by Paul L. Weygandt

On November 21, 2007, the U.S. Department of Health and Human Services published a Report to Congress titled the "Plan to Implement a Medicare Hospital Value-Based Purchasing Program." The report explicitly stated that "Value-based purchasing, which links payment to performance, is a key policy mechanism that CMS [Centers for Medicare and Medicaid Services] is proposing to transform Medicare from a passive payer of claims to an active purchaser of care."

At approximately the same time, CMS implemented the most significant revision of the inpatient prospective payment system (IPPS) since the inception of the diagnosis-related groups (DRG) system in 1983. The "final rule," published in the Federal Register on August 22, 2007, cited the March 2005 Medicare Payment Advisory Commission report, which included a principal recommendation that the revised DRG system take into account severity of illness.  Medicare-severity DRGs (MS-DRGs) were implemented on October 1, 2007 and, thus, are now an integral part of the overall value-based purchasing initiative.

All value-based purchasing initiatives and pilots recognize that different patients present with different levels of clinical acuity. The MS-DRG system provides the infrastructure necessary to quantify severity adjustment for each individual. Each MS-DRG is assigned one and only one relative weight, which not only translates into hospital payment, but also is being used as a proxy for severity. The same will be true for other payers as they convert to the MS-DRG methodology.



The Coding Challenge: Inadequate Physician Documentation

As MS-DRGs were introduced, CMS directly addressed issues of revenue maximization.

"We do not believe there is anything inappropriate, unethical or otherwise wrong with hospitals taking full advantage of coding opportunities to maximize [emphasis added] Medicare payment that is supported by documentation in the medical record ... We encourage hospitals to engage in complete and accurate coding." (Federal Register, vol.72, no. 162, August 22, 2007, pgs. 47180 - 47181.)   

Hospitals are expected to maximize revenue by using all coding opportunities available under the applicable rules. The limitation, however, to this apparently open-ended invitation is addressed in the subsequent clause: "that is supported by documentation in the medical record." 

This phrase relates to a fundamental requirement for coders-and a potential fraud risk.  Coders can only code diagnoses documented in the clinical record by treating physicians and those working under their direct legal supervision, such as nurse practitioners, physician assistants, and resident physicians. Because of their role in determining final DRG assignment, the American Health Information Management Association (the professional association for coders), has provided specific ethical guidelines to protect their members from allegations of manipulation of the medical record to achieve increased reimbursement.

Coders, as a result, are limited to coding those diagnoses clearly documented in the clinical record, even if such coding fails to capture the actual acuity of the case. Of course, coders recognize that physicians frequently use nonstandard terminology to describe clinical conditions or fail, at times, to describe them at all.

Here is a simple example of a coding dilemma that significantly affects hospital revenue: A patient is admitted to the intensive care unit with a diagnosis of "urosepsis." The patient has all the clinical criteria for the diagnosis of sepsis secondary to a urinary tract infection. Without further clarification, the coder is required to code the case to DRG 690 (kidney and urinary tract infection) with a relative weight of 0.7581. Yet, had the physician stated what he or she actually meant by the term urosepsis (sepsis secondary to a urinary tract infection), the case would be coded to DRG 872 with a higher relative weight of 1.1209.

For a "typical" hospital with a blended rate of $6,000, the revenue impact of these two scenarios would be as follows:

DRG Relative WeightBlended RateHospital Payment
6900.7581 X$6,000$4,549
8721.1209 X$6,000$10,933


Net Revenue Impact: $6,384

The Physician Challenge: "This Isn't the Practice of Medicine"

Where coders feel constrained by limitations imposed by their rules-based environment, physicians face the challenge of not even knowing the rules in the first place.  Furthermore, it is highly impractical for them to learn the rules-not to mention the conventions and relevant guidelines-which have been developed over decades of experience with the DRG system. 

For years, many practicing physicians have had the attitude that such considerations were strictly a hospital problem, with the result that hospitals have not received full payment for services provided. Now the stakes have changed, and the challenge of accurate, compliant documentation has become the physician's problem as well. According to CMS, "[t]he new MS-DRG system provides the necessary 'severity' data for physician profiling & Pay-for-Performance."

While physicians are increasingly recognizing that compliant MS-DRG terminology is key to their professional survival, the clinical language they use is not consistent, differing by medical discipline, region of the country, the decade in which they trained, or even the mentor under which they studied. 



The Revenue Cycle Challenge: MS-DRGs

The adoption of MS-DRGs has complicated revenue cycle management due to the marked increase in the complexity of the coding and reimbursement system. CMS now recognizes three levels of severity:

  • DRGs with no comorbid condition
  • DRGs with a minor comorbidity (CC)
  • DRGs with a major comorbidity (MCC)

By introducing the additional level of severity based on the presence of a major comorbidity, CMS significantly expanded the opportunity for hospitals and physicians alike to identify high-acuity cases with increased costs as well as increased clinical risk. 

At the same time CMS expanded the potential to capture high-severity cases, it also eliminated over 400 diagnoses that used to count as minor comorbidities but no longer contribute to severity or reimbursement in any way.  Many of the diagnoses eliminated were among the most commonly recognized, including congestive heart failure (CHF) and chronic obstructive pulmonary disease (COPD).  Physicians, unaware of the transition, continue to use old terminology. 

Let's explore another example: A Medicare patient presents to your hospital with an abdominal problem that developed over four to five days. At time of presentation to the emergency department (ED), he has gotten much worse and requires surgery. This elderly man also has had a diagnosis of CHF for several years, managed on oral medication. When the surgeon evaluates the patient in the ED, he notes that the CHF is "decompensated," and requests a consultation by the hospitalist. The hospitalist provides a consultation, documents that the CHF is decompensated, and orders new medications.  The surgeon performs the appropriate bowel surgery. 

There are three possible DRGs in this scenario:

  • DRG 331: Major small and large bowel procedures without comorbidity
  • DRG 330: Major small and large bowel procedure with minor comorbidity
  • DRG 329: Major small and large bowel procedure with major comorbidity

Observe the potential revenue impact of appropriate DRG assignment, again for a hospital with a typical blended rate of $6,000:

DRGRelative WeightBlended RateHospital Payment
3311.6224 X$6,000$9,734
3302.5589 X $6,000$15,353
3295.1666 X$6,000$31,000


Net Revenue Impact: $21,266

The challenge here is that many hospitals would accept reimbursement of $9,734 because it would, in fact, reflect accurate coding of the documentation provided; CHF, even characterized as "decompensated," is no longer recognized as a comorbidity. Clinically, however, the patient had acute heart failure, requiring a consultation and medications.  Had the physician more accurately described the clinical situation as acute heart failure and also specified the type of heart failure (systolic, diastolic or mixed), hospital compensation based on correct coding would have been $31,000.

Bringing Physicians into Alignment

Given that physicians do not understand and simply do not have the time to learn all the coding rules, it becomes the responsibility of hospital management to provide a solution. Accordingly, many hospitals are incorporating processes to assist physicians in providing the most accurate, compliant, and specific documentation of diagnoses and procedures using standardized terminology as accepted by Medicare and other payers. 

The typical approach involves adding a resource to the patient care team: a clinical documentation improvement specialist, typically a nurse with extensive medical/surgical experience and additional training in compliant documentation. Working with all members of the patient care team, analyzing the clinical record, and using standardized approaches, these specialists help physicians to provide concurrent, complete, and accurate documentation.

With current national economic challenges, many hospitals are entering cycles of downsizing. Others are recognizing the link between revenue maximization and documentation improvement programs. By enhancing the accuracy of the clinical record, improved clinical documentation results in a substantial ROI, providing much needed revenue to maintain staffing levels necessary for quality patient care.

To successfully improve clinical documentation, however, it is essential to identify the value of a documentation program to physicians, who have often resisted doing the extra work involved only to benefit the hospital's bottom line. In the past, the benefit to physicians could only be loosely articulated in terms of the improved services the hospital could afford to provide. Now, CMS has provided us with a very powerful force to drive the development of a viable partnership with physicians.

The Future of Value-Based Purchasing

Congress has committed to value-based purchasing as a key mechanism for transforming CMS from a passive payer for quantity of services provided to an active purchaser of quality. As CMS introduces related pilots and initiatives, such as "bundled payment" or "episode of care payment," these will be built on the same fundamental concept-that purchasing quality demands severity adjustment. Other insurers are following suit; many have already adopted MS-DRGs as a reimbursement mechanism and severity-measurement tool.

Clearly, capturing the highest allowable DRG relative weight, based on complete documentation within the medical record, should be a short-term as well as a long-term goal for any revenue cycle executive, in that DRG payment and value-based purchasing require the same precision.

Toward this aim, financial leaders should consider the following steps:

  • Auditing current medical records not only for coding accuracy but for the adequacy of underlying clinical documentation by the medical staff
  • Sharing information with the medical staff regarding current and future reimbursement models, including value-based purchasing
  • Establishing a clinical documentation management program in collaboration with the medical staff to ensure the most accurate and complete documentation of each diagnosis and procedure for every patient
  • Integrating traditional financial and quality silos, recognizing that future reimbursement methodologies will adjust reimbursement based on measured quality
  • Involving physician leadership in management of, responsibility for, accountability to, and success of such programs to gain support for achieving documentation improvement success
  • Auditing established documentation processes to ensure corporate compliance, measure process adherence, and quantify program success

Paul Weygandt, MD, JD, MPH, MBA, is vice president physician services at J.A. Thomas & Associates located in Smyrna, Ga. (paul.weygandt@jathomas.com).