Articles on Compliance Strategies

CMS Unveils Severity DRGs, With 'Major CCs' for Sicker Patients

Reprinted from the April 23 2007, issue of REPORT ON MEDICARE COMPLIANCE, the nation's leading source of news and strategic information on false claims, overpayments, compliance programs, billing errors and other Medicare compliance issues.

CMS's new severity-adjusted DRGs — brought to you in the proposed inpatient prospective payment system (IPPS) regulation unveiled April 13 — give hospitals an additional descriptor so they can distinguish sick patients from very sick patients and get paid accordingly. Instead of modifying DRGs by only the absence or presence of complications and comorbidities, Medicare will offer three choices: no CCs, CCs or major CCs (MCCs).

But what sounds straightforward about the new 745 "Medicare-Severity DRGs" (MS-DRGs) may prove unexpectedly tricky for hospitals that have no intention of losing their compliance or reimbursement edge.

"It will create a paradigm shift," says Marion Kruse, a managing consultant with Navigant Consulting. "You will have to think of every secondary diagnosis as a CC or MCC. And from a compliance standpoint, there is no benchmark data to start out with" because MCCs never existed in this particular form. (The New York state Medicaid system has MCCs, but they are based on an older CMS model, not the MS-DRGs, Kruse says.) "Similar to the advent of the APC system [on the outpatient side], this will be an interesting ride," she says.

The proposed IPPS rule introduces new ideas and builds on last year's other changes (e.g., CMS now bases DRG relative weights on costs rather than charges). The big news, however, is CMS's tentative adoption of its own brand of MS-DRGs, instead of five proprietary approaches that were in the running. However, RAND Corp. is still evaluating all the severity-adjusted DRG systems for CMS, which is not ruling out the possibility of switching gears at a later date.

The 745 MS-DRGs, which will replace the existing 538 DRGs, are designed to better capture complications and illnesses. That means, CMS says, it's expected that Medicare payments to hospitals that treat sicker patients will increase, and Medicare payments to hospitals that treat less-ill patients will drop. For example, CMS anticipates that specialty hospitals will experience a 4% drop in reimbursement under the first year of MS-DRGs. That's on top of the 5% drop in reimbursement specialty hospitals already experienced when Medicare implemented a subset of severity-of-illness cardiac DRGs two years ago. Specialty hospitals have been accused of cherry-picking the healthier patients and leaving the sicker ones for general acute-care hospitals at a time when everyone was getting more or less the same DRG payments under the pre-severity-of-illness cardiac DRGs. The behavior of specialty hospitals prompted the Medicare Payment Advisory Commission in 2005 to urge adoption of severity-of-illness DRGs.

MS-DRGs have both CCs and MCCs so that hospitals can convey to Medicare when they are treating patients with secondary diagnoses that drive up the cost of care. MCCs are reserved for the more severely ill patients. "It's much easier to get a CC than an MCC. To get the higher payment, patients have to be really sick," Kruse says. "Moreover, CMS has decreased the number of diagnoses that qualify as a reimbursable CC and predicts hospitals' CC capture rate will move from an average of 77.6% to 41.2%," she says.

But things get more complicated from there. With some DRGs in the MS-DRG system, there are just "base" DRGs, with no option for any kind of CC even if a secondary diagnosis is reported. Some DRGs are just bifurcated, Kruse says, with a base DRG and a CC. And some DRGs are trifurcated, with the option of a base DRG (no CC or MCC), a DRG with a CC, or a DRG with an MCC. "They are sliced and diced a lot," she says.

For example, the MS-DRGs create DRGs 116 and 117 (intraocular procedures with and without CC/MCC), with no base DRG, to replace DRGs 36 (retinal procedures), 38 (primary iris procedures), 39 (lens procedures with or without vitrectomy) and 42 (intraocular procedures except retina, iris and lens). But the new DRG for salivary gland procedures (now called DRG 139) appears only to be a base DRG and replaces existing DRGs 50 (sialoadenectomy) and 51 (salivary gland procedures except sialoadenectomy).

Physician Documentation Seen as Crucial

Kruse sees compliance and reimbursement as hinging on two fronts. "Physicians have to rise to the occasion, or hospitals will lose money. This will require a lot of physician education because physicians are used to documenting without much specificity," she says. "Coders are required to code to the highest degree of specificity, but that" can't happen without quality physician documentation.

For example, Kruse says, physicians often think it's good enough to document "congestive heart failure" (CHF). But with MS-DRGs, they need to indicate the type of CHF — right-sided or left, systolic or diastolic, etc. Documentation of "CHF" (ICD-9 code 428.0) is not a reimbursable CC, she says. And when documenting chronic renal failure, CMS has placed only ICD-9 codes 5854 and 5855 (chronic kidney disease stage IV and V) on the list. Chronic kidney disease unspecified (code 585.9) is not on the list, she notes.

CMS assumes hospitals will adapt coding and documentation to capture severity of illness and thus get paid more under MS-DRGs (though not because patients are actually sicker), Kruse says. So even though the IPPS proposed an across-the-board 3.3% payment update for fiscal year 2008, most hospitals won't actually receive that much. This is due to CMS "proposing an adjustment to eliminate the effect of coding or classification changes that do not reflect real changes in case-mix," the rule states. The amount: 2.4% for both fiscal year 2008 and FY 2009. This is necessary to keep the Medicare budget neutral, CMS says.

"If you raise your level of coding and documentation, depending on the severity of illness of your patients, you may receive the entire 3.3%," Kruse says. But if you don't code and document better, it is likely that your hospital will not receive any of the market basket increase, and instead will see an overall reduction in payment when compared to previous years.

Comments on the rule will be accepted until June 12, and the final rule is due this summer. It takes effect Oct. 1.

Read the proposed IPPS rule at www.cms.hhs.gov/AcuteInpatientPPS/
IPPS/list.asp#TopOfPage.

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