October 31, 2007
A lot of words have been devoted to the impact of the changes to the inpatient prospective payment system (IPPS) on hospitals. In August, the Centers for Medicare and Medicaid Services (CMS) published the IPPS final rule update, which took effect Oct. 1. CMS has adopted its proposal to implement Medicare severity-adjusted diagnosis-related groups (MS-DRGs) as the basis for inpatient payment. An article in the September 2007 issue of Revenue Cycle Strategist newsletter provides steps organizations should be taking to deal effectively with the IPPS rule changes.
How DRGs Evolved
To better comprehend the rule changes and their potential impact on your organization, you need to understand how we got to the current situation. CMS implemented DRGs in 1984. At that time, the agency used ICD-9 diagnosis codes as the basis for the creation of DRGs and specified which ICD-9 codes represented complications. CMS had not done much to change this classification since 1984. CMS undertook a comprehensive review of diagnosis codes when developing MS-DRGs. A new understanding was developed of which diagnosis codes represent complications.
According to CMS, the new classification of diagnosis codes as complications was a necessary overhaul that reflects changes in technology, current methods of care delivery, and venues of service, among other items, since 1984. With the implementation of MS-DRGs, CMS has expanded the number of DRGs from its current 538 to 745. CMS also requires identification of patient conditions that are present on admission (POA) for all primary and secondary diagnosis codes. Those conditions will be considered in the severity adjustment of the assigned DRG.
CMS also postulated that the average severity of a patient case will increase because of more accurate documentation practices and more precise coding. CMS believes that this increase will not be due to an actual increase in the severity of the patients a given hospital cares for, but will be due to hospitals adapting to the documentation and coding requirements that accompany the implementation of MS-DRGs. As a result, one of the changes with the potential for the biggest impact is the reduction of standard payment amounts used to calculate DRG payments of 1.2 percent in 2008 and 1.8 percent in 2009 and 2010.
CMS is implementing these changes based on what happened in 1984: When DRGs were first implemented, subsequent years saw an increase in case mix index and in payment levels to providers. CMS believes that the same thing will happen this time. As accuracy of coding increases, the case mix index will move up incrementally. At the end of 2008, CMS will review claims data from the first year of the new system and make adjustments up or down for payment amounts in 2009 and 2010.
The rationale from CMS is that when it requires hospitals to change how they code, the hospitals comply and reduce or eliminate undercoding for certain procedures. According to CMS, the 745 DRGs reflected in the new rule are more in tune with current care plans and are more accurate, especially since hospitals will be required to indicate POA conditions. CMS stipulates that healthcare organizations must document POA conditions, not how to do it. The good news is that healthcare organizations can have a solution that fits their organization's workflow and current level of automation. The bad news is that effectiveness will likely vary from provider to provider.
What Revenue Cycle Leaders Should Do
Here are some steps your organization should be taking—or have already taken—to deal effectively with the IPPS rule changes:
- Look at the data. CMS suggests that provider organizations compare the Medicare Provider Analysis and Review (MEDPAR) data with their own organizational performance. MEDPAR is the claims data that CMS uses to analyze changes and formulate its decisions. This data can be found online.
- Examine your documentation practices, and determine what changes are necessary to ensure that documentation of admission assessments and history and physicals and other source documentation for identifying patient diagnosis accurately reflect patient POA conditions.
- Ensure that your coders are trained to code according to the requirements of POA and that you understand the effects that POA will have on your case mix index.
- Ensure that you have put into place the necessary system changes for health information management coding and grouping software (including interfaces) and for patient accounting to support the requirements of POA and MS-DRGs.
- Discuss and develop a plan with your contract management provider. New estimated payment amounts and contractual allowances returned from DRG groupers and contract management systems that support estimated payment processing will need to be able to handle the changes.
In clarifying the final rules, CMS has provided healthcare organizations with its road map for payment into the future. It's up to you to align your organization accordingly.
SOURCE: John Travis, The IPPS Final Rule: A Road Map to Future Payment, Revenue Cycle Strategist, September 2007
Additional Resources:
Healthcare Financial Management (hfm) articles (on-line access available to HFMA members only). Not a member? Join now!
Audio Webcast Recordings:
If you have questions or comments about HFMA Wants You to Know, contact editor Maxine Harrison.
HFMA Wants You to Know ISSN: 1540-0697. Volume VI, Issue 22. Copyright 2007, Healthcare Financial Management Association. All rights reserved.