The OIG Finds $54 Million in Transfer DRG Overpayments — What Hospitals Need to Know

April 1, 2020

Doctor hand with magnifying glass
Transfer DRG

The purpose of this communication is to inform you of the Office of Inspector General (OIG) November 2019 audit regarding the Post-Acute-Care Transfer Policy (PACT). As a result of this audit, the OIG found that Medicare overpaid acute-care hospitals $54.4 million for 18,647 claims subject to the PACT policy for services rendered from Jan. 1, 2016, to Dec. 31, 2018. We can help you navigate the best action steps to avoid takebacks and ensure compliance.


The PACT policy was enacted in 1998 to prevent CMS from “paying twice” for a patient’s care. In cases where a patient was discharged early and sent to receive post-acute services to continue their treatment and recovery, CMS was paying the hospital the full DRG rate, regardless of the patient’s length of stay (LOS). The PACT policy triggers when an inpatient claim has one of the 280 “Transfer DRGs;” the LOS is less than the geometric mean LOS for that DRG, and the patient is discharged to a qualifying post-acute care facility. When these criteria are met, CMS automatically applies a per-diem payment to the claim.


Hospitals must code claims based on their discharge plan for the patient and should adjust claims if they discover the patient received post-acute care after discharge. While this seems straightforward, it is common for patients to resume prior services, such as home health, without the hospital’s knowledge.

The OIG’s November 2019 report revealed that Medicare overpaid acute-care hospitals more than $54 million as it relates to the PACT policy. Such audits are not new, nor are the findings. Previous OIG reviews for PACT policy discharges resulted in $242 million in estimated overpayments, where acute-care hospitals received the full DRG reimbursement when patients received post-acute care services after discharge. Of the $54.4 million in overpayments identified in the 2019 report, $45 million consist of overpayments for patients who received home health care services within three days of discharge, but the coding showed a discharge to home. Another $7.3 million includes patients who received skilled nursing services after discharge, but the coding showed a discharge to home. The remaining overpayments of $2.1 million relate to patients who received other post-acute care, such as inpatient rehabilitation, and were coded as either discharge to home or another discharge status that led to full payment. The OIG report’s Figure 2 illustrates a breakdown of the distribution.

CMS has put edits in place to prevent PACT policy overpayments. If these edits function properly, your Medicare Administrative Contractor (MAC) will reject or return to provider (RTP) all claims for which qualifying post-acute care services are noted within regulatory timeframes. For home health services, this is within three days of discharge. For skilled nursing services, care must occur on the date of discharge. This will prompt providers to correct the coding to reflect a per-diem payment instead of the full DRG payment to account for the patient transfer. If the coding remains incorrect, no payments will be made. Regarding the 2019 audit, CMS asserts that the edits in place were working appropriately, but several MACs reported that the edits did not detect the inpatient claims, and as a result, they did not take action.


Following the audit, the OIG recommends that CMS instruct the MACs to recover all overpayments where the discharge status is incorrect due to the patient receiving post-acute care. The OIG also advises CMS to ensure the MACs are reviewing the payment edits and taking necessary action to prevent any overpayments for PACT-impacted claims moving forward. In an effort for CMS to reclaim the $54.4 million in overpayments, you may begin to see MACs increase action on the edits by rejecting claims and retracting the full payment if a transfer indeed occurred.

Recommended action:

In addition to our traditional Transfer DRG review, we provide a listing of claims subject to the PACT policy that were coded as being discharged to home (status code “01”), meaning you received payment at the full DRG rate. R1 reviews these cases as part of our standard review to ensure that these accounts were properly billed and paid and to verify that the MAC’s edits are functioning appropriately. With each review, we complete an analysis of these claims to ensure that no post-acute services were rendered (i.e., skilled nursing, home health services post-discharge).

R1 recommends that you investigate these claims further to ensure no overpayments have occurred. If you find that post-acute care was provided, we advise submitting an adjustment claim to reflect the appropriate per-diem discharge status. Should you need additional support, R1 is available to assist under a separate statement of work.

Finally, in anticipation of increased MAC and RAC audit activity and the potential for higher RTP or rejection rates, R1 advises your billing team to consistently monitor your rejected-claims log to find cases where the CMS edit took place. If this occurs, we recommend submitting an adjustment claim with the appropriate patient discharge status code to receive a per-diem payment. Please note, as your vendor in this space, R1 has and will continue to conduct routine, rolling lookback reviews for claims that rejected or RTP’d due to the CMS PACT policy edits. R1 will identify and bring to your attention any claims in which Medicare took back the original payment or provided zero payment due to a post-acute transfer and assist in getting these claims processed and paid appropriately.


Compliance with the PACT policy remains a hot topic and hospitals must be vigilant in monitoring for risks. Discharges to home remain a key focus area for the OIG as evidenced in the latest report. Understanding these issues and being able to navigate around them will ensure that your organization avoids penalties and does not raise any “red flags.”

Subscribe to our email list to get the latest in your inbox