Long-Term Care Hospital Medical Review: Patient Criteria and Site-Neutral Payment Documentation

Long-term care hospitals (LTCHs) treat patients with complex medical needs who require hospital-level care for extended periods, such as patients recovering from critical illness, prolonged mechanical ventilation, complex wounds, or multiple organ failure. Since fiscal year 2016, Medicare has paid LTCHs under a dual-rate system. Cases that meet specified clinical criteria receive the higher LTCH standard federal payment rate, while other cases receive a lower site-neutral rate based on what Medicare would pay an acute care hospital.

This structure makes documentation central to LTCH revenue. Whether a case qualifies for the standard rate depends on documentation from the prior acute care hospital stay and the LTCH stay. Medical reviewers also examine whether LTCH admission and continued stay were reasonable and necessary. Errors in either area can lead to payment adjustments and overpayments.

This article explains the LTCH payment criteria, site-neutral payment, facility-level requirements, medical review issues, and documentation practices. It is educational and does not replace legal or professional advice.

The Dual-Rate Payment System

The Statutory Criteria

Under Section 1886(m)(6) of the Social Security Act and 42 CFR 412.522, an LTCH discharge is paid at the LTCH standard federal payment rate only if:

• The LTCH admission was immediately preceded by a discharge from an acute care hospital paid under the inpatient prospective payment system (IPPS).

• The LTCH discharge is not assigned to a psychiatric or rehabilitation MS-LTC-DRG.

• The case meets at least one of the following:

- The ICU criterion: the patient spent at least three days in an intensive care unit or coronary care unit during the immediately preceding acute care hospital stay.

- The ventilator criterion: the LTCH discharge is assigned to an MS-LTC-DRG based on the patient's receipt of at least 96 hours of ventilator services in the LTCH.

All other LTCH discharges are paid the site-neutral payment rate.

How CMS Applies the Criteria

CMS identifies whether the ICU criterion is met using ICU and CCU revenue codes on the acute care hospital claim. CMS has indicated it uses the full set of ICU and CCU revenue codes when counting a patient's ICU and CCU days. The ventilator criterion depends on the LTCH claim including the ICD-10-PCS procedure code for respiratory ventilation greater than 96 consecutive hours (5A1955Z) and grouping to an appropriate MS-LTC-DRG.

The "immediately preceded" requirement is generally met when the LTCH admission occurs within one day of the acute care hospital discharge, as reflected in the dates of discharge and admission.

Site-Neutral Payment

Site-neutral cases are paid the lower of the IPPS-comparable per diem amount, including any outlier payments, or 100 percent of the estimated cost of the case. The transitional blended rate that applied in early years has ended. Site-neutral payment is generally far lower than the standard rate, which creates strong financial incentives to identify qualifying cases accurately.

Facility-Level Requirements

Average Length of Stay

Under 42 CFR 412.23(e), an LTCH must have an average Medicare inpatient length of stay greater than 25 days. CMS has specified how cases are counted, and site-neutral cases and Medicare Advantage cases are excluded from the calculation under current rules. An LTCH that fails the length-of-stay requirement may lose its LTCH classification.

The 50 Percent Threshold

Beginning with cost reporting periods starting in fiscal year 2020, if fewer than 50 percent of an LTCH's discharges in a cost reporting period meet the criteria for the standard rate, the LTCH is paid IPPS-equivalent rates for all discharges in subsequent cost reporting periods until it demonstrates compliance, under Section 1886(m)(6)(C) of the Social Security Act and related regulations. LTCHs must monitor their site-neutral discharge percentage closely.

Other Requirements

LTCHs must meet hospital conditions of participation, participate in the LTCH Quality Reporting Program by submitting LTCH Continuity Assessment Record and Evaluation Data Set (LCDS) data, and follow interrupted stay and other payment policies.

Medical Review of LTCH Claims

Reasonable and Necessary Admission

Even when a case meets the ICU or ventilator criterion, Medicare pays only for services that are reasonable and necessary. Under the Medicare Benefit Policy Manual, inpatient hospital care is covered when the patient requires hospital-level care. For LTCHs, reviewers ask whether the patient required the level of care provided in an LTCH, which is a hospital, rather than care in a SNF, IRF, or home setting. Indicators of LTCH-level need include:

• Ongoing need for mechanical ventilation or ventilator weaning.

• Complex wound care requiring frequent physician involvement.

• Multiple active medical conditions requiring daily physician oversight.

• Intravenous therapies, frequent laboratory monitoring, or complex medication management.

• Risk of clinical deterioration requiring hospital-level monitoring.

Continued Stay

Reviewers may also examine whether the patient continued to need hospital-level care throughout the stay or whether the patient could have been discharged to a lower level of care earlier. Documentation should show the ongoing medical need and the discharge planning process.

Coding and DRG Validation

Reviewers validate the principal diagnosis, secondary diagnoses, procedures, and the MS-LTC-DRG assigned. Errors that affect the DRG, including the ventilator procedure code and duration, can change payment from the standard rate to site-neutral or reduce payment within the standard rate.

Short-Stay Outliers and Interrupted Stays

Cases with a length of stay much shorter than the average for the MS-LTC-DRG are paid under short-stay outlier rules. Interrupted stays, in which a patient is discharged and readmitted within specified time frames, are treated as a single stay in some circumstances. Reviewers check that these policies were applied correctly.

Documentation for the ICU Criterion

The ICU criterion depends on the acute care hospital stay. LTCHs should obtain and retain:

• The acute care hospital discharge summary showing admission and discharge dates.

• Documentation of ICU or CCU days, such as ICU flow sheets, transfer records, and critical care notes.

• Transfer documentation showing the date of discharge from the acute care hospital and admission to the LTCH.

Because CMS uses the acute care hospital claim's revenue codes, LTCHs depend on accurate coding by the referring hospital. LTCHs should verify ICU days before admission when possible and monitor whether claims are processed at the expected rate.

Documentation for the Ventilator Criterion

The ventilator criterion depends on the LTCH stay. Documentation should support:

• The start and end times of mechanical ventilation in the LTCH.

• Continuous duration, including how interruptions and weaning trials are counted under ICD-10-PCS guidelines.

• Respiratory therapy flow sheets and physician orders.

• Correct coding of the ventilation procedure based on duration.

Coding guidelines specify how to calculate ventilation duration, including when ventilation started before LTCH admission. LTCH coders and respiratory therapists should coordinate closely.

Documentation for Hospital-Level Need

• Admission history and physical describing the patient's conditions, acuity, and reasons for LTCH admission.

• Daily physician progress notes documenting assessment, medical decision making, and changes to treatment.

• Nursing documentation of assessments, interventions, and response.

• Respiratory therapy, wound care, and therapy documentation.

• Laboratory, imaging, and medication records showing active management.

• Interdisciplinary team notes and goals.

• Discharge planning documentation explaining why the patient remained in the LTCH and when lower levels of care became appropriate.

Common Medical Review Problems

• Admission documentation that does not explain why LTCH-level care was needed.

• Physician notes that are brief or copied and do not show active management.

• Ventilator duration not supported by flow sheets, or coded incorrectly.

• Principal diagnosis not supported or inconsistent with the record.

• Patients who appear stable for extended periods without discharge planning.

• Missing acute care hospital records.

• Incorrect application of interrupted stay rules.

Building an LTCH Compliance Program

Admissions Screening

• Use a standardized admission screening tool that documents the patient's acuity, the expected need for hospital-level care, and whether the ICU or ventilator criterion is expected to be met.

• Obtain acute care hospital records before or at admission.

• Have a physician review and document the admission decision.

Payment Criteria Monitoring

• Track each discharge's expected payment category.

• Monitor the percentage of discharges meeting the standard rate criteria against the 50 percent threshold.

• Monitor average length of stay against the 25-day requirement.

• Reconcile expected and actual payment categories on remittances.

Documentation Standards

• Set expectations for daily physician progress notes.

• Use ventilator documentation tools that capture start and stop times.

• Conduct concurrent clinical documentation review.

Coding Review

• Have coders validate principal diagnoses, ventilator codes, and DRGs.

• Audit a sample of claims before billing.

Utilization Review

• Conduct regular utilization review to evaluate continued stay and discharge readiness.

• Document discharge planning throughout the stay.

Audits

• Audit a sample of records regularly for medical necessity, coding, and payment criteria.

• Track and analyze denials.

Responding to LTCH Medical Review

When a contractor requests records:

• Respond within the deadline, generally 45 days for MAC requests and 30 days for UPIC requests.

• Include acute care hospital records, ICU documentation, ventilator records, and the full LTCH record.

• Include a cover letter summarizing why the patient needed LTCH-level care and how payment criteria were met.

• Appeal unfavorable decisions using the Medicare appeals process under 42 CFR Part 405, Subpart I, submitting all evidence by the reconsideration level.

A Hypothetical Example

An LTCH's internal audit finds that several cases billed at the standard rate based on the ventilator criterion had ventilation durations under 96 hours when calculated correctly, because coders counted time before admission incorrectly, and that physician notes for long-stay patients were often copied. The LTCH retrains coders and respiratory therapists on ventilation duration rules, implements a ventilator documentation tool, sets standards for daily physician notes, and refunds identified overpayments. A follow-up audit shows accurate ventilator coding and stronger medical necessity documentation.

The Role of the Referring Hospital

LTCH payment depends heavily on information created by another provider. The ICU criterion is based on the referring acute care hospital's claim, and the "immediately preceded" requirement depends on accurate discharge and admission dates. LTCHs therefore benefit from strong relationships with referring hospitals. Practical steps include:

• Agreeing with referring hospitals on what records will accompany each transfer, including the discharge summary, ICU records, and medication lists.

• Asking hospital case managers to confirm ICU days and ventilator status before transfer.

• Establishing a contact at each major referring hospital for questions about claims and records.

• Tracking cases where the expected payment category differs from the paid category, and following up with the referring hospital when coding errors may be involved.

LTCHs should avoid arrangements that could raise concerns under the Anti-Kickback Statute, such as providing free services to referring hospitals in exchange for referrals.

Site-Neutral Cases Are Still Covered Care

A case paid at the site-neutral rate is still a covered Medicare stay if the care was reasonable and necessary. Site-neutral status affects only the payment rate. LTCHs should apply the same documentation standards to site-neutral cases, because they are equally subject to medical review, and because errors in site-neutral cases can still create overpayments. At the same time, LTCHs should make admission decisions based on patients' clinical needs and not solely on expected payment category.

Discharge Planning in LTCHs

Because LTCH stays are long, discharge planning should begin at admission. Documentation should show the expected discharge destination, the milestones needed for discharge, such as ventilator weaning or wound healing, and the team's progress toward them. When a patient no longer needs hospital-level care, the LTCH should arrange discharge to the appropriate setting. Extended stays after hospital-level need ends are a common target in medical review, and documentation should explain any delays, such as lack of available beds at a receiving facility.

Common Myths About LTCH Medical Review

Myth: Meeting the ICU Criterion Guarantees Payment

The criterion determines the payment rate, not whether care was reasonable and necessary. Reviewers can still deny cases that lack documentation of hospital-level need.

Myth: Ventilator Hours Before Admission Count Toward the LTCH Criterion

The ventilator criterion is based on ventilator services in the LTCH, and ICD-10-PCS rules govern how duration is calculated. LTCHs should follow coding guidelines carefully.

Myth: Site-Neutral Cases Are Not Audited

All LTCH cases are subject to medical review regardless of payment rate.

Myth: The 50 Percent Threshold Is Only a Finance Issue

Falling below the threshold changes payment for all discharges in later periods, making it an organization-wide risk that admissions, clinical, and coding staff should understand.

Questions Leadership Should Ask

• What percentage of our discharges meet the standard rate criteria, and how close are we to the 50 percent threshold?

• What is our average length of stay compared with the 25-day requirement?

• How do we verify ICU days and ventilator duration?

• Do physician notes show daily medical management?

• How often do we audit coding and medical necessity?

• Do we track mismatches between expected and paid payment categories?

• Is discharge planning documented from admission?

Key Takeaways

• LTCH standard payment requires an immediately preceding acute stay, a non-psychiatric and non-rehabilitation DRG, and either three ICU days or 96 ventilator hours.

• Site-neutral cases are paid at the lower of an IPPS-comparable amount or cost.

• LTCHs must maintain an average length of stay over 25 days and monitor the 50 percent threshold.

• Medical review evaluates both payment criteria and hospital-level need.

• Accurate records from referring hospitals, ventilator documentation, daily physician notes, and discharge planning are essential.

Quality Reporting and Survey Considerations

LTCHs must submit LCDS assessment data and other quality data under the LTCH Quality Reporting Program, and failure to meet reporting requirements reduces the annual payment update. Assessment data, such as functional status and ventilator weaning information, also appear in the medical record that reviewers examine, so consistency between assessments and clinical documentation matters. LTCHs are also subject to hospital conditions of participation and surveys, which evaluate areas such as medical staff oversight, nursing services, infection control, and discharge planning. A single, well-organized medical record that supports payment, quality reporting, and survey compliance reduces risk across all three.

Preparing Staff for Review

Medical review findings often reflect gaps in staff understanding of payment criteria. Admissions coordinators should understand the ICU and ventilator criteria and the documentation needed from referring hospitals. Physicians should understand that their notes must show daily hospital-level management. Respiratory therapists should understand how ventilator duration is documented and coded. Coders should understand ICD-10-PCS ventilation rules and MS-LTC-DRG assignment. Short, role-specific training sessions, refreshed annually and after audit findings, help keep documentation consistent.

Appeals of LTCH Denials

LTCH denials often involve large dollar amounts because stays are long. When appealing, LTCHs should prepare a clinical summary that explains the patient's hospital-level needs day by day or by period, cites the record, and addresses the reviewer's reasoning. For payment criteria disputes, include the acute care hospital records showing ICU days and the LTCH ventilator flow sheets showing duration. Physician statements explaining the patient's acuity can be helpful. Because evidence is generally limited after the reconsideration level, the complete record should be submitted early. ALJ hearings allow testimony from physicians and respiratory therapists, which can be persuasive in complex cases. LTCHs should also track the 30-day and 60-day filing deadlines that limit recoupment under 42 CFR 405.379 during the first two appeal levels.

Monitoring Policy Changes

CMS updates LTCH payment policies each year through the IPPS and LTCH PPS rulemaking, typically proposed in the spring and finalized around August 1. Changes may affect standard and site-neutral rates, outlier thresholds, MS-LTC-DRG weights, and quality reporting. Congress has also considered legislation affecting the site-neutral framework. LTCHs should review each rule, update financial projections, and adjust admission and documentation practices as needed. Staying informed helps LTCHs anticipate changes rather than react to audit findings after the fact. Compliance and finance teams should brief clinical leaders on any change that affects which patients qualify for standard payment.

Frequently Asked Questions

What criteria qualify an LTCH case for the standard payment rate?

An immediately preceding acute care hospital stay, no psychiatric or rehabilitation MS-LTC-DRG, and either at least three ICU or CCU days in the prior hospital stay or at least 96 hours of ventilator services in the LTCH.

How are site-neutral cases paid?

At the lower of an IPPS-comparable per diem amount or 100 percent of the estimated cost of the case.

What is the 50 percent threshold?

If fewer than 50 percent of an LTCH's discharges in a cost reporting period meet the standard rate criteria, the LTCH is paid IPPS-equivalent rates for all discharges in later periods until it demonstrates compliance.

What length of stay must LTCHs maintain?

An average Medicare inpatient length of stay greater than 25 days.

Can a case meet the payment criteria but still be denied?

Yes. Medicare pays only for reasonable and necessary care, so reviewers can deny cases when documentation does not support hospital-level need.

Conclusion

LTCH payment depends on documentation from both the prior acute care stay and the LTCH stay. LTCHs that verify ICU days, document ventilator duration accurately, show daily hospital-level medical management, monitor facility-level thresholds, and audit regularly will be well positioned for medical review and will protect their standard rate payments.

How HealthBridge Can Help

HealthBridge is a healthcare management consulting firm that helps LTCHs strengthen admission screening, document payment criteria, audit ventilator coding and medical necessity, monitor site-neutral thresholds, respond to medical review, and support appeals. If your LTCH is facing medical review, please get in touch with us. We will be happy to help you with this topic.

References

• U.S. Social Security Administration. Social Security Act, Section 1886, Payment to Hospitals for Inpatient Hospital Services. https://www.ssa.gov/OP_Home/ssact/title18/1886.htm

• Electronic Code of Federal Regulations. 42 CFR Part 412, Subpart O, Prospective Payment System for Long-Term Care Hospitals. https://www.ecfr.gov/current/title-42/chapter-IV/subchapter-B/part-412/subpart-O

• Electronic Code of Federal Regulations. 42 CFR 412.23, Excluded Hospitals: Classifications. https://www.ecfr.gov/current/title-42/chapter-IV/subchapter-B/part-412/subpart-B/section-412.23

• Centers for Medicare & Medicaid Services. Long-Term Care Hospital Prospective Payment System. https://www.cms.gov/medicare/payment/prospective-payment-systems/long-term-care-hospital

• Centers for Medicare & Medicaid Services. MLN Matters MM9015, Implementation of the Long Term Care Hospital Patient Criteria (hosted by HHS). https://www.hhs.gov/guidance/sites/default/files/hhs-guidance-documents/mm9015.pdf

• Centers for Medicare & Medicaid Services. Medicare Benefit Policy Manual, Chapter 1, Inpatient Hospital Services Covered Under Part A. https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/downloads/bp102c01.pdf

• Centers for Medicare & Medicaid Services. Medicare Program Integrity Manual, Chapter 3, Verifying Potential Errors and Taking Corrective Actions. https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/downloads/pim83c03.pdf

• Centers for Medicare & Medicaid Services. LTCH Quality Reporting Program. https://www.cms.gov/medicare/quality/long-term-care-hospital

• Centers for Disease Control and Prevention, National Center for Health Statistics. ICD-10-CM. https://www.cdc.gov/nchs/icd/icd-10-cm/index.html

• Electronic Code of Federal Regulations. 42 CFR Part 405, Subpart I, Determinations, Redeterminations, Reconsiderations, and Appeals Under Original Medicare. https://www.ecfr.gov/current/title-42/chapter-IV/subchapter-B/part-405/subpart-I