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How a Hospital-to-Hospital Transfer Policy Impacts Billing and Coding [PODCAST]

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In this episode, Mary Devine, Director of the Revenue Cycle team at BESLER, discusses how a hospital-to-hospital transfer policy affects billing and coding, common coding errors, and how to avoid them.

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Incorrect coding of hospital-to-hospital transfers can result in lost revenue. BESLER’s Transfer DRG Revenue Recovery service may be able to help you identify otherwise lost revenue.

To transfer or not to transfer – that is the question. The medical decision to transfer a patient to another acute-care facility is not an easy one. While medical necessity is always at the heart of this decision, the impact to hospital and physician reimbursement are also contributing factors.

Federal Medicare regulations and each hospital’s own hospital-to-hospital transfer policy shapes the process and requirements for transferring patients to other acute-care facilities or alternative care sites. These policies are specifically focused on patient care and are intentionally designed to discourage transfers for financial purposes or convenience. Core tenants of these policies outline that the patient must be examined, have had emergency medicine, if needed, and is accepted by the facility receiving the patient.

Once the medical decision to move a patient is made and the transfer is in motion, hospitals must then ensure the claim being billed reflects the transfer. This includes both codes for facility and physician services. If either of these claims are billed incorrectly, there is risk of claim rejection and non-compliant billing.

Patient discharge status codes

The patient discharge status code identifies where the patient is going at the end of care, whether it be an inpatient or outpatient encounter, or at the end of a billing cycle. This code should most accurately reflect the care being provided post-discharge to the best of the provider’s knowledge.

Types of discharge status codes

When a hospital codes a discharge status of 02, it indicates the patient is being discharged to another acute-care facility for inpatient care. Many providers use an 02, whether the patient is transferring for outpatient follow up or an inpatient admission. This represents an incorrect use of the 02 code and causes an unnecessary reduction in hospital reimbursement. This is because a discharge status code of 02 combined with a DRG that is impacted by the Medicare transfer policy results in the hospital receiving a reduced per diem rate versus the full DRG.

It is clear in the Medicare inpatient transfer policy that when a patient is transferred for an outpatient procedure, the discharge status on the claim should be an 01.

Occasionally, it is unclear whether a patient transfer will result in an admission.

Consider these examples:
• An elderly patient who is transferred for a cardiac catheter procedure. This procedure is often completed on an outpatient basis, but the age and overall health of the patient may necessitate an inpatient stay. In this scenario, the hospital must code the highest level of care known at the time which is an 02 since an inpatient admission is highly anticipated.
• A patient is discharged to receive outpatient oncology services at an acute facility specializing in oncology. This patient is going for outpatient services and thus the claim should be coded an 01. The discharge status code of 01, is not impacted by the transfer policy and the hospital is entitled to the full DRG.

Even when the Medicare inpatient transfer policy and the provider’s own hospital-to-hospital transfer policy are well understood, there is still room for error due to unknown post-discharge status as illustrated in these scenarios.
• A patient is transferred to a hospital for a cardiac catheter. The claim is coded an 02 and the patient does not get admitted. The hospital is going to receive the per diem payment in error. The discharge status should be an 01 and the hospital should receive the full DRG.
• Conversely, the patient is discharged to home (01) and ends up back in the hospital that day. This claim will be rejected until the discharge status is changed to an 02, even though the discharging physicians had no anticipation of the admission. This is a common error occurring in billing.

Physician billing

Physician billing is also impacted by hospital-to-hospital transfers. Physicians may bill either one discharge code or one initial hospital care code on one day. At the receiving hospital or unit, the physician must not bill another hospital care code, but may combine the two visits as a subsequent care code to increase the complexity.

There are specific requirements that would allow a physician to bill a discharge and an initial hospital code. The transfer can’t occur the same day and the hospital record must not be “merged”, meaning it is two separate facilities. This rule applies to physician groups as well. Two physicians in the same practice are held to the same limitations.


The safety and wellbeing of the patient should always dictate the level of care. If a patient is stable and warrants or needs a transfer to another acute-care facility, the billing must accurately reflect the transfer. Although Medicare has edits in place to determine if a hospital miscoded a hospital-to-hospital transfer on their claim, it is the responsibility of the provider to submit accurate claims.

Additionally, reflecting the highest level of care in the discharge status code is not necessarily correct.

Resources related to this episode

Transcript: “How Hospital-to-Hospital Transfer Policies Impact Billing and Coding”

Mike Passanante: Hi, this is Mike Passanante. And welcome back to the Hospital Finance Podcast. Today, I’m joined by Mary Devine who is the Director of Revenue Cycle Services here at BESLER. And Mary is going to talk with us about an issue that hospitals deal with everyday, but how they deal with it can really affect their reimbursement—and that’s hospital-to-hospital transfer. So Mary, welcome to the show.

Mary Devine: Thank you! Thank you, Mike.

Mike: So Mary, let’s set up the discussion by talking about factors that affect how a hospital makes a decision to transfer a patient to another facility.

Mary: Sure! So, I think when we talk about transferring a patient from hospital to hospital, the number one decision, it has to be for a medical reason that you’re transferring that patient, or it could potentially be a request of the patient. But it’s never an easy one for a doctor or a patient to make that decision. And it always should be from a medical necessity reason for the patient and really at the heart of the decision.

This type of decision does impact the reimbursement of the hospital and even the physician. Usually, you’re going to see this transfer happen from one acute care facility to another completely separate acute care facility because the level of care that the patient is requiring is beyond what their current facility has, or potentially it’s for a specific outpatient diagnostic procedure that the hospital doesn’t really offer.

But again, this has to be due to a medical necessity for the patient. And you want to make sure that the patient is in agreement with it. And you also need to make sure that the patient understands what’s happening to the care.

Mike: Right! And we know that once a medical decision to move a patient has been made and the transfer is in motion, hospitals then have to ensure that the claim being billed reflects the transfer. So, talk to us about the different types of patient discharge status codes and when to use them.

Mary: I want to note that the intent of the patient discharge status code is really to identify where the patient is going to end up after their discharge from the hospital, whether it’s going to be for outpatient work, or if it’s going to be for additional continued in-patient care.

And this could be done at the end of the hospital stay, it could be done at the end of an outpatient procedure, or it could be done after the end of a billing cycle. So, if we’re talking about some sort of outpatient work that continues on for months like physical therapy, then you would use the discharge status code at the end of the month to then continue that whether the patient’s continuing care or not.

And there are many discharge status codes out there. But just giving some examples of a few, the O2 that we’re specifically talking about today indicates that the patient, as I said, is going to an acute care facility. There’s an O6 which indicates that the patient is going off to receive home care. There is an O3 to indicate that the patient is going off to a SNF. And then, there is various other ones again. It’s intended to indicate the care that’s going to be received post the discharge from that particular healthcare service. And again, it could be the discharge from an inpatient or an outpatient procedure.

And I think I’d really like to stay focused on the discharge status code of an O2. When a patient is discharged from an acute care hospital, and you code it with an O2, it really is indicating that the patient is going off to receive additional inpatient services. And when you combine a discharge status code of an O2 with a diagnosis-related group the DRG that indicates it’s impacted by the transfer, then that will indicate that the reimbursement is going to be impacted. And instead of receiving the full DRG, you’re really going to get a per diem rate reimbursement providing that the length of stay is below the geometric mean.

And so, you want to make sure that when you code a discharge status code of an O2, it is really for the patient moving on to receive additional care in an inpatient setting at another acute care facility.

Mike: Mary, tell us about times when errors can occur due to unknown post discharge status.

Mary: You know, I think the biggest error that hospitals face when they use a discharge status code of an O2, they forget that the O2 represents inpatient care. So the patient is in one hospital. They were admitted. And for whatever reason, the patient is now going to be transferred to another acute care facility.

So, if I could use an example of the patient was admitted through the ER with cardiac issues, and they determine that the patient is requiring a cardiac cath, and the current facility does not have cardiac cath procedures available to that patient, a lot of times, this gets coded as an O2 because the age of the patient, the condition of the patient leads the hospital to believe that they’re going to be admitted over at the receiving facility. But the patient goes to the receiving facility, and they have the cardiac cath, and the patient does fine, and they go home. In that scenario, the O2 is not appropriate. It should be a discharge status code of O1.

So, all outpatient procedures for that patient would be an O1 discharge status code and not an O2. And again, you want to be careful that this does not reflect the highest level of code for the discharge status code because it’s not always correct. And in a situation where the patient is being transferred to an acute care facility, but they’re not admitted, the O2 is wrong. And you would have received a smaller reimbursement based on the per diem rate versus the full DRG.

And I think that you just want to make sure that you understand the level of care that the patient is going to prior to submitting that discharge status code on your bill.

Mike: Of course, this affects physicians as well. So, talk to us about the impact of hospital-to-hospital transfers on physician billing.

Mary: So, when we talk about physician billing, physicians, they are the ones that are doing the transferring. So, when the patient is admitted, they can bill for the admission review. And then, they can also bill a discharge code for the patient.

But if they’re transferring that patient, and there’s another receiving physician over at the acute care facility, then it cannot be another admission for that patient. Potentially, they can combine it. And it can be continuing services. But it can’t be another discharge on that exact same day. And it can’t be another admission on that exact same day.

So, this really impacts a large physician group that has services at multiple facilities. You need to be careful that you’re only billing one admission and one discharge, or you’re billing a continuing services and combining it to really get to maybe the next higher level of that code. But you cannot bill two admissions on one day or two discharges on one day.

Mike: That’s great! Mary, do you have any final thoughts on hospital-to-hospital transfers?

Mary: We need to say that the first and foremost is the safety and well-being of the patient. And that should indicate what occurs with the patient and where they’re going and what’s going to happen with them.

Once the patient is stable, you do have the right to transfer that patient and consider the required care of the patient once they’re stabilized. And if the additional treatment isn’t available at that your facility, you can transfer that patient and make them an O2. But if the patient isn’t stable, you obviously have to maintain them there.

The other thing I think you need to think about, as you talked about, edits with Medicare and your billing, you want to make sure that your bill is correct when it goes out the door. You never want to always code it to the highest level of a discharge status code because that might not be correct either. You want to make sure that it accurately reflects what’s happening with that patient.

And you also need to remember that Medicare has edits in place that are going to edit for over-payment, but they do not edit it for under-payment. So, if you put that O2 on the claim, and the patient is really an O1, Medicare is not going to come back and tell you. They’re only going to come back and tell you, if you code it an O1 and the patient really was admitted, it should have been an O2.

Mike: Great insights there, Mary! And if you’d like to read more about this, just head over to Visit our blog section and just click on Revenue Cycle, and you’ll find an article that’s got a little bit more about this topic.

Mary, thanks again for visiting us today and joining us on the Hospital Finance Podcast.

Mary: Thank you!

Mike: If you enjoyed the Hospital Finance Podcast, please head up to iTunes to subscribe and leave us a positive review.


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