Transfers and the per-diem rule: when a short stay pays less than the full DRG
A two-day sepsis stay that ends in a transfer to another hospital is paid three per diems: 62.5% of the full DRG amount. When the rule applies, when it does not, and which discharge codes trigger it.
- Applies to
- Stays at least one day shorter than the GMLOS
- Rates
- FY2027, MS-DRG v44 transfer lists
- Example
- MS-DRG 871, 2 days, status 02
On this page
The rule
A DRG payment assumes a typical stay. When a patient leaves early for another hospital or for post-acute care, Medicare pays the first hospital a per diem instead, so it is not paid a full DRG for part of the care.
The per diem applies when the stay is at least one day shorter than the MS-DRG’s geometric mean length of stay (GMLOS) and the patient is:
- transferred to another hospital paid under the inpatient prospective payment system or to a critical access hospital, or admitted to another such hospital the same day after leaving against medical advice (these apply to every MS-DRG), or
- discharged to post-acute care, for MS-DRGs on the post-acute transfer list: a skilled nursing facility, an inpatient rehabilitation facility, a long-term care hospital, a psychiatric hospital or unit, a cancer or children’s hospital, hospice, or home health care related to the stay that begins within three days.
Transfer payment = per diem × (length of stay + 1), never more than the full DRG payment
The “+ 1” is the first day, which is paid at twice the per diem. The hospital that receives the patient is paid normally.
A worked example
A sepsis stay, MS-DRG 871, at NewYork-Presbyterian Hospital (CCN 330101), discharged October 15, 2026 after two days with discharge status 02: transferred to another short-term hospital. MS-DRG 871’s GMLOS is 4.8 days.
| Step | Amount |
|---|---|
| Full DRG payment (operating and capital, with add-ons) | $24,993.96 |
| Per diem ($24,993.96 ÷ 4.8 GMLOS) | $5,207.07 |
| Days paid (a 2-day stay + 1) | 3 |
| DRG payment after the transfer rule (62.5% of full) | $15,621.22 |
| Uncompensated care, value-based purchasing and 2 days of pass-through | $1,690.67 |
| Original Medicare total | $17,311.89 |
Discharge status 02 on a two-day stay cuts the DRG payment by $9,372.74.
The cut shrinks as the stay gets longer, and disappears once the per diems add up to the full payment:
| Length of stay | Per diems paid | DRG payment | Share of full DRG |
|---|---|---|---|
| 1 day | 2 | $10,414.15 | 41.7% |
| 2 days | 3 | $15,621.22 | 62.5% |
| 3 days | 4 | $20,828.30 | 83.3% |
| 4 days or more | 5 or more | $24,993.96 (full) | 100% |
Post-acute transfers and the discharge status code
MS-DRG 871 is on the post-acute transfer list, so the same two-day stay discharged to a skilled nursing facility (status 03) is paid the same $15,621.22 for the DRG. For an MS-DRG that is not on the list, a discharge to post-acute care is paid in full. For FY2027 CMS added 13 MS-DRGs to the list: 210, 211, 361, 362, 400, 403, 404, 456, 457, 458, 523, 524 and 525.
The patient discharge status code on the claim is what triggers the rule:
| Status | With a planned readmission | Discharged or transferred to | Reduces the payment for |
|---|---|---|---|
| 02 | 82 | Another short-term general hospital | Every MS-DRG |
| 66 | 94 | A critical access hospital | Every MS-DRG |
| 07 | None | Left against medical advice and admitted the same day to another hospital paid under the inpatient system | Every MS-DRG |
| 03 | 83 | A skilled nursing facility | MS-DRGs on the post-acute list |
| 06 | 86 | Home under a home health agency, with related care starting within three days | MS-DRGs on the post-acute list |
| 62 | 90 | An inpatient rehabilitation facility or unit | MS-DRGs on the post-acute list |
| 63 | 91 | A long-term care hospital | MS-DRGs on the post-acute list |
| 65 | 93 | A psychiatric hospital or unit | MS-DRGs on the post-acute list |
| 05 | 85 | A designated cancer center or children’s hospital | MS-DRGs on the post-acute list |
| 50, 51 | None | Hospice, at home or in a facility | MS-DRGs on the post-acute list |
Codes in the 80s and 90s report the same destination when the hospital plans to readmit the patient for acute care later, and they trigger the rule exactly as the codes they pair with: 82 is paid like 02 and 94 like 66, for every MS-DRG, and 83, 85, 86, 90, 91 and 93 like their post-acute pairs. A transfer edit that checks only the codes in the first column will pay those short stays in full.
Special payment MS-DRGs
Some MS-DRGs have unusually high costs on the first day, so transfers out of them are paid more generously: half the full MS-DRG payment, plus one per diem and half a per diem for each later day, still capped at the full payment. For FY2027 CMS added 14 MS-DRGs to this list: 361, 362, 400, 403, 404, 456, 457, 458, 463, 464, 465, 616, 617 and 618.
Outliers on transfer cases
A transferred patient can still qualify for a cost outlier. The fixed-loss amount is reduced in proportion to the transfer payment, so a short, very expensive stay can earn one (see how the outlier works).
Checks for transfer claims
- Treat discharge status as a payment field. On a short stay, 01 and 02 are thousands of dollars apart.
- Confirm a transfer against the receiving facility’s claim where you have it; an admission elsewhere on the same day is the strongest evidence.
- Use the GMLOS and the transfer lists for the discharge date’s MS-DRG version. FY2027 changed both (what changed).
- Home health counts only when the care relates to the stay and starts within three days, which you can see only on the home health claim.
- Pay the receiving hospital in full; the per diem applies only to the hospital that transferred the patient.
Questions
When does the transfer rule cut the payment?
When the stay is at least one day shorter than the MS-DRG’s geometric mean length of stay and the patient is transferred to another inpatient hospital or a critical access hospital (status 02 or 66), leaves against medical advice and is admitted the same day to another hospital paid under the inpatient system (07), or, for MS-DRGs on the post-acute list, is discharged to post-acute care (03, 05, 06, 50, 51, 62, 63 or 65). The planned-readmission codes 82, 83, 85, 86, 90, 91, 93 and 94 count the same as the codes they pair with.
How is the per diem calculated?
The full DRG payment divided by the GMLOS. The first day is paid at twice the per diem, and the total is capped at the full DRG payment.
Is the receiving hospital paid less?
No. The hospital that receives the patient is paid normally; the per diem applies only to the transferring hospital.
Does every discharge to home health count?
No. Only for MS-DRGs on the post-acute list, and only when home health care related to the stay begins within three days.
About these figures
Claim examples were priced in the cmswebpricer.com pricing engine on October 19, 2026, from published rates. They are Original Medicare totals before the patient’s deductible and coinsurance and before the 2% sequestration reduction, and are estimates, not claim determinations. The Original Medicare total includes the hospital’s per-diem pass-through ($965.14 here), which CMS’s pricer reflects but Medicare pays through interim payments settled on the hospital’s cost report, not on the claim, so a remittance or a plan’s base may leave it out. The transfer rules follow CMS’s inpatient payment regulations, its hospital transfer-policy guidance on discharge status codes, its FY2027 implementation instructions for the transfer lists, and the Medicare Payment Advisory Commission’s payment basics.
Further reading: