but, for the most part, facilities should be correcting the problem before it reaches that point because “nine times out of 10, the fiscal intermediary is just going to push the claim through.”

Facilities will also need to reengineer the way they think about LOS, says Spohn, noting that questions should be raised about whether an effective case management program is in place. “Hospitals seeing large volumes really need to analyze data first,” she says, offering the example of a DRG that has a GLOS of four days. “Do we have a pattern [of discharging] in two days or more prior to the GLOS? Discharging one day early is one thing, but should they be going two to three days early? Then you need to be questioning that process.”

Regular spot checks should also be made a priority, Spohn advises. Facilities should select of sample of PACT DRGs, checking discharge dispositions as well as tracking LOS by DRG, nursing unit, and charges.

Nicholson stresses that hospitals need to approach this new balancing act by managing their LOS appropriately, “which is what we should be doing anyway,” she says. “If you do the right thing, sometimes it’s going to hurt, but most of the time it’s going to be effective.”

— Selena Chavis is a Florida-based freelance journalist whose writing appears regularly in various trade and consumer publications covering everything from corporate and managerial topics to healthcare and travel.

Discharge Dispositions Affected by PACT

A major expansion of Medicare’s post-acute care transfer (PACT) policy in 2006 brought the total number of diagnosis-related groups (DRGs) to 182 and is expected to create compliance challenges for hospitals, say many industry experts. Under the new plan, hospitals must accurately report the correct discharge disposition code, which determines whether the patient is reported as a transfer or discharge.

Sandy Nicholson, CEO of Atlanta-based consulting company HCR Solutions, and Sheryl Spohn, director of coding assurance at Georgia-based Wellstar, spell out the following discharge positions affected by PACT with considerations for each:

• 03 — Skilled nursing facility (SNF): For Medicare, this can be a facility-owned SNF or an SNF separately owned and separately located. The facility must be licensed as SNF.

• 05 — Other type institution: covering patients transferred to a non-Medicare prospective payment system (PPS) children’s hospital or non-Medicare PPS cancer hospital for inpatient care

• 06 — Home with home health: If a patient’s continuing care plan is not related to the inpatient hospital admission, condition code 42 should be used on the UB. If the continuing care plan is related to the inpatient hospital admission but did not start within the three-day window, condition code 43 should be used on the UB

• 62 — Discharged/transferred to inpatient rehabilitation facility, including inpatient rehabilitation distinct part units of a hospital

• 63 — Discharge/transfer to long-term care hospital

• 65 — Discharge/transferred to a psychiatric hospital or psychiatric distinct part unit of a hospital

— SC