During the first six months in its initial data collection period, a long-term acute care hospital is paid under short term DRG’s. This period of time is generally referred to as the “penalty period” because LTACHs experience a significant revenue loss due to the fact that all Medicare patients must have an aggregate length of stay of more than 25 days while payments under short term DRGs are typically based on a length of stay between 4-7 days.
Once the Hospital has completed its Six Month Data Collection period and has met the greater than 25 day length of stay requirement for its Medicare patients, the facility is reclassified as a long term acute care hospital (LTACH). Once so designated, Long Term Acute Care Hospitals are reimbursed through specific long-term care DRGs (LTC-DRGs). These LTC-DRGs have the same definitions as the short-term acute DRGs but, to compensate for longer staying patients, these facilities have much higher relative weights applied to a higher base rate payment.