Georgia Medicare Hospital Inpatient Benefit: Guide

Medicare Part A covers a Georgia beneficiary's inpatient hospital stay after a $1,736 deductible per benefit period in 2026, then pays in full through day 60. This guide explains what you owe, how long coverage lasts, and what rights you have when the hospital says it is time to leave.1

The benefit rests on Section 1812(a)(1) of the Social Security Act (42 U.S.C. 1395d(a)(1)), which makes inpatient hospital care a Part A entitlement, and it covers up to 90 days per benefit period plus 60 non-renewable lifetime reserve days. Past day 60, you pay $434 a day for days 61 through 90 and $868 for each lifetime reserve day in 2026. Section 1886 created the Inpatient Prospective Payment System (IPPS), which pays Georgia hospitals a set amount per discharge based on the patient's diagnosis rather than days or cost.1

For Georgia beneficiaries admitted to Emory University Hospital in Atlanta, Piedmont, Wellstar, Memorial Health in Savannah, Atrium Health Navicent in Macon, Augusta University Medical Center, Northeast Georgia Medical Center in Gainesville, Phoebe Putney in Albany, or a rural Critical Access Hospital, this benefit determines what Medicare pays, what you owe in deductibles and coinsurance, how long an extended stay is covered, and what discharge rights apply. It walks through the Two-Midnight Rule that separates inpatient from observation status, the 2026 cost-sharing tiers, the IPPS payment formula, the three Affordable Care Act hospital quality programs, the discharge appeal process through Georgia's Medicare quality improvement organization, and six worked examples for real Georgia scenarios.

Federal Authority Behind Your Georgia Medicare Hospital Inpatient Benefit

The Medicare hospital inpatient benefit rests on a deep stack of statutory and regulatory authority that has accumulated since the original Medicare statute in 1965. Understanding the authorities is essential because hospital coverage disputes, discharge appeals, observation status grievances, and payment classification questions are all resolved by reference to specific subsections of the Social Security Act and specific provisions of Title 42 of the Code of Federal Regulations.

Section 1812(a)(1) of the Social Security Act, codified at 42 U.S.C. 1395d(a)(1), is the foundational provision establishing that "the benefits provided to an individual by the insurance program under this part shall consist of entitlement to have payment made on his behalf or, in the case of payments referred to in section 1395f(d)(2) of this title to him, for inpatient hospital services or inpatient critical access hospital services." This is the statutory hook that makes hospital care a Part A entitlement rather than a discretionary benefit.

Section 1812(b)(1) of the Social Security Act establishes the 90-day maximum per benefit period for inpatient hospital services, with the famous proviso that "the number of inpatient hospital service days in such benefit period shall not exceed 90." Section 1812(a)(4) separately provides 60 lifetime reserve days that the beneficiary may elect to use after the 90-day benefit period exhausts. These reserve days are non-renewable: once a beneficiary draws down all 60 across her lifetime, they are gone permanently.

Section 1813(a)(1) of the Social Security Act establishes the cost-sharing structure: a Part A inpatient hospital deductible (the "inpatient hospital deductible" defined in Section 1813(b)(1)), daily coinsurance equal to one-quarter of the deductible for Days 61 through 90 ($434 in fiscal year 2026), and daily coinsurance equal to one-half of the deductible for lifetime reserve days ($868 in fiscal year 2026). These amounts are updated annually based on the hospital inpatient market basket index.1

Section 1814(a)(3) of the Social Security Act requires physician certification and periodic recertification of the medical necessity of inpatient hospital services. A physician must certify at admission (or as soon as possible thereafter) that inpatient hospital services are or were required for the diagnosis or treatment of the patient, and recertify periodically thereafter. The Two-Midnight Rule expectation discussed below is the operational implementation of this physician judgment requirement.

Sections 1861(b) and 1861(e) of the Social Security Act define the terms. "Inpatient hospital services" cover bed and board, nursing and related services, hospital facilities, drugs and supplies, diagnostic and therapeutic services, and the services of interns and residents, but exclude physician services billed separately under Part B. A "hospital" is an institution primarily engaged in diagnostic and therapeutic care that meets Medicare's conditions of participation, including 24-hour nursing, utilization review, and accreditation or state licensure.

Section 1886 of the Social Security Act, added by Section 601 of the Social Security Amendments of 1983 (Public Law 98-21), is the foundational statutory authority for the Inpatient Prospective Payment System. Section 1886(d) establishes the methodology for paying hospitals a predetermined amount per discharge based on Diagnosis-Related Group classification. Section 1886(b)(3)(B) establishes the annual market basket update. Section 1886(h) establishes Graduate Medical Education direct payment to teaching hospitals.

Section 1886(o) establishes the Hospital Value-Based Purchasing Program, created by Section 3001 of the Affordable Care Act of 2010 (Public Law 111-148). Section 1886(p) establishes the Hospital-Acquired Condition Reduction Program, created by Section 3008 of the Affordable Care Act. Section 1886(q) establishes the Hospital Readmissions Reduction Program, created by Section 3025 of the Affordable Care Act. Together these three provisions adjust hospital IPPS payment based on quality, safety, and readmissions performance.

42 CFR Part 412 is the regulatory framework for IPPS. 42 CFR 412.3, effective for discharges on or after October 1, 2013, is the Two-Midnight Rule that creates a regulatory presumption regarding when inpatient admission is appropriate. 42 CFR 412.150 through 412.156 implement HRRP. 42 CFR 412.160 through 412.167 implement HVBP. 42 CFR 412.170 through 412.172 implement the HAC Reduction Program.

42 CFR Part 482 is the regulatory framework for hospital Conditions of Participation, covering governing body, medical staff, nursing services, pharmacy services, dietary services, infection control, quality assessment and performance improvement, patient rights, discharge planning, and emergency preparedness.

A series of later statutes shaped the system: the Social Security Amendments of 1983 (Public Law 98-21) established IPPS effective October 1, 1983, replacing cost-based reimbursement with prospective DRG-based payment; the Balanced Budget Act of 1997 refined it; the Medicare Modernization Act of 2003 added quality reporting; and the Deficit Reduction Act of 2005 introduced the policy that Medicare would not pay more for reasonably preventable hospital-acquired conditions.

The Affordable Care Act of 2010 (Public Law 111-148) is the most consequential post-IPPS statute, creating HVBP (Section 3001), HAC Reduction (Section 3008), and HRRP (Section 3025). The Notice of Observation Treatment and Implication for Care Eligibility Act of 2015 (Public Law 114-42), known as the NOTICE Act, requires hospitals to deliver the Medicare Outpatient Observation Notice (MOON, CMS-10611) to patients receiving observation services for more than 24 hours.2

The Two-Midnight Rule and the Distinction Between Inpatient and Observation Status

The single most consequential operational rule under the Medicare hospital benefit is the Two-Midnight Rule, codified at 42 CFR 412.3 and effective for hospital discharges on or after October 1, 2013. The rule was designed to give hospitals and physicians clearer guidance on when to admit a patient as an inpatient rather than place the patient in observation status, and to reduce the wide variation in admission practice that had developed under earlier rules.

Under 42 CFR 412.3(d)(1), inpatient admission is generally appropriate for Medicare Part A payment when the admitting physician expects the patient to require hospital care that crosses two midnights, and the medical record supports that reasonable expectation. Under 42 CFR 412.3(d)(3), if the expected length of stay is less than two midnights, the appropriate venue is generally observation under Part B, not inpatient admission, unless the case meets a case-by-case exception for medically necessary inpatient services under two midnights.

Importantly, the Two-Midnight Rule is based on the physician's reasonable expectation at the time of the admission order, not on the actual length of stay. A physician who reasonably expected at admission that the patient would require care spanning two midnights, but who later discharged the patient earlier than expected because the patient's condition improved more rapidly than anticipated, would still have a properly inpatient admission. Conversely, a physician who admitted a patient expecting a single-midnight stay but kept the patient longer should reassess and document whether the admission should have been inpatient from the outset.

Procedures on the Inpatient-Only List are always considered inpatient regardless of expected length of stay. CMS publishes the Inpatient-Only List annually in the IPPS Final Rule, and procedures on the list (historically including most coronary artery bypass grafting, certain orthopedic procedures, and major resection surgeries) are presumptively inpatient under Section 1862(a)(14). However, CMS has been gradually removing procedures from the Inpatient-Only List as outpatient surgical capability has expanded, including most notably the multi-year phased removal of total hip and knee arthroplasty from the list.

Observation status is technically an outpatient service paid under the Hospital Outpatient Prospective Payment System (OPPS) at 42 CFR Part 419. Observation patients are billed under Part B rather than Part A, meaning they pay the Part B deductible ($283 in 2026), 20 percent coinsurance for each observation service, separate Part B cost-sharing for diagnostic tests and physician services, and importantly, full cost for any self-administered drugs the hospital provides (because Part B does not cover self-administered drugs taken in an outpatient setting).1

Most consequentially for downstream care: observation days do not count toward the three-day inpatient qualifying hospital stay that Medicare requires under Section 1812(a)(2) for Part A coverage of a subsequent skilled nursing facility admission. A Georgia beneficiary who spent five midnights in observation at a Wellstar facility but never reached inpatient status has zero qualifying days for SNF purposes. The hospital may be willing to admit the patient to a SNF, but Medicare Part A will not pay the SNF claim because the qualifying inpatient stay was never met. The patient becomes responsible for the facility's full private daily rate, or must qualify for Medicaid Long-Term Care if income, assets, and clinical level of care criteria are met.

The Medicare Outpatient Observation Notice (MOON), CMS-10611, was required by the Notice of Observation Treatment and Implication for Care Eligibility Act of 2015 (Public Law 114-42). The MOON must be delivered orally and in writing to any patient receiving observation services for more than 24 hours, no later than 36 hours after observation begins. The MOON tells the patient (1) that they are an outpatient receiving observation services, not an inpatient; (2) the reasons for the observation classification; (3) the cost-sharing implications; and (4) the implications for subsequent SNF coverage. The MOON does not create a right of appeal but does create a documentation requirement and is itself sometimes useful evidence in subsequent quality improvement organization complaints.

Condition Code 44 allows a hospital to convert an inpatient admission to outpatient observation before discharge if the utilization review process determines that inpatient admission was not medically necessary. Condition Code 44 requires the concurrence of the admitting physician and a physician member of the utilization review committee, must occur before discharge, and is documented in the medical record. Beneficiaries should be alert to Condition Code 44 conversions because they retroactively reclassify the stay from Part A inpatient (which counts toward SNF qualifying stay) to Part B observation (which does not).

The Part A to Part B Self-Audit / Rebilling Pathway under 42 CFR 414.5 allows a hospital to rebill an inpatient claim as outpatient Part B services if a utilization review or audit determines after discharge that inpatient admission was not medically necessary. This pathway, originating in CMS Ruling 1455-R and the related FY 2014 IPPS Final Rule, was intended to give hospitals a remedy short of receiving zero payment when Recovery Audit Contractor reviews retroactively denied inpatient admissions. The rebilling pathway is relevant to beneficiaries because it can also alter SNF qualifying stay status.

Your Georgia Medicare Hospital Inpatient Benefit Period: 90 Days Plus 60 Lifetime Reserve Days and 2026 Cost-Sharing

The Medicare hospital benefit operates on a benefit period clock rather than an annual or lifetime clock, and understanding the benefit period structure is essential for predicting what the beneficiary will owe across an extended hospitalization.

Definition of a benefit period (Section 1861(a) SSA): A benefit period begins on the first day of inpatient hospital or skilled nursing facility services for which a beneficiary is entitled to have payment made under Part A and ends with the close of the first period of 60 consecutive days thereafter on each of which the beneficiary is neither an inpatient of a hospital nor an inpatient of a skilled nursing facility. There is no limit on the number of benefit periods a beneficiary may have over the course of a lifetime, and the deductible resets at the start of each new benefit period.

FY 2026 cost-sharing amounts (per CMS, applicable to discharges on or after January 1, 2026):

• Inpatient hospital deductible: $1,736 per benefit period, applied at the first day of admission. This is one-time per benefit period regardless of how many separate admissions occur.
• Days 1 through 60: After the deductible, Medicare pays 100 percent of the IPPS payment with no patient daily coinsurance.
• Days 61 through 90: Patient pays $434 daily coinsurance (one-quarter of the deductible). Medicare pays the rest.
• Days 91 and beyond: Patient enters lifetime reserve days at $868 daily coinsurance per LRD used. Sixty LRDs are available across the beneficiary's lifetime; once exhausted, they do not return.
• After 90 days plus all 60 LRDs are exhausted: The beneficiary is responsible for the full cost of any further inpatient hospital days during that benefit period until a 60-day break in inpatient and SNF care resets the benefit period clock.1

The table below summarizes what a Georgia beneficiary pays at each stage of a single benefit period in 2026.1

Lifetime reserve day election: The beneficiary has the right to elect not to use lifetime reserve days under 42 CFR 409.65. This election may be appropriate where the patient holds a Medigap policy that covers extended hospital coinsurance (which most standardized Medigap plans do, providing 365 lifetime extension days at no cost beyond the LRD coinsurance), where the patient anticipates a future hospitalization where LRDs would be more valuable, or where the patient has employer retiree coverage that provides better coverage than LRD coinsurance.

Medigap and lifetime reserve days: Standardized Medigap plans sold in Georgia (Plans A, B, C, D, F, G, K, L, M, and N, subject to availability for newly eligible beneficiaries after January 1, 2020 when Plans C and F closed to new enrollees) all provide some level of Part A hospital coinsurance coverage. These plans each cover Part A coinsurance and most provide an additional 365 lifetime days of hospital coverage at no additional cost to the beneficiary beyond what the plan covers (typically full coverage). This is one of the most valuable Medigap features for a beneficiary facing extended hospitalization.

Multiple admissions within a benefit period: If a Georgia beneficiary is admitted to Piedmont Atlanta Hospital on January 5, discharged on January 18 after 13 inpatient days, and readmitted to Emory University Hospital on February 2 (only 15 days after the first discharge, so the 60-day break has not occurred and the benefit period continues), the readmission does not trigger a new $1,736 deductible. Days from both admissions count toward the 90-day total. If the combined inpatient days exceed 90, Day 91 onward draws from lifetime reserve days at $868 per day.1

Resetting the benefit period: The 60 consecutive days without inpatient hospital or skilled nursing facility care can include days at home, in a non-skilled nursing home (custodial care only), in an assisted living facility, in hospice (because hospice is technically not inpatient hospital or SNF under the statute when in routine home care), or in any other setting that is not a Medicare-certified hospital inpatient bed or Medicare-certified SNF skilled bed. Once the 60-day break completes, the next inpatient admission starts a fresh benefit period with a fresh $1,736 deductible and 90 days plus the remaining LRDs available.1

The Inpatient Prospective Payment System and Diagnosis-Related Groups

Section 1886(d) of the Social Security Act, added by the Social Security Amendments of 1983 (Public Law 98-21), established the Inpatient Prospective Payment System, which has been the dominant Medicare hospital payment mechanism since October 1, 1983. IPPS replaced the cost-based reimbursement system that paid hospitals a share of their actual costs with a prospective system that pays a predetermined amount per discharge based on the patient's clinical diagnosis and procedures.

The DRG payment formula (simplified): IPPS payment per discharge equals the DRG relative weight times the hospital base rate (a national standardized amount adjusted by the area wage index), plus add-on payments for Indirect Medical Education (Section 1886(d)(5)(B)), Disproportionate Share Hospital (Section 1886(d)(5)(F)), outliers (Section 1886(d)(5)(A)), new technology (Section 1886(d)(5)(K) and (L)), and other adjustments.

Medicare Severity Diagnosis-Related Groups (MS-DRGs): Effective October 1, 2007 (FY 2008), CMS adopted the MS-DRG classification system, which substantially expanded the number of payment groups over the prior CMS-DRG system. CMS updates the MS-DRG list each year in the IPPS Final Rule. Each MS-DRG is defined by a primary diagnosis, the presence or absence of major complications and comorbidities (MCC) or other complications and comorbidities (CC), and in some cases the specific surgical procedure performed.

Example MS-DRG: 280 (Acute Myocardial Infarction with major complications or comorbidities): This MS-DRG applies to a patient admitted for heart attack who develops or already has a major complicating condition such as acute kidney injury, congestive heart failure, or pneumonia during the admission. Because MS-DRG 280 carries a relative weight well above the average IPPS discharge, the payment for a case classified into it is correspondingly higher, reflecting the greater expected resource use.

Wage index adjustment: Under Section 1886(d)(3)(E), the labor-related portion of the IPPS standardized amount is adjusted by the area wage index for the metropolitan statistical area or rural area in which the hospital is located. The wage index reflects average hospital wages in the area relative to the national average. Atlanta-Sandy Springs-Roswell metropolitan hospitals receive a different wage index than rural Georgia hospitals in counties like Brantley, Echols, or Talbot.

Indirect Medical Education (IME): Under Section 1886(d)(5)(B), teaching hospitals receive an add-on payment for each Medicare discharge equal to a percentage based on the hospital's intern and resident-to-bed ratio. Georgia teaching hospitals (Emory University Hospital, Augusta University Medical Center, Atrium Health Navicent in Macon, the Morehouse School of Medicine-affiliated hospitals in Atlanta) receive IME payments reflecting their teaching mission.

Direct Graduate Medical Education (DGME): Under Section 1886(h), Medicare also pays teaching hospitals directly for the costs of training interns and residents, separate from the IME add-on. DGME payment is based on the hospital's number of full-time equivalent residents and the cost per resident.

Disproportionate Share Hospital (DSH): Under Section 1886(d)(5)(F), hospitals serving a disproportionate share of low-income patients receive an additional payment. DSH eligibility is determined by the hospital's DSH patient percentage, which combines Medicaid days and Supplemental Security Income days. The Affordable Care Act of 2010 (Section 3133) modified DSH payment to direct a portion through an uncompensated care payment pool. Georgia DSH hospitals include Grady Memorial Hospital in Atlanta (one of the largest public hospitals in the Southeast), Phoebe Putney Memorial in Albany, and a number of safety-net facilities in metropolitan Atlanta and rural Georgia.

Outlier payments: Under Section 1886(d)(5)(A), hospitals receive additional payment for cases whose costs exceed the DRG payment plus a fixed-loss threshold that CMS sets each year in the IPPS Final Rule. The outlier payment covers 80 percent of costs above the threshold. Outlier payments are designed to protect hospitals against catastrophic single-case losses that would otherwise create selection incentives against high-acuity patients.

Annual market basket update: Under Section 1886(b)(3)(B), the IPPS standardized amount is updated each fiscal year by the hospital inpatient market basket index minus a productivity adjustment. The Affordable Care Act of 2010 (Section 3401(a)) added the productivity adjustment that subtracts the 10-year moving average of multifactor productivity from the market basket update, reducing year-over-year IPPS payment growth.

Critical Access Hospitals (CAHs): Under Section 1820 of the Social Security Act, certain rural Georgia hospitals participate as Critical Access Hospitals rather than IPPS hospitals. CAHs are paid based on 101 percent of reasonable cost rather than IPPS prospective rates. To qualify, a CAH must have 25 or fewer inpatient beds, average inpatient length of stay of 96 hours or less for acute care, provide 24/7 emergency services, and be located in a rural area more than a 35-mile drive from another hospital (or 15 miles in mountainous terrain or with only secondary roads). A number of CAHs serve rural Georgia counties, including facilities in Banks, Charlton, Crisp, Decatur, Lanier, McIntosh, Stewart, Telfair, and Wilcox counties, among others.3

The Hospital Value-Based Purchasing Program (Section 1886(o))

Section 1886(o) of the Social Security Act, added by Section 3001 of the Affordable Care Act of 2010 (Public Law 111-148), established the Hospital Value-Based Purchasing Program effective for fiscal year 2013 (discharges beginning October 1, 2012). HVBP is a budget-neutral pay-for-performance program that withholds a percentage of base operating DRG payments (currently 2 percent) and redistributes the withheld amounts back to hospitals based on a Total Performance Score (TPS) that measures clinical outcomes, patient experience, safety, and efficiency.

HVBP withhold percentage: The withhold began at 1 percent in FY 2013 and increased annually until reaching the current 2 percent in FY 2017, where it remains. Each hospital's HVBP payment adjustment can range from a full loss of the 2 percent withhold (for the lowest-scoring hospitals) to a positive adjustment exceeding 2 percent (for the highest-scoring hospitals), with the program designed to be budget-neutral overall.

HVBP performance domains (effective FY 2023 and forward, after multiple program refinements):

1. Clinical Outcomes domain (25 percent of TPS): mortality measures for acute myocardial infarction, heart failure, pneumonia, chronic obstructive pulmonary disease, coronary artery bypass graft surgery, and a composite mortality measure.

2. Person and Community Engagement domain (25 percent of TPS): Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) survey, covering communication with nurses, communication with doctors, responsiveness of staff, communication about medicines, hospital cleanliness and quietness, discharge information, care transitions, and overall hospital rating.

3. Safety domain (25 percent of TPS): healthcare-associated infections (catheter-associated urinary tract infections, central line-associated bloodstream infections, surgical site infections, methicillin-resistant Staphylococcus aureus bacteremia, Clostridium difficile infections), and the AHRQ Patient Safety Indicator 90 composite.

4. Efficiency and Cost Reduction domain (25 percent of TPS): Medicare Spending Per Beneficiary measure (MSPB), which captures average Medicare spending in the period from three days before admission through 30 days after discharge.

Total Performance Score calculation: Each measure is scored on both achievement (compared to a national benchmark) and improvement (compared to the hospital's own prior performance), and the higher of the two scores is used. Domain scores are weighted and summed to produce the Total Performance Score, which translates to a payment adjustment via an exchange function established annually.

HVBP for Georgia hospitals: Georgia hospitals participate in HVBP based on their IPPS status. Large urban teaching hospitals (Emory, Piedmont, Augusta University Medical Center, Atrium Health Navicent) compete in HVBP alongside community hospitals and rural Georgia hospitals (other than CAHs, which are exempt). Performance varies widely across the state, with some Georgia hospitals consistently in the top quartile and others in the bottom quartile. The CMS Medicare Care Compare website publishes Total Performance Scores annually.

The Hospital Readmissions Reduction Program (Section 1886(q))

Section 1886(q) of the Social Security Act, added by Section 3025 of the Affordable Care Act of 2010 (Public Law 111-148), established the Hospital Readmissions Reduction Program effective for fiscal year 2013. HRRP is a payment penalty program: hospitals with excess readmissions for specified conditions experience a reduction in their base operating DRG payment of up to 3 percent.2

HRRP penalty calculation: For each applicable condition cohort, CMS calculates the hospital's risk-adjusted 30-day readmission rate and compares it to the national average. Hospitals with risk-adjusted readmission rates above the national average receive a payment reduction. The maximum reduction is 3 percent (since FY 2015; it was 1 percent in FY 2013 and 2 percent in FY 2014).

HRRP condition cohorts (six conditions as of current program design):

1. Acute Myocardial Infarction (AMI): readmission within 30 days of discharge after a heart attack admission.
2. Coronary Artery Bypass Graft (CABG): readmission within 30 days of discharge after CABG surgery (added FY 2017).
3. Chronic Obstructive Pulmonary Disease (COPD): readmission within 30 days of discharge after a COPD exacerbation admission (added FY 2015).
4. Heart Failure (HF): readmission within 30 days of discharge after a heart failure admission.
5. Pneumonia: readmission within 30 days of discharge after a pneumonia admission. The pneumonia cohort was expanded in FY 2017 to include aspiration pneumonia and sepsis with pneumonia.
6. Elective Total Hip Arthroplasty and Total Knee Arthroplasty (THA/TKA): readmission within 30 days of discharge after elective hip or knee replacement (added FY 2015).

Risk adjustment and the Affordable Care Act stratification adjustment: The 21st Century Cures Act of 2016 (Public Law 114-255) added Section 1886(q)(8) requiring HHS to stratify hospital performance for HRRP penalty calculation by the proportion of dual-eligible (Medicare-Medicaid) beneficiaries the hospital serves. This stratification, implemented in FY 2019, reduced penalty exposure for safety-net hospitals serving high-dual-eligible populations, including a number of Georgia DSH hospitals.

Readmission counting rules: A readmission is an inpatient admission within 30 days of the index discharge for any cause, with limited exceptions (planned readmissions for specified procedures are excluded). The readmission can be to the same hospital or a different hospital, both count against the index hospital. Transfers within the same admission episode (transfer from one acute hospital to another while remaining inpatient) are not separate readmissions.

HRRP penalty exposure for Georgia hospitals: Most Georgia IPPS hospitals participate. CAHs are exempt. Penalty rates vary annually based on the hospital's risk-adjusted readmission rates relative to the national average. The CMS Hospital Compare website publishes excess readmission ratios by condition and the resulting payment adjustment factor.

The Hospital-Acquired Condition (HAC) Reduction Program (Section 1886(p))

Section 1886(p) of the Social Security Act, added by Section 3008 of the Affordable Care Act of 2010 (Public Law 111-148), established the Hospital-Acquired Condition Reduction Program effective for fiscal year 2015. The HAC Reduction Program imposes a 1 percent payment reduction on hospitals whose total HAC score places them in the worst-performing quartile nationally.

HAC measures (current program design):

• CDC National Healthcare Safety Network (NHSN) Healthcare-Associated Infection measures:

  • Central Line-Associated Bloodstream Infection (CLABSI)
  • Catheter-Associated Urinary Tract Infection (CAUTI)
  • Surgical Site Infection (SSI) for colon and abdominal hysterectomy
  • Methicillin-Resistant Staphylococcus aureus (MRSA) bacteremia
  • Clostridium difficile infection (CDI)

• AHRQ Patient Safety Indicator 90 (PSI-90) Composite: a weighted composite of patient safety indicators including pressure ulcers, central venous catheter-related bloodstream infection, postoperative respiratory failure, perioperative pulmonary embolism or deep vein thrombosis, postoperative sepsis, postoperative wound dehiscence, and accidental puncture or laceration.

HAC Reduction Program scoring: Hospital performance is converted to a Total HAC Score. The worst-performing quartile (highest Total HAC Score) receives the 1 percent payment reduction. The penalty is applied to all base operating DRG payments and to certain add-on payments (DSH, IME, outlier).

Distinct from the prior Hospital-Acquired Condition Present-on-Admission policy: The HAC Reduction Program is distinct from the older HAC payment policy under Section 1886(d)(4)(D), which originated with the Deficit Reduction Act of 2005 (Public Law 109-171). Under the older policy, when a hospital-acquired condition (a specified condition that was not present on admission) develops during the hospitalization, the hospital does not receive higher MS-DRG payment that the condition would otherwise justify. The two policies operate independently: a hospital can be penalized under the HAC Reduction Program while also receiving reduced MS-DRG payments for individual cases under the present-on-admission policy.

Discharge Rights and the Important Message from Medicare

Medicare hospital beneficiaries have explicit statutory and regulatory rights regarding discharge, including the right to written notice of discharge, the right to a fast-track quality improvement organization review, and protections against financial liability during the review window. These rights are essential safeguards in Georgia where rapid discharge is common at major systems facing length-of-stay pressure under IPPS.

The Important Message from Medicare (CMS-R-193): Under 42 CFR 405.1205, hospitals must deliver the Important Message from Medicare (IM) to all Medicare beneficiaries (including dual-eligibles, Medicare Advantage beneficiaries, and Medicare-Medicaid integrated plan beneficiaries) within two days of admission. The IM informs the beneficiary of (1) the right to receive Medicare-covered services during the hospital stay, (2) the right to be informed of any decisions about discharge, (3) the right to appeal a discharge decision to the Beneficiary and Family Centered Care Quality Improvement Organization (BFCC-QIO) for Georgia, and (4) what to do if the beneficiary disagrees with a discharge decision. A follow-up copy of the IM must be delivered no more than two calendar days before discharge.

Fast-track BFCC-QIO appeal: A Medicare beneficiary who disagrees with the hospital's discharge decision may request a fast-track review by calling the BFCC-QIO for Georgia, Acentra Health (formerly Kepro), at 1-888-317-0751.4 You can also confirm the current contact by calling 1-800-MEDICARE (1-800-633-4227); the number is printed on the Important Message from Medicare the hospital gives you. The request must be made by noon of the calendar day following receipt of the discharge notice. The BFCC-QIO reviews the medical record and issues a decision within one calendar day of receipt of the records.5

Financial protection during fast-track review: During the fast-track review window, the hospital cannot bill the beneficiary for continued hospital services if the beneficiary requested the review on time. If the BFCC-QIO upholds the discharge, the beneficiary's financial liability resumes at noon of the calendar day after the decision. If the BFCC-QIO overturns the discharge, the hospital must provide continued covered services without billing the beneficiary.

Hospital-Issued Notice of Non-Coverage (HINN): When a hospital believes that continued inpatient services are not medically necessary, it may issue a HINN to the beneficiary. The most commonly used variants are HINN 11 (used at discharge when the hospital believes the patient no longer meets inpatient criteria) and HINN 12 (used when the hospital believes the admission was not medically necessary at the outset). A HINN triggers the beneficiary's right to a BFCC-QIO review.

Discharge planning requirements (42 CFR 482.43): Hospitals must have a discharge planning process that identifies at an early stage of hospitalization those patients who are likely to suffer adverse health consequences upon discharge without adequate discharge planning, must provide a discharge planning evaluation, must include the discharge planning evaluation in the patient's medical record for use in establishing an appropriate discharge plan, and must inform the patient or patient's representative of the availability of the discharge planning evaluation. The discharge planning process must address post-acute care needs including home health, SNF placement, hospice, durable medical equipment, and follow-up appointments.

The Improving Medicare Post-Acute Care Transformation (IMPACT) Act of 2014 (Public Law 113-185) added Section 1899B to the Social Security Act, requiring standardized assessment data across post-acute care settings (long-term care hospitals, inpatient rehabilitation facilities, skilled nursing facilities, and home health agencies). The IMPACT Act also expanded discharge planning to require hospitals to provide information about post-acute care providers' quality and resource use measures, helping Georgia beneficiaries make informed choices about where to go after a hospital stay.

The Georgia Hospital Landscape

Georgia hosts a diverse hospital landscape spanning major academic medical centers, large regional systems, rural Critical Access Hospitals, and safety-net public hospitals. Understanding which hospitals serve which Georgia regions is essential for navigating the Medicare hospital benefit in practice.

Emory Healthcare (Atlanta) is the largest health system in Georgia and the principal academic medical center for Emory University School of Medicine. Emory University Hospital is a major teaching hospital drawing IME and DGME payments.

Piedmont Healthcare (Atlanta) operates a statewide network of more than 20 hospitals, with Piedmont Athens Regional and Piedmont Columbus Regional serving as major regional referral centers.

Wellstar Health System (Marietta) anchors metro Atlanta and West Georgia; Wellstar Kennestone in Marietta runs one of the busiest emergency departments in the country.

Northeast Georgia Health System (Gainesville) is the major regional referral system for Northeast Georgia and the Blue Ridge foothills.

Memorial Health (Savannah), owned by HCA Healthcare, is the level-one trauma center and academic referral center for coastal and southeast Georgia.

Augusta University Health, operated by Augusta University and the Medical College of Georgia, is the academic medical center for the Augusta region and eastern Georgia.

Atrium Health Navicent (Macon), part of Advocate Health, is the major regional referral system for central Georgia.

Phoebe Putney Health System (Albany) is the major regional referral system for Southwest Georgia, and Tanner Health System (Carrollton) serves West Georgia.

Grady Memorial Hospital (Atlanta) is one of the largest public hospitals in the Southeast, the level-one trauma center and safety-net hospital for Fulton and DeKalb counties, and a major recipient of DSH and uncompensated-care payments.

Critical Access Hospitals in Georgia: A number of CAHs serve rural Georgia counties. CAHs are paid based on 101 percent of reasonable cost rather than IPPS prospective rates, are exempt from HVBP, HRRP, and HAC Reduction, and play a vital role in maintaining hospital access in rural communities.3 Examples include Crisp Regional Hospital in Cordele, Bacon County Hospital in Alma, Stewart Webster Hospital in Richland, Jeff Davis Hospital in Hazlehurst, and many others.

Worked Examples: Georgia Medicare Hospital Inpatient Beneficiary Scenarios

The following worked examples illustrate how the Medicare hospital inpatient benefit operates in practice for Georgia beneficiaries.

These scenarios are hypothetical and for illustration only. Your actual costs depend on your specific admission, plan, and supplemental coverage.

Example 1: Margaret, 78, Atlanta, congestive heart failure admission to Emory University Hospital

Margaret is a 78-year-old Medicare beneficiary in Atlanta with congestive heart failure and chronic kidney disease. On a Tuesday evening she develops acute shortness of breath and her daughter takes her to the Emory University Hospital emergency department. The emergency physician evaluates her, orders chest X-ray, BNP, troponins, and basic labs, and consults with the on-call cardiology and nephrology services. The cardiologist documents that Margaret is in acute decompensated heart failure with volume overload requiring IV diuresis, telemetry monitoring, and cardiology management, with reasonable expectation that the hospital course will require at least two midnights to achieve euvolemia, optimize her heart failure regimen, and assess for any precipitating cause.

The admitting physician writes an inpatient admission order on Tuesday at 11:00 PM, citing the Two-Midnight Rule expectation. Margaret is admitted to a telemetry unit overnight Tuesday, treated through Wednesday, transitioned from IV to oral diuretics by Thursday morning, and discharged Thursday afternoon home with cardiology follow-up scheduled for the following week. The stay spans three midnights (Tuesday, Wednesday, Thursday) consistent with the original inpatient expectation.

Payment: Margaret's stay is classified into MS-DRG 291 (Heart Failure and Shock with major complications or comorbidities), reflecting her acute kidney injury and other comorbidities. Emory University Hospital receives a single IPPS payment for that DRG, adjusted by the metropolitan Atlanta wage index and its teaching add-ons, regardless of the actual three-day length of stay.

Margaret's cost-sharing: $1,736 inpatient deductible (she has not yet had any Part A admission this benefit period). No daily coinsurance for Days 1 through 60. Her supplemental Medigap Plan G covers the $1,736 deductible after Margaret pays the annual Part B deductible. Total out-of-pocket: minimal.1

Example 2: Robert, 82, Savannah, observation status at Memorial Health then conversion to inpatient

Robert is an 82-year-old Medicare beneficiary in Savannah with chronic obstructive pulmonary disease who presents to Memorial Health University Medical Center emergency department on a Sunday afternoon with worsening shortness of breath, productive cough, and a mildly elevated temperature. The emergency physician orders chest X-ray (showing right lower lobe infiltrate consistent with pneumonia), CBC (mild leukocytosis), and procalcitonin (elevated). Robert is started on IV antibiotics, IV fluids, and respiratory treatments. The emergency physician initially places Robert in observation status, expecting that he may stabilize within 24 hours and be dischargeable home with oral antibiotics.

By Monday morning, Robert is not improving as expected: he requires increased oxygen, his work of breathing has worsened, and the pulmonology consultant recommends transitioning him to inpatient status with continued IV antibiotics and possible non-invasive ventilation. The admitting hospitalist writes an inpatient admission order on Monday afternoon, documenting the change in clinical course and the expectation that Robert will require care spanning two additional midnights.

Robert remains inpatient through Tuesday and Wednesday, stabilizes on IV antibiotics with oxygen weaning, and is discharged Thursday on oral antibiotics with home health follow-up.

Observation period (Sunday afternoon through Monday afternoon): Robert is billed under Part B. He pays the Part B deductible ($283 in 2026) and 20 percent coinsurance on each observation service, plus full cost for any self-administered drugs (the home COPD inhalers the hospital provided are self-administered drugs not covered by Part B).1

Inpatient period (Monday afternoon through Thursday): Robert is admitted as an inpatient. He pays the $1,736 inpatient deductible (which is a single benefit period deductible regardless of the prior observation).1 The inpatient stay is paid under MS-DRG 193 (Simple Pneumonia and Pleurisy with major complications or comorbidities).

Memorial Health is required to deliver the MOON within 36 hours of the start of observation services. Robert and his family received the MOON Monday morning, before the conversion to inpatient. The MOON notice helps Robert understand the financial and downstream-coverage implications of observation status.

Importantly for any potential SNF need: Robert spent only three nights as an inpatient (Monday, Tuesday, Wednesday) before discharge Thursday. The three nights satisfy the Section 1812(a)(2) three-day qualifying inpatient stay requirement for Medicare Part A SNF coverage. If Robert had remained in observation the entire stay, no SNF Part A coverage would have been available.

Example 3: Linda, 75, Macon, acute myocardial infarction at Atrium Health Navicent with MS-DRG 280 classification

Linda is a 75-year-old Medicare beneficiary in Macon with hypertension and diabetes who develops chest pain at home and is brought by ambulance to Atrium Health Navicent The Medical Center. The emergency physician identifies ST-segment elevation myocardial infarction on EKG, activates the cardiac catheterization laboratory, and Linda undergoes emergent coronary angiography and primary percutaneous coronary intervention with drug-eluting stent placement to the right coronary artery within 90 minutes of hospital arrival.

Linda is admitted to the cardiac care unit post-procedure. The next day she develops acute kidney injury (contrast nephropathy), which is a major complicating condition (MCC). She also has new-onset atrial fibrillation requiring rate control. She is managed in the CCU through three midnights, then transitioned to telemetry through one additional midnight, and discharged on day five with cardiac rehabilitation referral, anticoagulation for the atrial fibrillation, and outpatient cardiology follow-up.

Payment: Linda's stay is classified into MS-DRG 280 (Acute Myocardial Infarction, Discharged Alive, with major complications or comorbidities), reflecting the acute kidney injury MCC. The IPPS payment to Atrium Health Navicent reflects the MS-DRG 280 relative weight times the hospital base rate adjusted by the Macon wage index, plus an IME add-on for Navicent's teaching status and DSH for its qualifying low-income share, paid as a single amount for the discharge rather than per day.

Linda's cost-sharing: $1,736 inpatient deductible. No daily coinsurance because she did not exceed 60 inpatient days. Her Medigap Plan F (grandfathered before January 1, 2020) covers the deductible.1 Total out-of-pocket on the hospital stay: zero. She is separately responsible for any Part B coinsurance on physician services from the cardiologist, nephrologist, and intensivist, again covered by Plan F.

Example 4: Charles, 80, Augusta, 100-day inpatient stay drawing on lifetime reserve days at Augusta University Medical Center

Charles is an 80-year-old Medicare beneficiary in Augusta who suffers a severe stroke at home. He is admitted to Augusta University Medical Center via ambulance and the emergency department, undergoes thrombolytic therapy followed by mechanical thrombectomy, and is admitted to the neuro intensive care unit. He develops aspiration pneumonia requiring intubation and mechanical ventilation, then a ventilator-associated pneumonia, then a Clostridium difficile infection, then a sacral pressure ulcer.

Charles remains in the ICU for 50 days, then is transferred to a step-down unit for an additional 35 days, then to a medical-surgical floor for an additional 15 days, all while remaining at AU Medical Center as an inpatient. His total length of stay is 100 days.

Days 1 through 60: Covered with no daily coinsurance after the $1,736 deductible.1

Days 61 through 90 (30 days): $434 per day daily coinsurance, total $13,020 for those 30 days.1

Days 91 through 100 (10 days): Charles draws down 10 of his 60 lifetime reserve days, paying $868 per day. Total $8,680 for those 10 days. Charles now has 50 lifetime reserve days remaining for any future hospitalization in his lifetime.1

Total cost-sharing: $1,736 + $13,020 + $8,680 = $23,436. Charles's Medigap Plan G covers all of this beyond the Part B deductible. Without Medigap, the $23,436 would be his out-of-pocket responsibility (subject to Medicaid coverage if he qualifies under Georgia QMB or Medicaid LTC).1

IPPS payment: AU Medical Center receives a single MS-DRG payment for the entire 100-day stay (classified as MS-DRG 65, Intracranial Hemorrhage with major complications or comorbidities, or MS-DRG 207, Respiratory System Diagnosis with Ventilator Support 96+ Hours, depending on the principal diagnosis sequencing). Because the cost of the 100-day stay vastly exceeds the DRG payment plus the annual fixed-loss threshold, AU Medical Center also receives substantial outlier payments under Section 1886(d)(5)(A).

Example 5: Patricia, 73, Columbus, heart failure readmission within 30 days triggering HRRP penalty exposure

Patricia is a 73-year-old Medicare beneficiary in Columbus admitted to Piedmont Columbus Regional Midtown on April 5 with acute decompensated heart failure. She is treated with IV diuretics, optimized on her heart failure regimen, and discharged on April 12 after a seven-day stay (MS-DRG 291). She is referred to outpatient heart failure clinic, prescribed home health, and given discharge instructions including daily weights, fluid restriction, and medication review.

Eighteen days after discharge, on April 30, Patricia is readmitted to Piedmont Columbus Regional Midtown with recurrent shortness of breath, dietary indiscretion the prior weekend, and missed diuretic doses. She is admitted for IV diuresis and discharge medication reconciliation. The April 30 admission is a 30-day readmission for the same condition as the April 5 index admission.

Patricia's cost-sharing: For the second admission, no new $1,736 deductible is required because the benefit period is still ongoing (60 consecutive days without inpatient or SNF care has not elapsed).1 She received discharge planning and home health to support transition, but missed doses and dietary indiscretion led to the readmission.

HRRP implications for Piedmont Columbus Regional: The April 30 readmission is counted as an excess readmission against Piedmont Columbus Regional's heart failure cohort under HRRP. If Piedmont Columbus Regional's risk-adjusted excess readmission ratio for heart failure exceeds the national average, the hospital faces a payment reduction up to 3 percent applied to all base operating DRG payments in the following fiscal year. The penalty applies regardless of Patricia's individual responsibility for the readmission; HRRP measures hospital performance at the population level.

Example 6: Henry, 85, Athens, dual-eligible QMB inpatient admission at Piedmont Athens Regional

Henry is an 85-year-old dual-eligible (Medicare and Georgia Medicaid Qualified Medicare Beneficiary) admitted to Piedmont Athens Regional with sepsis from a urinary tract infection. He is admitted as an inpatient based on the Two-Midnight Rule expectation, treated with IV antibiotics and supportive care for four days, and discharged home.

Medicare Part A payment: Piedmont Athens Regional receives the IPPS payment for MS-DRG 871 (Septicemia or Severe Sepsis without Mechanical Ventilator 96+ Hours, with major complications or comorbidities).

Henry's cost-sharing: Because Henry is a QMB beneficiary under Section 1905(p)(1)(A) of the Social Security Act, Georgia Medicaid pays the Medicare Part A deductible ($1,736) and would pay any daily coinsurance for Days 61 through 90 or lifetime reserve days (none applicable here, as the stay was four days). Henry's out-of-pocket cost: $0. Federal regulations at 42 CFR 447.15 prohibit Medicare providers from billing QMB beneficiaries for Medicare cost-sharing.1

Practical note: Henry's QMB status is documented in MMIS, but providers sometimes fail to recognize it and improperly bill the patient. The Medicare Summary Notice will reflect that Medicare paid the claim, and any provider attempt to collect the deductible or coinsurance from Henry would violate Section 1902(n)(3)(B) of the Social Security Act and Section 1866(a)(1)(A). Henry should call 1-800-MEDICARE or the Atlanta Legal Aid Senior Citizens Law Project (404-377-0701) if he receives improper bills.

Ten Common Mistakes Georgia Medicare Hospital Inpatient Beneficiaries Should Avoid

1. Assuming observation status counts toward the SNF three-day qualifying stay. Observation days are Part B outpatient services and never count toward the Section 1812(a)(2) three-day requirement. Always ask whether the status is inpatient or observation.

2. Not requesting the MOON if observation extends beyond 24 hours. The MOON is required under the NOTICE Act of 2015 and provides essential information about observation cost-sharing and downstream SNF implications.

3. Confusing the $1,736 deductible with an annual deductible. The inpatient hospital deductible is per benefit period, not per year. Multiple benefit periods in the same calendar year mean multiple deductibles.1

4. Forgetting that lifetime reserve days are non-renewable. Once a beneficiary uses LRDs, they are gone permanently. Drawing down LRDs unnecessarily (when Medigap or other coverage could absorb the cost) wastes a finite lifetime resource.

5. Not exercising the right to elect not to use lifetime reserve days. Under 42 CFR 409.65, a beneficiary may elect not to use LRDs. This may be appropriate where alternative coverage (Medigap, employer retiree coverage, or Medicaid for QMBs) covers Day 91 and beyond.

6. Missing the noon deadline for fast-track BFCC-QIO discharge review. The request for BFCC-QIO review must be made by noon of the calendar day following receipt of the discharge notice. Missing this deadline forfeits the financial protection during the review window.

7. Failing to coordinate Medicare and Medigap for the Part A deductible. Most Medigap plans cover the Part A deductible, but not all of them: Plans B, C, D, F, G and N cover it in full, Plans K and M pay 50% and Plan L pays 75%, and Plan A does not cover it at all.6 Beneficiaries should confirm their Medigap plan letter and what it covers.

8. Not recognizing QMB protections against improper hospital billing. Federal law prohibits Medicare providers from billing QMB beneficiaries for Medicare deductibles, coinsurance, or copayments. Improper bills should be challenged.

9. Confusing the 60-day benefit period reset with a benefits expiration. The 60-day break resets the benefit period and restores 90 inpatient days plus the remaining LRDs. It does not exhaust the benefit; it refreshes it.

10. Not understanding that hospital choice affects HRRP, HVBP, and HAC performance, but generally not patient cost-sharing. Quality programs adjust hospital payment, not patient liability. Patient choice should focus on quality and outcomes rather than expected cost-sharing differences.

Where to Get Help in Georgia

If you or a family member is facing a Medicare hospital admission, observation status, discharge dispute, or coverage question in Georgia, these contacts can help.

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The information on Brevy.com is for educational purposes only and is not a substitute for professional legal, financial, or medical advice. Rules vary by state and program and change frequently. Always verify with the relevant agency or a qualified professional. Brevy is not a law firm, financial advisor, or healthcare provider.