Medicare and Beneficiaries Could Realize Substantial Savings If the DRG Window Were Expanded

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

. 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.