3M Health Information Systems, Inc.
Assessing the Financial Impact of MS-DRGs
Healthcare Financial Management Association-Utah Chapter
September 20, 2007
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Major Changes Proposed in the Final Rule
 DRG Reclassification and Relative Weight Recalibration





Medicare Severity DRGs (MS-DRGs)
Hospital-acquired Conditions (per the Deficit Reduction Act)
Relative Weight Modifications
Behavioral Offset
Update to Long Term Care DRGs
 Updates to payment related changes including:
Wage Index
 Operating and GME costs
 Capital related costs
 Rates for excluded hospitals
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and
Capital
Rates

2
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October 1, 2007
 MS-DRGs will be used for
IPPS

New DRGs

New reimbursement

3
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POA and other regulatory
changes
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How does a grouper work?
 It is similar to a known recipe:
+
Identification of
diagnoses and
procedures
+
Coding the
diagnoses and
procedures
4
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=
Grouping the
diagnoses and
procedures
DRG
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What’s driving severity documentation and coding today?
 Severity based reimbursement: changes in hospital
payment by Medicare, Medicaid, and private payers
 Provider profiling and performance transparency:
Patients are “sicker” and we need to demonstrate how this
impacts our ability to deliver quality care
 Hospital report cards: Consumers want to compare
providers (and have more methods to do so today)
 Aging population and increasing life expectancy: the
need to conserve limited resources for increasing demand
 Quality focused care: providers need ways to measure and
improve their performance
5
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6
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Key Regulatory Changes:
CMS adopts MS-DRGs:


Regulation:

Provider
Implications



Creates Major CC subclasses
Increases number of DRGs
from 538 to 745
Completely revised CC list
Must learn new DRG
system
Must learn new CC and
MCC lists
Must be ready by October 1
7
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What are MS-DRGs?
 Update to 1994 Severity DRGs
 3 Step Process:
Consolidate current DRGs into base DRGs
 Categorize each diagnosis as:
• Major CC (MCC)
• CC
• Non-CC
 Subdivide each base DRG into subgroups based on CCs
• No Subgroups
• 3 groups (MCC, CC, non-CC)
• 2 groups (MCC/CC, non-CC)
• reserved.
2Systems,
groups
(MCC, CC/non-CC)
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
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Consolidation of DRGs:
 115 pairs of DRGs that were subdivided based on presence of a
CC
 Major cardiovascular conditions
 3 pairs of burn DRGs
 43 pediatric DRGs that were defined by age <=17
 Several DRGs relating primarily to pediatric or adult population that
have very low volume in the Medicare population
 Several elective surgery DRGs that have shifted to outpatient
settings
 Some clinically related DRGs that had volume, but no difference in
resource use
 MDC 14 & 15 were not consolidated due to low volume
9
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MS DRGs Increases the Number of DRGs from 538 to
745
Subgroups
Number of Proposed
Base MS-DRGs
Number of
Proposed
MS-DRGs
No Subgroups
53
53
Three subgroups
152
456
Two subgroups: major CC and CC; non-CC
43
86
Two subgroups: non-CC and CC; major CC
63
126
Subtotal
311
721
MDC 14, 15
22
22
Error DRGs
2
2
335
745
Total
10
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MS vs. current CMS DRG Groups:
Base Group, no splits
CMS V24 CMS DRG Descriptions
524
Transient ischemia
MS v25
069
MS-DRG Descriptions
Transient ischemia
MS vs. current CMS DRG Groups:
3 Groups - MCC, CC, non-CC
CMS V24 CMS DRG Descriptions
027
Traumatic Stupor & Coma,
coma > 1 hr
MS v25
082
083
084
11
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MS-DRG Descriptions
Traumatic stupor & coma, coma >1
hr w MCC
Traumatic stupor & coma, coma >1
hr w CC
Traumatic stupor & coma, coma >1
hr w/o CC/MCC
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MS vs. current CMS DRG Groups:
2 Groups – with MCC, without MCC
CMS V24 CMS DRG Descriptions
103
Heart transplant or implant of
heart assist system
MS v25
001
002
MS-DRG Descriptions
Heart transplant or implant of heart
assist system w MCC
Heart transplant or implant of heart
assist system w/o MCC
MS vs. current CMS DRG Groups:
2 Groups – with CC/MCC, without CC/MCC
CMS V24 CMS DRG Descriptions
021
Viral meningitis
12
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MS v25
075
076
MS-DRG Descriptions
Viral meningitis w CC/MCC
Viral meningitis w/o CC/MCC
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MS vs. current CMS DRG Groups:
Exception to rules:
CMS V24 CMS DRG Descriptions
480
Liver and/or Intestinal
Transplant
MS v25
005
006
13
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MS-DRG Descriptions
Liver transplant w MCC or intestinal
transplant
Liver transplant w/o MCC
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Key Regulatory Changes:
Behavioral offset:
Regulation:



Provider
Implications

CMS anticipates improved
documentation and coding
Payments reduced 1.2% to
account for this
Blending of relative weights
MS-DRGs and CMS DRGs
Unless documentation and
coding is improved a
significant loss of payment will
occur impacting operating
margins
14
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Behavioral Offset
 Proposed Rule was 2.4% in FY2008 and FY2009
 Final Rule is 1.2% in FY2008 and 1.8% in FY2009
and FY2010
 This compromise to the proposed rule includes a 2
year phase in of the impact of MS-DRGs by blending
the relative weights 50% base on CMS DRGs and
50% based on MS-DRGs
15
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Key Regulatory Changes:
MS-DRGs are designed for
payment of Medicare
patients:
Regulation:
Provider
Implications


Not applicable to other payers
Not applicable for quality

Other payers will likely adopt
other groupers
Hospitals need to maintain
multiple groupers

16
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IPPS Applicability
 “The focus of CMS’ efforts is in developing and
maintaining a DRG system that is appropriate for its
Medicare population.”
 “We do not believe that Medicare should undertake
the effort and expense to maintain and update a
DRG system that will have no application for
Medicare beneficiaries.”
17
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Key Regulatory Changes:
Payment weight
methodology modified:
Regulation:
Provider
Implications

Second year of three year
transition to cost based
weights

Impact on aggregate payments
will vary by hospital
Relative profitability across
service line will change

18
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Relative Weights
 CMS will continue to implement the cost-based DRG relative
weights under the 3-year transition period that began in FY2007
 This year the relative weights will be recalibrated using a blend of
67 percent of the cost relative weight and 33 percent of the charge
relative weight
 By FY 2009, the relative weights will be 100 percent cost-based
 The 50/50% blend of MS-DRGs and CMS DRGs in calculating the
relative weight is on top of the transition to cost based weights
19
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Key Regulatory Changes:
Present on Admission
Indicator (POA):
Regulation:
Provider
Implications

New POA data element must
be submitted to Medicare


Must begin coding POA
Coder productivity will be
impacted
20
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Deficit Reduction Act Requirements
 Deficit Reduction Act (DRA)—(Pub. L. 109-171)
 Requires that the Present on Admission (POA) indicator be
collected for all Medicare patients— beginning Oct 1, 2007
 Requires CMS to select two or more conditions that are high
cost/high volume.
 Requires CMS to begin excluding those conditions from the
calculation of the DRG when they are identified as not present
on admission—beginning Oct 1, 2008.
21
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Implementation Date for POA Data Collection
 Deficit Reduction Act of 2005 (DRA) requires the POA
indicator to be collected starting Oct. 1, 2007
 Change Request #5499 instructs hospitals how to
submit this data



Current Form ASC X12N 837, v4010 does not have POA field
Segment K3 in the 2300 loop, data element K301 should be
used
Instructions on how to code the POA indicator are in the ICD9-CM Official Guidelines for Coding and Reporting
22
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Key Regulatory Changes:
8 Post admission
complications excluded
from DRG assignment:
Regulation:
Provider
Implications

Post admission
complications excluded
from DRG assignment

Model potential financial
impact and initiate
continual improvement
measures
Evaluate post admission
complication rates in your
facility

23
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Hospital-Acquired
Conditions
not POA will not be included in MS DRG
assignment beginning October 2008
Condition
Considered in
NPRM
Proposed in
NPRM
Selected in FY
2008 Final Rule
May Be
Considered in
Future
Rulemaking
1. Serious Preventable
Event- Object left in surgery
Yes
Yes
Yes
N/A
2. Serious Preventable
Event- Air embolism
Yes
Yes
Yes
N/A
3. Serious Preventable
Event- Blood
incompatibility
Yes
Yes
Yes
N/A
4. Catheter Associated
Urinary Tract Infections
Yes
Yes
Yes
N/A
Yes
Yes
Yes
N/A
No (No FY 2008
code)
Yes (Code
Created for FY
2008)
N/A
N/A
No (No unique
codes)
Yes (Comments
suggested
Mediastinitis
which has unique
code)
5. Pressure Ulcers
(Decubitus Ulcers)
6. Vascular Catheter
Associated Infection
7. Surgical Site InfectionMediastinitis after Coronary
Artery Bypass Graft
(CABG) surgery
8. Falls
Yes
Yes (All surgical
site infections, not
just Mediastinitis)
Yes
24
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No (Coding not
unique)
Yes (Operational
difficulties will
be overcome by
FY 2009)
Expand to all
hospital acquired
injuries, adverse
events
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Summary
Regulation
Provider Implications
CMS adopts MS-DRGs on October 1,2007
Learn new DRG system, new CC and MCC lists
Ensure software solutions are MS DRG ready
Educate cross functional team on MS DRGs
1.2% Behavioral Offset in anticipation of coding and
documentation improvement
Educate HIM department about MS DRG coding implications
MS-DRGs are designed for payment of Medicare patients:
Other payers will likely adopt other groupers
Ensure most accurate documentation and coding processes in place
Hospitals need to maintain multiple groupers
Continued transition from charge to cost based relative weights
Analyze gap and impact analysis
Ensure software systems are ready for reimbursement calculations
Submit Present on Admission (POA) data to Medicare
Ensure software tools are ready for POA collection
Educate HIM department on POA coding guidelines
Consider operational improvements for coder workflow
8 Post Admission complications identified for exclusion from
DRG assignment (October 1, 2008)
Model potential financial impact, gap and initiate continual
improvement measures.
Evaluate post admission complication rates in your facility.
25
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Financial Changes in the next three years
26
2008
2009
2010
Behavioral
offset
1.2%
1.8%
1.8%
Cost vs
charge
67/33
100%
100%
Complication 0% impact
not calculated
in DRG
If not POA,
If not POA,
not calculated not calculated
CMS/MS
DRG weight
blend
50/50
50/50
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Full MS DRG
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Complications/Comorbidities
 Major CCs (MCC) were designated if:

they were a CC for CMS,

they were a Major CC in AP-DRGs

they were an APR DRG severity 3 (major) or severity 4
(extensive)
 Non-CC:

non-CC diagnosis in CMS and in AP-DRGs

APR DRG default severity level 1 (minor)
 CC:

any diagnosis that did not meet either of the above two criteria
27
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Summary of 3M™ APR DRGs
MDC/APR MDC
316 APR DRGs
Subdivide each APR DRG
into subclasses
Four Severity of Illness Subclasses
Four Risk of Mortality Subclasses
1.
Minor
1.
Minor
2.
Moderate
2.
Moderate
3.
Major
3.
Major
4.
Extreme
4.
Extreme
1,258 Subclass Cells
28
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1,258 Subclass Cells
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Examples of 3M™ APR DRG Subclasses
1
2
3
4
Severity of Illness
Minor
Moderate
Major
Extreme
1
2
3
4
Risk of Mortality
Minor
Moderate
Major
Extreme
Secondary Diagnosis-Diabetes Mellitus
Uncomplicated Diabetes
Diabetes w Renal Manifestation
Diabetes w Ketoacidosis
Diabetes w Hyperosmolar Coma
Secondary Diagnosis-Cardiac Dysrhythmias
Premature Beats
Sinoatrial Node Dysfunction
Paroxysmal Ventricular Tachycardia
Ventricular Fibrillation
29
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Complications/Comorbidities
 Reduced CC list from 3,326 to 2,583 diagnoses codes in 2006;
now there are 4,922 codes that are either a Major CC or a CC:


Major CC
CC
1,580 codes
3,342 codes
 Patients under V 24 had at least one CC 77.6% of the time, under
the proposed MS-DRG system, this will be reduced to 40.34%.
 Chronic diseases were removed from the CC list unless there was
a significant acute manifestation:



30

Mitral valve disorders
CHF
Stage I-II chronic renal failure
Chronic UTI
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MS-DRG Categories
 MS-DRGs with no qualifiers

Chest Pain
Chest Pain
CMS DRG 143
RW .5637
$2,749
31
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Chest Pain
MS-DRG 313
RW .5550
$2,707
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MS-DRG Categories
 MS-DRGs with 3 potential groups (MCC-CC-NCC)
MS-DRG 291
Heart Failure w MCC
RW 1.4760
$ 7,200
Congestive Heart Failure
(No qualifiers required)
CMS DRG 127
RW 1.0490
$5,117
MS-DRG 292
Heart Failure w CC
RW 1.0169
$4,960
MS-DRG 293
Heart Failure w/o MCC or CC
RW .7265
$3,544
32
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MS-DRG Categories
 MS-DRGs with MCC or w/o MCC
CABG with Cath w Major CV
CMS DRG 547
RW 6.1390
$29,946
CABG with Cath w MCC
MS-DRG 233
RW 7.1350
$34,805
CABG with Cath w/o Major CV
CMS DRG 548
RW 4.6440
$22,653
CABG with Cath w/o MCC
MS-DRG 234
RW 4.6211
$22,542
33
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MS-DRG Categories
 MS-DRGs with CC/MCC or w/o CC/MCC
Major Joint/Limb
Reattachment UE
CMS DRG 491
RW 1.7203
$8,392
Major Joint/Limb Reattachment UE w CC/MCC
MS-DRG 483
RW 2.1931
$10,698
Major Joint/Limb Reattachment UE w/o CC/MCC
MS-DRG 484
RW 1.6862
$8,225
34
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MS-DRGs Demand Increased Coding Precision
“In determining the CC subclass assigned to a diagnosis, imprecise
codes were, in general, not assigned to the MCC or CC subclass.”
428.21
Acute Systolic Heart Failure
Major CC
428.41
Acute Systolic & Diastolic Heart Failure
Major CC
428.43
Acute On Chronic Systolic Heart Fail
Major CC
428.31
Acute Diastolic Heart Failure
Major CC
428.33
Acute On Chronic Diastolic Heart Failure
Major CC
428.1
Left Heart Failure
CC
428.20
Systolic Heart Failure NOS
CC
428.22
Chronic Systolic Heart Failure
CC
428.32
Chronic Diastolic Heart Failure
CC
428.40
Systolic & Diastolic Heart Failure
CC
428.0
Congestive Heart Failure NOS
Non CC
428.9
Heart Failure NOS
Non CC
35
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Why is documentation and coding improvement so critical?
Example: In MS DRGs the precise type of heart failure dramatically impacts payment
With CC
Without CC or
MCC
Payment
Payment
Weight
$14,732
(1.8415)
With MCC
$23,148
$36,047
(2.8935)
(4.5059)
Major Small & Large Bowel Procedures
MS-DRG 331

36
MS-DRG 330
MS-DRG 329
428.
0
Congestive Heart Failure Not
Otherwise Specified
428.1
Left Heart Failure
428.21
Acute Systolic Heart Failure
428.20
Systolic Heart Failure NOS
428.23
Acute on Chronic Systolic Heart Failure
428.
9
Heart Failure Not Otherwise
Specified
428.22
Chronic Systolic Heart Failure
428.31
Acute Diastolic Heart Failure
428.30
Unspecified Diastolic Heart Failure
428.33
428.32
Chronic Diastolic Heart Failure
Acute on Chronic Diastolic Heart
Failure
428.40
Systolic & Diastolic Heart Failure
428.41
Acute Systolic & Diastolic Heart Failure
428.42
Chronic combined Systolic and
Diastolic Heart Failure
428.43
Acute on Chronic Systolic Heart Failure
In prior versions of the CMS DRGs all heart failure codes were a CC so distinctions related to the type of heart failure did not
impact DRG assignment
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Some conditions that are no longer CCs
 CHF
 Chronic blood loss
anemia
 Chronic Renal
Failure Stage I-III
 Seizure Disorder
 Dehydration
 Angina (stable)
 COPD
 Atrial Fibrillation
 Hyperkalemia
37
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UTI vs. Septicemia Example
CMS DRG 320
PDx: Urosepsis
SDx: Dehydration
COPD
DRG
With CC
RW .8769
$4,278
MS-DRG 688
PDx: Urosepsis
SDx: Dehydration
COPD
No longer
CCs
RW .7018
$3,423
APR DRG 463
No change
SOI Subclass 2
RW .5973
ROM Subclass 2
Peer Mortality: .8%
38
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MS-DRG 871
PDx: Septicemia
SDx: Dehydration
COPD
UTI
Malnutrition
Major CC,
but only if
site
specified
Decubitus Hip
Shock
RW 1.8632
$9,089
APR DRG 720
SOI Subclass 4
RW 3.3739
ROM Subclass 4
Peer Mortality: 42.4%
In current
CMS system,
Septicemia
was
reimbursed at
$7,803
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The Challenge
Physician
Documentation
is recorded in
CLINICAL terms
Breakdown
between the two
languages
39
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Documentation for
coding, profiling &
compliance must
contain specific
DIAGNOSTIC terms
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Common Documentation Issues
Unable to Code
Acceptable to Code
LUL Infiltrate
LUL Pneumonia
Hgb 5.2; Transfused
Acute or Chronic Blood Loss Anemia
Emaciated; Total Protein/Albumin Low; Nutrition
Malnutrition
Supplements Started
ABG 7.22/68/44; Will Treat Accordingly
Respiratory Failure, Acidosis, Alkalosis, Etc.
Will Rehydrate Patient
Dehydration
BP 70/40 on Dopamine for Support
Shock
Cardiac Enzymes Elevated; EKG Positive
Acute MI
No Overt CHF; Will Continue Lasix and Lanoxin Compensated CHF
Unable to Void; Cathed for 600 cc
Urinary Retention
Sputum Gram Stain with Large Amount GramNegative Rods; Will Cover with Rocephin
Questionable Gram-Negative Pneumonia
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Gender: Female
Disposition: Died
Age: 55
LOS: 11 Days
Principal Diagnosis: 431
Secondary
Diagnoses
Intracerebral hemorrhage
Case 1
Case2
LOS
Case 3
Case 4
Description
78729
42731
78729
42731
2867
78729
42731
2867
5070
78729
42731
2867
5070
Other dysphagia
Atrial fibrillation
Acquired coagulation factor def
Pneumonitis due to inhalation
of food or vomitus (MCC)
Coma
78001
MS-DRG
66 w/o CC/MCC
Reimbursement $5,025
41
65 w/CC
64 w/MCC
64 w/MCC
$5,805
$7,546
$7,546
APR SOI
2
2
3
4
APR ROM
2
2
3
4
39%
76%
Expected
14%
14%
Mortality
Rate
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Intracranial hemorrhage or
cerebral infarction
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Questions
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