Medical Staff

MS-DRGs: Breakthrough or another misaligned incentive?

Medical Staff Affairs Monthly, October 31, 2007

Beginning in October 2008, CMS will implement the most dramatic restructuring of the DRG system since its inception in the 1980s. The new system is called Medicare Severity DRGs (MS-DRGs). Under this system, severity of illness will be determined only by what is documented at the time of admission, not discharge, which is the current standard. Specifically, hospitals initially will no longer be paid a higher rate for eight hospital-associated complications. The initial eight conditions include air embolism, blood incompatibility, catheter associated UTI, falls/injuries in hospital, object left in surgery, surgery associated infections, and vascular catheter-associated infections. Additional conditions will likely be added in the future.

Under the MS-DRG system, the current 538 DRGs will be reduced to 335 base MS-DRGs; however, these 335 base DRGs will be further split into two or three subgroups, depending on the presence of comorbid conditions (minor and major) that are present on admission, resulting in a total of 745 MS-DRGs. Clear as mud yet?

Take the example of CHF (currently DRG 127), for which hospitals are currently paid an average of $5,561.29. Under the MS-DRG system, there will be three DRGs for CHF with payments dependent on documentation of admission severity:

  • MS-DRG 291 ($7,923.02)
  • MS-DRG 292 ($5,450.61)
  • MS-DRG 293 ($3,903.89)

To get the same or increased payment under the new system will require a much higher degree of admission documentation than currently is required. In a sense, this new system is the opposite of pay-for-performance (P4P) systems, in which higher quality outcomes are rewarded with a differentially higher payment. Under MS-DRGs, lower quality in either admission documentation or actual hospital care directly translates into lower hospital payments.

The intent of MS-DRGs is good, namely to improve patient safety and clinical outcomes by avoiding the perverse incentive of higher payments to providers for potentially avoidable complications. The question becomes, "What about the impact?" Will this be another in a series of lack of alignments/incentives between medical staffs and hospitals? The hospital Medicare payment now becomes even more a function of the documentation on admission by members of the medical staff. In a hospital with a significant Medicare population, this differential payment could spell survival or bankruptcy. But what aligned incentive is there for the medical staff member to spend more time providing such documentation? Beyond the issue of basic quality care, what's in it for the physician?

Similar issues of misaligned incentives litter the landscape of contemporary healthcare. One example is EMTALA, which is a hospital-directed initiative that is dependent on the medical staff for implementation. Another is the National Patient Safety Goal of medication reconciliation propagated by The Joint Commission (formerly JCAHO) in which the consequences of noncompliance are on the hospital, yet compliance depends on medical staff involvement for fully successful implementation. And now along come MS-DRGs, in which the financial onus is on the hospital but is entirely dependent on medical staff admission documentation.

This leads to the question of which is more important: physician success or organizational success? The truly successful organizations recognize that the answer is not an "either/or" but rather a "yes/and." In a highly regulated healthcare environment in which scant attention is paid to aligned incentives, the successful medical staff-hospital combination establishes the leadership necessary for both to succeed. These medical staffs and hospitals have invested in the leadership training necessary to acquire and implement the skills of effective communication, fruitful collaboration, and successfull management of change. It is only through leadership that organizations can move to a changed culture in which appropriate reasons can be offered to change behaviors and align incentives, which strictly speaking are not called for in the interpretation of the letter of the law or the regulations.

The Chinese language has two symbols for crisis. The first is danger. The second is opportunity. As MS-DRGs (and other initiatives) barrel down the highway toward your organization, it is up to medical staff and hospital leaders to decide how to respond. The Greeley Company has long provided practical strategies to many organizations facing these challenges. Let us know if we can be of help.

Until next time, be the best that you can be.
 

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