Illinois Hospital Association

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October 11, 2007

Challenges and Opportunities Moving to MS-DRGs

As many of our hospitals now realize, the movement from the DRG to the MS-DRG Medicare reimbursement system has been dramatic and has required substantial changes in the reporting of claims and analysis of the information. The following items are highlighted in this memo:

IHA Educational Opportunities
- Conference Calls
- COMPdata Annual Meeting October 29 and 30
COMPdata Has MS-DRG Assignments for Historical Data
MS-DRG Major Changes
Hospitals Will Continue To Operate in DRG and MS-DRG Worlds

Educational Opportunities. To better assist our members through the transition, IHA has provided educational conference calls and has a tremendous response to these calls with over 400 member hospital registrants.

At the COMPdata Annual Meeting on October 29 and 30, each attendee will get reports on their hospital specific information to better understand the changes from DRG to MS-DRG. Additionally, CMS Region V Medical Director, Dr. Susan Nedza, will be highlighting all of the recent changes as well as upcoming changes to payment based upon hospital and physician performance reporting and improvement, including the areas targeted for payment reduction due to complications. Hospital attendees will also get hospital specific reports on the targeted payment reduction areas as well as state targeted infection reporting.

COMPdata Has MS-DRG Assignments for Historical Data. As IHA and COMPdata anticipated the dramatic changes in payment and analysis that hospitals would experience with the new MS-DRG system, COMPdata re-grouped all inpatient hospital data starting with January 1, 2006 discharges. As COMPdata had the key variables for assigning each patient case to a MS-DRG, COMPdata reprocessed all the data so hospitals would have a frame of reference and be able to analyze payment and severity assignments.

All of the MS-DRG information was made available to member hospitals on October 4 along with COMPdata manual updates. While re-processing and assigning MS-DRGs was complex, COMPdata worked to make minimal changes to the analytical tools so hospitals could quickly utilize the information. Hospitals can utilize the MS-DRG in the on-line reports, downloadable data sets, and ROLAP.

MS-DRG Major Changes. While the MS-DRG changes effect payment only for inpatient PPS hospitals, other hospitals are also trying to better understand the MS-DRG assignments as the old DRG system (Version 24) will not be updated by CMS and is being totally replaced by the MS-DRG system.

Some of the major changes that have occurred with the MS-DRG system include:

Movement from 538 DRGs to 745 MS-DRGs

Total reorganization of numbering system – nothing remains the same

Review and reassignment of all diagnostic codes into one of three severity categories:

MS-DRG Without Complication or Comorbidity (w/o CC or no CC)

MS-DRG with Complication or Comorbidity (CC)

MS-DRG with Major Complication or Comorbidity (MCC)

With the DRG payment system, only the first two severity assignments were utilized and the MCC is a new feature of the MS-DRG system.

Nearly a thousand diagnostic codes are no longer considered a CC or MCC under the MS-DRG system resulting in assignments to MS-DRGs with no CC

Reliance upon procedure codes for select MS-DRGs for higher payments

Some diagnostic codes that have a CC or MCC assignment will not result in higher payment if they are similar or related condition to the principal diagnosis - such as principal diagnosis of CHF with a secondary diagnosis of primary cardiomyopathy (diagnosis code 425.4)

Higher payment for patients that survive during hospital stay than those that died for conditions such as respiratory arrest, cardiogenic shock, cardiac arrest, etc.

While CMS has made a crosswalk from DRG to MS-DRG, one can only fully assess the impact by re-grouping the data using the MS-DRG software or using COMPdata information due to the complex changes in methodology and design.

Hospitals Will Continue to Operate in DRG and MS- DRG Worlds. As Medicare unrolled the final MS-DRG software and methodology in August 2007, this did not provide time for health plans to analyze or modify their reimbursement systems in consideration of these complex changes. As a result, many commercial health plans and Medicaid systems are not transitioning this calendar year to MS-DRG. While Medicare had the opportunity to model financial impact and determine reimbursement methodologies, other health plans did not have the same opportunity. Therefore, the majority of hospitals will be operating under two different payment systems and methodologies.

While hospitals are used to maintaining two DRG versions during each 4^th quarter Medicare DRG transition period, the underlying methodological changes to MS-DRG require more than just information system adjustments as hospitals will need to understand how to properly code claims to receive proper payment from the DRG and MS-DRG systems. As with the DRG system, Medicare MS-DRG will only utilize the first 9 diagnoses codes and 6 procedure codes; therefore hospitals will need to ensure the codes are in the proper order for payment processing.

The MS-DRG changes are probably the most dramatic changes that have occurred to the hospital inpatient payment system methodology since DRGs were first introduced. While hospitals still report the same information, it is ensuring the proper information is being reported to get the proper payment and the challenges associated with straddling between markedly different methodological payment approaches of the DRG and MS-DRG.

IHA has had positive feedback from members on the educational opportunities presented as well as COMPdata providing historical data with MS-DRG assignments. As we begin to hear about how hospitals have successfully approached the transition and straddling between DRG and MS-DRG, we will share their experiences with you. Thank you.