CMS steps toward severity-adjusted DRG payments

Secondary diagnoses

CMS is proposing to create 745 new DRGs to replace the current 538. According to CMS, the reforms are measured steps to improve the accuracy of Medicare's payment for inpatient stays to better account for the severity of patients' conditions.

The proposal will increase payment for some cases while decreasing payment for others. Hospitals treating more severely ill and costlier patients will receive higher payments, whereas hospitals treating less severely ill patients will see a decline in reimbursement.

The new system would not reduce the overall payment amount to hospitals but may adversely affect some hospitals if they treat patients who are less severely ill, says Kimberly Hoy, JD, CPC, director of Medicare and compliance for HCPro, Inc., in Glen Allen, VA. In particular, the rule reduces payment incentives for specialty hospitals that, according to CMS, may select to treat only the "healthiest and most profitable patients."

However, some hospitals that see less acutely ill patients due to the more limited nature of their services (i.e., more severely ill patients are transferred) may also be caught in these reductions.

"Under this proposed DRG revision, certain 'major' comorbidity diagnoses will carry more weight than others," says James S. Kennedy, MD, CCS, general internist and director with FTI Healthcare in Brentwood, TN.

Examples will include:

Consistent with commitments made in last year's IPPS final rule, CMS contracted with RAND Corporation to evaluate five commercially available DRG products to determine whether Medicare could use them to better recognize severity of illness in its inpatient hospital payments.

CMS is continuing with this evaluation of alternative DRG systems for long-term use by Medicare. In addition, CMS asked RAND to evaluate the proposed MS-DRGs using the same criteria it is applying to the other DRG systems. CMS will not make a decision as to which DRG system to adopt permanently until the RAND evaluation is complete.

POA indicator

Under the proposed rule, CMS will require hospitals to report whether diagnoses are POA. "California and New York have had to do this for years, with Florida, Maryland, and other states starting this year," says Kennedy. "Coders received their marching orders for reporting POA with the 2007 ICD-9-CM rule updates."

If the condition was not coded as POA, the public will believe it occurred after admission, he says. "Physicians must help coders capture POA information if their public data is to accurately reflect their quality of care."

CMS partnered with the Centers for Disease Control and Prevention to identify potential high-volume, hospital-acquired conditions that hospitals could have reasonably prevented and proposed financial penalties for when they occur.

The 13 proposed conditions (and their ICD-9-CM codes) include:

CMS is seeking public comment to determine which of these measures (at least two) to implement for 2008.

Core measure reporting

CMS will require hospitals to report 27 different quality measures, which it will ultimately report to the public on a dedicated Web site. "Hospitals must do this or risk losing a portion of their market basket updates," says Kennedy. Metrics include venous thromboembolism prophylaxis, prophylactic antibiotic selection for surgical patients, and 30-day mortality for heart failure and acute myocardial infarction, as well as a Medicare-approved patient satisfaction survey.

CMS will accept comments on the IPPS proposed rule until June 12. To comment, visit http://www.cms.hhs.gov/eRulemaking.

As always, all hospitals should carefully consider how the proposed changes would affect them and make comments individually, or through professional associations to which they belong, says Hoy.

Visit http://www.cms.hhs.gov/AcuteInpatientPPS/downloads/CMS-1533-P.pdf to download a PDF of the proposed rule.