Updated on: March 1, 2018

Who Pays for Outpatient Services to Beneficiaries Who Are Inpatients of Other Facilities?

Original story posted on: February 28, 2018

OIG report shines spotlight on area of confusion for billing.

In a recent report, the U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) announced it has determined that Medicare inappropriately paid acute-care hospitals for outpatient services provided to beneficiaries who were inpatients of other facilities.

Those facilities included Inpatient Rehabilitation Facilities (IRFs) along with long-term care hospitals, inpatient psychiatric facilities, and critical access hospitals. As a result, OIG determined that beneficiaries were unnecessarily charged outpatient deductibles and coinsurance payments.

Since the publication of that report in September 2017, we have been receiving queries from our clients related to how this relates to interrupted stays in the IRF, which services the IRF is responsible for providing, and who can and should bill Medicare for those services.


All inpatient hospitals, including IRFs, are required to provide services to their inpatients, either directly or under arrangements with other providers. When “arranged” services are provided, they may be provided by the acute hospital that houses the IRF, by another acute facility, or by an outpatient provider. While the IRF may discharge the beneficiary – regardless of the amount of time the patient is off the unit – it is not necessary.

Medicare has developed specific guidelines for an “interrupted stay” in the IRF, and for how services should be billed for these patients. Please note that this article applies only to the IRF payment provisions, and not to other post-acute settings. For example, the payment and billing guidelines are different for long-term care hospitals.

How Does This Relate to “Interrupted Stays?”

Interrupted stays are defined as those cases in which a Medicare beneficiary is discharged from an IRF and returns to the same IRF within three consecutive calendar days. The three consecutive calendar days begin with the day of the discharge from the IRF and end on midnight of the third day. The IRF Patient Assessment Instrument (IRF-PAI) has specific data fields to capture interrupted stays and the manual provides clear instructions on the completion of the document.  

What is not clear in the manual is how to bill for these services, and which providers should do so.

Who Pays and Who Bills?

The Medicare Claims Processing Manual addresses case level adjustments for IRF cases, noting that if the patient returns before midnight of the day the interruption begins, one CMG payment will be made and no payment will be made to the “arranged” provider:

“One CMG payment will be made for interrupted stay cases and the payment will be based on the initial assessment. For example, if a Medicare beneficiary is discharged on Feb. 1, 2001 and is readmitted on Feb. 3, the case would be considered an interrupted stay, and only one CMG payment will be made based on the initial assessment. However, if the Medicare beneficiary was readmitted on Feb. 4, then it would not be considered an interrupted stay. A separate DRG payment will not be made to the acute-care hospital when the beneficiary is discharged and returns to the same IRF on the same day. However, a DRG payment can be made if the beneficiary does not return to the same IRF on the same day as they were discharged.”

What is not clarified in the manual is how billing occurs for these services. National Government Services, however, has prepared an excellent training program available online at www.MedicareUniversity.com that provides excellent guidelines and examples for billing of interrupted stays. Key points from that training include:

  • If an IRF arranges a service for a patient and the patient returns to the IRF by midnight of the same day, the IRF must pay the facility for the services and should bill the services on the IRF account.

  • When the patient is away from the IRF beyond midnight of the day the patient left, the IRF should code the time away as an interrupted stay. The other facility’s claim can be submitted to and processed by Medicare.

The slide below, clipped from one of our own recent training programs, summarizes this information:

Phillips image

The Bottom Line

IRFs need to be aware of the requirements for providing hospital services, both within the facility and under arrangements, but must be equally aware of the requirements for billing and paying for these services.


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Angela Phillips, PT

Angela M. Phillips, PT, is President and Chief Executive Officer of Images & Associates. A graduate of the University of Pennsylvania’s School of Allied Health Professions, she has more than 40 years of experience as a consultant, healthcare executive, hospital administrator, educator, and clinician. Ms. Phillips is one of the nation’s leading consultants assisting Inpatient Rehabilitation Facilities in operating effectively under the Medicare Prospective Payment System (PPS) and in addressing key issues related to compliance. Ms. Phillips is a member of the RACmonitor editorial board and a popular guest panelist on Monitor Mondays.

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