Home  |   Subscribe  |   Resources  |   Reprints  |   Writers' Guidelines

May 25, 2009

DRGs: Still Frustrating After All These Years
By Judy Sturgeon, CCS
For The Record
Vol. 21 No. 11 P. 14

The payment system has undergone numerous changes since its inception and remains a challenge on many levels throughout the hospital.

Most of the people involved with coding and billing are at least vaguely familiar with today’s diagnosis-related group (DRG) system for paying inpatient hospital admissions. If not, historical detail is readily available. In short, after reviewing a Yale data experiment, Medicare made a dramatic and far-reaching change in 1983 in how it handled hospital payments for its members.

Prior to this time, hospitals submitted bills to Medicare, which then basically just paid the facility in its fee-for-service methodology. Translation: You provide a medical service, and we pay you for it. It seems both direct and simple and would be so if all playing fields were equal. There is, however, a large number of qualifiers: If all hospitals charged the same, and didn’t bill for services not provided, and only provided services that were medically necessary, and didn’t admit people who were not sick enough to need an inpatient hospital stay, and discharged them as soon as they were medically stable enough to not require inpatient care, and if Medicare had enough money to pay for it all…

In theory, DRGs took care of a lot of those issues. Data for past claims were analyzed, and types of patient care were lumped into groups. Included in consideration were diagnoses and procedures, the reason for admission, and coexisting conditions. In some cases, age, gender, and discharge disposition were also factors for determining the final DRG. Once the most common groups of care packages had been chosen, a numerical weight was attached to each, and then a dollar amount was attached to that weight as a multiplier in order to calculate payment to each hospital. The weight stayed constant for all Medicare DRGs, but the dollar amount varied from facility to facility based on issues such as city vs. rural, local wage index, teaching status, and so on.

The intended effect of this overall payment methodology was to stop rewarding hospitals that admitted everybody for everything, billed like crazy, kept patients too long, and provided unnecessary services in order to bill—and get paid—as much as possible. Despite this being an exaggerated example of how the old system worked, it illustrates how the payment change affected a behavior change. In the new system, the hospital would get paid the same for all patients admitted for congestive heart failure, regardless of how much the hospital spent on their care or how long it kept them in the bed.

To make a profit in a lump-sum-per-DRG world, the incentive was for the facility to do all testing and treatment in a timely manner, get the patient stabilized and ready for discharge in the shortest time possible, avoid unnecessary testing or services, and tend to more patients appropriately instead of simply keeping beds full and billing Medicare forever—not that anyone would ever have actually done that. Eventually, DRGs were modified to cover newborn and maternity, pediatric, and other non-Medicare patient types and adopted by multiple third-party payers nationwide.

More than 25 years later, hospitals still process a large percentage of inpatient claims via the DRG methodology. More DRGs have been added; levels of severity have been modified; the effect of patient age has been lessened, but secondary diagnoses can be moneymakers.

If there is a single word to best describe how to improve physician documentation with a focus on achieving the most appropriate DRG payment, it is “specificity.” What to be specific about changes from year to year as data analysis uncovers new details on how information relates to the cost of patient care. One year, everyone reminded their doctors to specify whether the patient’s diabetes was insulin dependent and if there were any effects such as diabetic neuropathy. Then, they cared whether the diabetes was controlled. Now, we want to know if it is type 1 or 2 and if it was controlled on admission. A diagnosis documented as acute, chronic, or not specified as either can have three extremely different levels of payment. As a result, even specificity is a moving target.

Because all DRGs are based primarily on what the physician documented, it is financially critical to get complete information on the front end of patient care. Great efforts have been made to ensure that chart documentation capitalizes on how DRGs work in any given year. There is even a new industry organization with a credentialed national professional membership that has been formed to support this need. Because doctors are spending their working hours trying to heal, they are fortunate when they can rely on external assistance with terminology details and related billing issues.

With the federal government offering to sweeten the financial pot for facilities that embrace electronic medical records (EMRs), there is now the possibility of developing digital prompting tools to assist physicians with billing terminology, even as they are doing initial charting on a patient. Thanks to DRGs, as patient care becomes increasingly complex, so does the business of medicine.

Once the physician has closed a patient chart, either physically or digitally, it’s complete and ready for coding, right? Not quite. It’s the duty of the coder to make sure that not only are all diagnoses and procedures coded as documented but also that there are no gaps in documentation that can result in a less-than-optimal DRG payment. As if it isn’t difficult enough to code what is there, the coding is not complete unless the chart is evaluated for what is not there as well and physicians are queried for specificity in the chart even after the patient has been discharged.

At the inception of national DRG payments—and for many years afterward—even excellent coders did not spend much time studying the DRG either for the individual patient or for the methodology in general. If the chart was coded correctly, then the DRG would be assigned correctly, and the coders could spend their valuable time moving along to the next patient. Unless there were multiple reasons for admission or the final DRG did not have a complication or comorbidity (CC), coders rarely took more than a cursory glance at what DRG was assigned to each case.

Once the case has been coded and sent to billing, there are still risks and variables. While it may seem apparent that the DRG coded is the DRG billed, this may not be true. In the old paper world, coding would pass the coded attest to the billing department, where a claim would be typed out and dropped in the mail to the third-party payer or the patient directly. With the exception of typographical errors, the claim matched the coded list and its assigned DRG.

Today, however, consider all of the many digital interfaces in the pathway from coding to sending out the claim. This is critical to correct claims transmission because the coding department will typically use one specific system, which in turn will interface to a main hospital information system. The receiving system will take the codes but not the DRG calculated by the coding software—it may calculate its own and add internal financial expectations based on payer contracts. If the two systems have not been updated at exactly the same time (for example, yearly on October 1 for the new codes and DRGs), major discrepancies can occur. If some payers are updated and some are not (this can happen), then some of the DRGs will match but some will not.

If a facility uses additional software to check edits and coverage by payer contract—known as claims scrubbers—there is now an additional area in which codes can be “lost” and potentially affect the billed DRG. Add the software used by the fiscal intermediary that processes the claims for major payers such as Medicare and Medicaid and understand that they, too, take only the codes submitted while calculating their own DRG internally. Trust, apparently, is an issue based on experience—another resulting experience for the facility is that there are multiple opportunities for the coded DRG to be lost in all these digital translations between them and the payer.

Even if physicians provide excellent documentation, skilled coders optimize the DRG correctly, and all the digital billing interfaces have aligned themselves to allow the original DRG to pass unchanged to the payer, there are still more obstacles to receiving the expected payment.

Medicare at least knows its own rules and generally tries to follow them. Unfortunately, Medicaid has many payment tricks up its state-regulated sleeve. Some hospitals will receive an explanation of benefits with a payment that purports to recognize the same DRG that you billed. But there are many creative approaches that your particular state may employ to keep from actually reimbursing each case for the expected dollar amount for that “recognized” DRG.

For the new Medicare severity DRG (MS-DRG) system, Medicaid may continue to pay the same for many DRG pairs/trios, regardless of the presence or absence of CCs and major CCs. One excuse is a lack of state data to assign a dollar amount to the new split sets if they were not already split in the old system, although Medicare seems to have been able to do so easily. One would think that Medicaid could just ask their cousins under the Centers for Medicare & Medicaid Services how they figured it out and mimic the method.

Another creative approach is to pay some hospitals by the Tax Equity & Fiscal Responsibility Act (TEFRA, calculated cost per case, as based on the provider’s annual cost report) instead of by DRG as it does for everyone else. If ever there were a challenge to the hospital finance data gurus, trying to predict an expected benefit or loss based on the DRG vs. TEFRA payment system would have to be near the top of the list.

Even when the third-party payer coughs up the right amount initially, it may change its mind later due to a “utilization review of DRGs” (perhaps hospitals’ least favorite oxymoron). Its utilization review authorization nurse may simply refuse to ever pay the correct DRG, regardless of how many appeals an organization attempts.

Blue Cross and other payers often contract to continue using outdated groupers, thus disregarding the annual system modifications that are made to keep payments appropriate as the practice—and cost—of medical care continues to evolve. While hospitals spend valuable time ensuring that their physicians document thoroughly and the coders assign the new MS-DRGs correctly, a set of new DRG payments could still be lumped into an old DRG being used by that payer. Unfortunately for healthcare organizations, they not only get paid less, but they are also spending more to collect what compensation they do receive.

Let’s consider how each hospital reports its data, both internally and externally. Medicare maintains its claims data in the Medpar system, and university medical centers can share information via the extensive University Health System Consortium data reporting. Typically, these national data marts manage information by the most current DRG methodology available. However, facilities paid primarily by other methodologies may not understand their DRGs’ effect on reporting.

Sandra Soerries, CPC, CPC-H, of Medical Revenue Solutions, which specializes in coding and reimbursement, including Medicare, Medicaid, Managed Care Plans, commercial insurance, and workers’ compensation, says there are even more implications when facilities that are not paid primarily by DRG neglect to purchase and maintain annual grouper updates.

Because submitted codes can be processed by Medicare’s and Medicaid’s own internal DRG groupers, facilities can still receive the correct reimbursement. However, Soerries says these hospitals need to be aware of the negative financial potential of even reporting their DRGs incorrectly. DRGs determine case mix, which in turn feeds internal budget and business plan decisions. External reporting of historical DRGs may not be recognized as being based on an outdated grouper, since most of the DRG numbers still exist—they have just been renamed and reclassified to other body systems. Financial expectations, as well as severity of illness and risk of mortality factors, are therefore skewed, and subsequent global payment determinations can be mismatched as an additional consequence of reporting obsolete DRG information.

Risk and Return
The risk for DRG error exists at many steps in the pathway from patient admission to the paid account. The aftereffects of inaccurate reporting can damage hospital finances for years. A prudent revenue cycle monitoring process should include a regular review of sample cases to ensure the integrity of each of the involved systems and entities.

Appeals management must take each of these danger zones into consideration when reviewing an incorrect DRG payment. Did the codes on the claim match the codes on the original attestation? Does the payer use an old grouper that needs to have the new codes translated back in time for their claims to process correctly? Are the payment tables for each payer loaded correctly into the hospital billing software so that what it tells you to expect is what you should really expect?

Maintaining smooth system interfaces that process data correctly can help ensure financial success and minimize related financial risk. The DRG payment methodology’s complexity, compared from its inception to how it functions today, has increased dramatically. Likewise, the intricacies of the teamwork needed between physicians and the many ancillary professionals who help run the business of medicine has also increased.

Those involved with DRGs may be wise to heed the advice that to control your business, you must first know your business. By taking charge of the many facets of this national payment methodology, healthcare organizations can take a huge step toward remaining viable in today’s economic uncertainty.

— Judy Sturgeon, CCS, is the clinical coding/reimbursement compliance manager at Harris County Hospital District in Houston and a contributing editor at For The Record. While her initial education was in medical technology, she has been in hospital coding and compliance for 21 years.