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Long-Term Care Fraud


Applicable for cost report periods beginning on or after October 1, 2002, the Medicare payment system for long-term acute care hospitals (LTACH) became a prospective payment system, referred to as LTACH-PPS. Under LTACH-PPS, each patient discharged from a long-term acute care hospital is assigned to a distinct long-term care diagnosis-related group, which is referred to as an LTACH-DRG, and a long-term acute care hospital is generally paid a pre-determined fixed amount applicable to the assigned 510 LTACH-DRG’s (which are adjusted for area wage differences).

The payment amount for each LTACH-DRG is intended to reflect the average cost of treating a Medicare patient assigned to that LTACH-DRG in a long-term acute care hospital. Accordingly, LTACH PPS includes payment for all inpatient operating and capital costs of furnishing covered services (including routine and ancillary services). LTACH-PPS also includes special payment policies that adjust the payments for some patients based on the patient’s length of stay, the facility’s costs, whether the patient was discharged and re-admitted and other factors. These include but are not limited to short-stay cases and high cost outlier cases.

In order to remain categorized as a LTACH, the hospital must have an average inpatient length of stay for Medicare patients (including both Medicare covered and non-covered days) of greater than 25 days. (Previous to October 1, 2002, average lengths of stay were measured with respect to all patients regardless of payor). LTACHs that fail to exceed an average length of stay of greater than 25 days for Medicare patients during any cost reporting period are paid under the general acute care hospital DRG-based reimbursement.

In addition, LTACH’s are paid extra for certain pass through costs, which include bad debts, direct medical education, and blood clotting factors. Unlike the prospective payment system for inpatient acute care hospitals, LTACH PPS makes no adjustments for geographic reclassification, disproportionate share of low-income patients, rural location, or indirect medical education.

For LTACHs that have filed cost reports before October 1, 2002, a 5-year phase-in period was in effect to gradually transition such LTACHs from cost-based reimbursement to 100 percent federal prospective payment under LTACH PPS. At the beginning of any cost reporting period during the phase-in, such LTACHs could exercise a one-time, non-revocable election to transition fully to the LTACH PPS rate.


There are several methods used to engage in Medicare Fraud in the LTACH context. One method concerns the ”interrupted stay” regulation, where patients discharged from the LTACH to home, hospital, skilled nursing facility, etc, and who are subsequently readmitted to the same LTACH prior to a threshold number of days will not receive an additional LTACH DRG payment. The intent of this regulation is to prevent discharge prior to the patient’s clinical readiness and to prevent patients from transferring between provider sites for the purpose of receiving additional reimbursement.

The goal of this LTACH fraud is to capture two DRG’s when a patient is close to the end of the first DRG length of stay (”LOS”). A second DRG payment is not available for patients who are discharged from an LTACH to a short term acute care hospital and are subsequently readmitted to the same LTACH within nine days. The nine day period is sometimes referred to as the “interrupted stay threshold.”

As an example: patient X was admitted to LTACH for respiratory failure, and on the 29th day after admission (which was close to their 32 day LOS), the patient developed sepsis, and legitimately required ICU invasive hemodynamic monitoring. Accordingly, the patient was sent back to the short term hospital. Eight days later, the patient was stabilized enough to be discharged from the short term hospital back to the LTACH, but the LTACH blocked the admission and refused to take the patient back until the 10 days passed. The block was in the form of the LTACH telling the referring case manager that the LTACH can’t take the patient back until he has been out of their LTACH for a full 10 days.