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October 16, 2006
Reconfiguration of the payment system is coming soon—with more changes sure to follow. Now that the final rule has been published by the Centers for Medicare & Medicaid Services (CMS), healthcare professionals should be preparing for how the changes will affect their facilities and possibly their coding as well. To understand severity-adjusted diagnosis-related groups (DRGs), it’s best to begin at the beginning. First you must understand what determines your DRG today and then we can look at how the modifications for severity of illness and risk of mortality may change payment and perhaps your coding focus. There are several criteria that affect the current DRG. First and foremost is principal diagnosis, followed by any significant procedures performed during the patient’s hospital encounter. Significant today, and even more important in the coming system, are secondary diagnoses that affect patient care while they are in house. The patient’s age can be a modifying factor, and discharge disposition affects some DRGs for all payors—and many DRG payments for Medicare patients in the case of transfer DRGs. Principal diagnosis is defined as the condition that, after study, is chiefly responsible for causing the patient to be admitted to the hospital. Once the principal diagnosis is determined, this directs the encounter to a Major Diagnostic Category (MDC). These categories usually correspond to a single organ system or etiology and are generally associated with a designated medical specialty. For example, MDC1 includes diseases and disorders of the nervous system, while MDC19 is for mental diseases and disorders. There are exceptions, of course, as in all other aspects of coding. Some MDCs can involve multiple organ systems, as in the case of a patient with burns who would be assigned to MDC22. For special circumstances, the case may go to something called a pre-MDC that overrides the general MDC assignment for the principal diagnosis. These are designated by the ICD-9-CM codes. For Fiscal Year (FY) 2006, there are nine pre-MDCs, involving cases such as transplants, tracheostomies, and extended ventilator requirements. After the MDC is assigned, the case is judged by whether it is primarily a medical or a surgical DRG. The presence of a surgical procedure needing use of operating room (OR) facilities would have a significant effect on the type of resources consumed. Generally speaking, non-OR procedures and minor surgical procedures that don’t use the operating suites will not move a case from a medical to a surgical DRG. Exceptions exist, however. An incision and drainage of an abscess done in the OR probably won’t move to a surgical DRG, but excisional debridement of a skin ulcer done at the bedside may bump the case up into the surgical side of the designated MDC. Once the CMS had determined the medical and surgical groups within each MDC, it had to decide whether each one would be significantly affected by a secondary diagnosis or the patient’s age. These secondary issues can be either complications (a condition that arises after the patient is admitted to the hospital) or comorbidities (a condition that already existed when the patient was admitted). A significant secondary diagnosis was defined as one that increased the hospital stay by at least one day in 75% of the patients. To make it more complicated, not all DRGs have complications and comorbidities (CCs), and not all secondary conditions are considered significant for all DRGs that need CCs. “Community-acquired pneumonia” without surgical procedures or ventilator assistance generally is affected by a significant secondary condition such as a urinary tract infection; but in a pediatric patient with the same principal diagnosis, it will not affect the DRG. The reason? In the adult population, the diagnosis is consistent with at least one day longer hospital stay in 75% of the patients, but this is not the case in the pediatric population. Finally, the combination of diagnoses (nine of them), procedures (six of them), and demographic information including age, gender, and discharge disposition are fed into the CMS Medicare code editor—to identify questionable cases—and the grouper software. These electronically evaluate the criteria and hierarchy for all DRGs to deem the appropriate DRG for that particular encounter. Once this is completed, the pricer software assigns a payment based on the DRG, the base relative weight assigned to the DRG, and additional facility-specific factors such as indirect medical education and disproportionate share hospital adjustments. These secondary criteria will add to the base DRG payment to determine the final payment for each specific hospital. The DRG payment is determined by an annual review of the Medicare Provider Analysis and Review file, a database containing the records for all Medicare hospital inpatient discharges used decide whether, and how, to make changes in DRGs and payments each year. Changes in medicine and technology are reflected in the changes in charges for the inpatient claims and the content and relative weights of the respective DRGs are adjusted accordingly. If we have a system that has worked effectively since the 1980s, why are we changing it? To answer that, we first have to define effectively. Yes, the current system has grouped all the basic patient types and assigned payment based on the average charges for taking care of each type of patient. In theory, a facility will receive the average payment for each DRG, and in a year’s worth of patients, it should therefore average the correct overall payment. This reduces the opportunity for facilities to charge Medicare enthusiastically, as was sometimes found to occur prior to the implementation of DRGs when payment was made on a fee-for-service basis. It encourages the hospital to provide care that is both effective and timely since payment is determined mainly by patient type rather than by total charges or length of stay. The disparity emerges when the care given by any particular facility does average out in one year. A significant variance in actual cost of patient care has been determined to depend on whether the hospital is a general care, specialty, or major acute care facility. A major issue in this area is that the payment for a DRG with only one CC is the same as that for the DRG with several significant secondary issues. This could result in facilities admitting simpler patients while referring the complicated cases elsewhere. Meanwhile, the major acute care facilities that have a higher percentage of complex patients are more likely to come up short in DRG payments based on a national average payment system. To address the disparity issue, the CMS reviewed numerous recommendations to revise the current DRG payment system, with a focus on more fairly reflecting severity of illness rather than just average charges. Suggestions include the following: • basing the relative weights for DRGs on the estimated cost of providing care; • basing the weights on a national average of the hospital-specific relative values (This would be determined on hospital-specific data, not national data.); • adjusting the weights to allow for variance in the prevalence of high-cost outlier cases; and • transition the case mix and outlier adjustments over a period of time to allow for further evaluation and modification as more data becomes available. The proposed rule caused quite a stir, partly because of the expedited time frame in which to put the changes into practice. Initially, the CMS planned to begin hospital-specific relative value (HSRV) methodology beginning FY 2007 and plug in a severity-adjusted set of DRGs the following year. It didn’t plan to simply use the current APR (All-Patient Refined)-DRG system available through 3M’s Health Data Management software; there was some elaborate consolidated variation planned for use in its place. Of concern to many providers was the minimal time for evaluation and preparation for a significant change of this type—and comments to the CMS during the interim period reflected these worries. Another issue for specialty hospitals, and perhaps smaller community facilities, is the fact that this modification must be budget-neutral in the annual payment methodology. This means that if the CMS has to make higher payments to facilities with sicker patients, it has to get the money from within its current budget as there will not be additional funds forthcoming; ie, the payments to providers with less sick patients will have to be correspondingly reduced. In effect, they are kind of like Robin Hood DRGs—take from the rich and give to the poor. It’s a good theory, but in today’s economy, you would be hard pressed to find any facility that would consider itself rich in any sense of the word. As payments keep being reduced annually and costs rise disproportionately, all medical care providers have challenges at making the bills and the payroll. The final rule gives some respite—at least for one extra year. The CMS will still implement some type of cost-based relative weight adjustment in FY 2007 but without the HSRV component at this time. Expect 20 new DRGs and modification of 32 more in an effort to start recognizing severity of illness during the upcoming fiscal year. The CMS will also reconsider exactly how it will phase in the consolidated severity-adjusted DRG system and just how close it will be to the current APR-DRGs remains to be seen. We can at least evaluate how a currently available severity-adjusted system would deal with the issues of additional secondary diagnoses. In today’s world, if a patient is admitted to a hospital with congestive heart failure (CHF) as the principal diagnosis, the DRG is 127; the payment is set on a relative weight determined by the base value of the DRG and facility-specific issues. For the sake of simplified math, let’s pretend the relative weight for a test facility’s DRG 127 is 1.5713 and the facility payment is $6,000. If the test patient has only a single diagnosis of CHF, receives IV Lasix as treatment, and is discharged on day three in good condition, the hospital will receive $6,000. If a second patient with CHF is admitted with additional problems, including uncontrolled diabetes, diabetic neuropathy with related foot ulcers requiring nonexcisional debridement, and dressing changes, the hospital still receives only $6,000. No additional funds are allowed for the sicker patient. A third patient is admitted for CH and also has uncontrolled diabetes with related neuropathy and foot ulcers requiring similar care. This patient is also malnourished and has total parenteral nutrition while in house and stays eight days. The payment? Under today’s DRG system, it’s still $6,000 in the absence of major cost outliers. Let’s say the third patient stops taking his Lasix as soon as he gets home and is admitted one week later for another acute exacerbation of CHF. On day two, he suffers a minimal subendocardial myocardial infarction (MI) and is moved to the intensive care unit. He recovers quickly and is discharged home in one week. This fellow merits DRG 121 due to the fact that the current DRG system can recognize the sicker patient to some extent. In this example, “circulatory system with acute MI & major complication, discharged alive” explains that both the MI and the uncontrolled diabetic neuropathy contribute to the higher relative weight of 2.6173. Expected payment would be $9,994. If the same man had suffered a severe MI with acute respiratory failure and needed mechanical ventilation with a 12-day stay, he’d garner the same payment as the guy with the mild MI and a seven-day stay. Under 3M’s current APR-DRGs for FY 2006, the severity-adjusted payments vary significantly. Case No. 1 would get a severity of illness of 1 and a risk of mortality of 1 (on a scale of 1 to 4, with 4 being the highest). Relative APR-DRG weight is only 0.6201 and payment is $2,368 if the dollar value of the relative weight remains constant. Case No. 2 receives severity of illness 2 and risk of mortality 1, with an APR-DRG weight 0.8304 resulting in a payment of $3,171. Case No. 3 with malnutrition moves to severity of illness 3 and risk of mortality 1, with an APR-DRG relative weight of 1.3262 and an associated payment of $5,064. None of the three cases has been sick enough to rate the current DRG payment of the full $6,000, a situation that has smaller and specialty hospitals concerned. On readmit, case No. 3 with the mild MI and one week in the hospital has a severity of illness 3 and a risk of mortality 3. APR-DRG relative weight is only 1.3262, significantly less than the DRG 121 is worth today: $5,064 instead of nearly $10,000 at today’s rates. Adding the severe MI with respiratory failure and ventilation moves severity of illness to 4 and risk of mortality to 4 and changes the APR-DRG relative weight to 3.2508, resulting in a slightly higher payment of $12,413. It has yet to be determined how the severity-adjusted DRGs will appear in the final decision, but there is a current comparison to help providers prepare. In theory, because the coding rules themselves have not changed, the effect on the coder’s daily work should not change. Reality, however, is an entirely different issue altogether. Secondary conditions still have to affect patient care to be coded and should already be getting reported if they qualify. But if your staff has been coding frugally to lock in a DRG and moving on to the next case, trying to manage both payment and production along with minimal staffing, this could become a serious payment deficit for your facility. Now is the time to get a baseline for severity of illness reporting. A software system that includes severity-adjusted DRGs may already have reporting capability in house. If this isn’t an option, consultants are ready and able to provide a data baseline as well as education on the likely issues that will affect severity adjustment no matter what final form the CMS selects. Reassess staffing needs based on findings. Invest in education for coding staff—now is the time to spring for additional medical terminology, anatomy, and pathophysiology refresher classes. Even reconsider patient population and focus of medical care if serious issues for your facility develop in the coming year. The only thing constant is change and that’s true for the medical profession just as it is for the rest of the world. Be informed and be proactive to ensure you can meet the challenges of the DRG changes. — Judy Sturgeon, CCS, is the hospital coding
senior manager at The University of Texas Medical Branch in Galveston.
While her initial education was in medical technology, she has been
in hospital coding and appeal management for the past 18 years.
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