diagnostic related group inpatient hospital reimbursement annual update process presented by: aps...
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Diagnostic Related Group Inpatient Hospital Reimbursement
Diagnostic Related Group Inpatient Hospital Reimbursement
Annual Update Process
Presented by: APS Healthcare
August 1, 2008
Annual Update Process
Presented by: APS Healthcare
August 1, 2008
OverviewOverview
• DRG payment per discharge =
DRG Weight x Peer Group Base Rate
+ Outlier Adjustment
• DRG Weight, Base Rate, and Outlier Adjustment are updated annually.
• DRG payment per discharge =
DRG Weight x Peer Group Base Rate
+ Outlier Adjustment
• DRG Weight, Base Rate, and Outlier Adjustment are updated annually.
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DRG Classification SystemDRG Classification System
• DRG Groupers classify hospital discharges based on clinical characteristics and resource consumption
• DRGs encompass all inpatient stays
• Information for DRG assignment is available on uniform billing claim forms
• DRG Groupers classify hospital discharges based on clinical characteristics and resource consumption
• DRGs encompass all inpatient stays
• Information for DRG assignment is available on uniform billing claim forms
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DRG Classification SystemDRG Classification System
• DRGs are assigned hierarchically:– High-cost procedures independent of
Major Diagnostic Category (MDC) (e.g. transplants)
– MDC (dependent upon diagnosis code)•Procedure within MDC
–Other patient characteristics•Or, if no procedure, principle
diagnosis within MDC–Other patient characteristics
• DRGs are assigned hierarchically:– High-cost procedures independent of
Major Diagnostic Category (MDC) (e.g. transplants)
– MDC (dependent upon diagnosis code)•Procedure within MDC
–Other patient characteristics•Or, if no procedure, principle
diagnosis within MDC–Other patient characteristics
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DRG Grouper Version is Updated AnnuallyDRG Grouper Version is Updated Annually
•CMS Grouper update available in August (Version 25, Aug. 2007)
•Enhanced for Medicaid to expand neonate DRGs from 7 to 20 DRGs based on birthweight, discharge status, and operating room procedures
•CMS Grouper update available in August (Version 25, Aug. 2007)
•Enhanced for Medicaid to expand neonate DRGs from 7 to 20 DRGs based on birthweight, discharge status, and operating room procedures
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DRG Description
N01 Died w/in one day, same hosp
N02 Died w/in one day, recv hosp
N04 Transferred w/in 4 days
N10 Less than 750 grams - discharged dead
N14 Less than 750 grams - discharged alive
N20 Less than 1000 grams - discharged dead
N24 Less than 1000 grams - discharged alive
N37 Less than 1500 grams - discharged dead
N38 Less than 1500 grams - O.R. performed
N39 Less than 1500 grams - no O.R. performed
N48 Less than 2000 grams - O.R. excl circumc
N49 Less than 2000 grams - no O.R. performed
N50 Less than 2500 grams - O.R. performed
N56 Less than 2500 grams - no O.R.- major dx
N57 Less than 2500 grams - no O.R.- minor dx
N70 Less than 2500 grams - no O.R.- no dx pr
N76 2500 and greater grams - no O.R.- major
N77 2500 and greater grams - no O.R.- minor
N78 2500 and greater grams - no O.R.- no dx
N80 2500 and greater grams - O.R. performed
Grouper Data CollectionGrouper Data Collection
• Three years of inpatient hospital discharges – Most recent 3 SFYs with 9-month claim
lag– FFS claims and managed-care encounters
• All acute care hospital inpatient discharges.• Excludes Indian Health Service, Children’s
Medical Center (Bethany), JD McCarty, George Nigh rehabilitation and psychiatric hospitals. RTCs also excluded.
• Three years of inpatient hospital discharges – Most recent 3 SFYs with 9-month claim
lag– FFS claims and managed-care encounters
• All acute care hospital inpatient discharges.• Excludes Indian Health Service, Children’s
Medical Center (Bethany), JD McCarty, George Nigh rehabilitation and psychiatric hospitals. RTCs also excluded.
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DRG Payment FormulaDRG Payment Formula
The formula for a DRG payment is:
Payment =
(DRG Relative Weight)x
(Hospital Base Rate) +
(Outlier Adjustment)
The formula for a DRG payment is:
Payment =
(DRG Relative Weight)x
(Hospital Base Rate) +
(Outlier Adjustment)
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DRG Relative WeightDRG Relative Weight
• Claim “charges” converted to “cost” using cost-to-charge ratios (computed from CMS cost reports for last 3 years)
• DRG Relative Weight = Average Cost of Discharges per DRG ÷ Average Cost of All Discharges
• Claim “charges” converted to “cost” using cost-to-charge ratios (computed from CMS cost reports for last 3 years)
• DRG Relative Weight = Average Cost of Discharges per DRG ÷ Average Cost of All Discharges
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Hospital Base RateHospital Base Rate
• A different rate is computed for each cost-related peer group
• Peer groups are chosen to minimize cost variation within groups and maximize variation between groups
• Peer group classification is updated each year based on current hospital characteristics and average costs
• A different rate is computed for each cost-related peer group
• Peer groups are chosen to minimize cost variation within groups and maximize variation between groups
• Peer group classification is updated each year based on current hospital characteristics and average costs
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Hospital Classification DataHospital Classification Data
Obtained from CMS H ealthcareC ostR eportI nformationS ystem
Obtained from CMS H ealthcareC ostR eportI nformationS ystem
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Five Classification VariablesObtained from HCRISFive Classification VariablesObtained from HCRIS
1) Critical Access Hospital/Not C.A.2) Large/Small Hospital < 300 beds3) Teaching/Non-teaching Hospital4) Sole Community Hospital/Not S.C.5) Urban/Rural Hospital (from HCRIS or PPS
Impact File Geographic Reclassification)
These variables and cost-to-charge ratios are
updated and verified with letters toAdministrators in August.
1) Critical Access Hospital/Not C.A.2) Large/Small Hospital < 300 beds3) Teaching/Non-teaching Hospital4) Sole Community Hospital/Not S.C.5) Urban/Rural Hospital (from HCRIS or PPS
Impact File Geographic Reclassification)
These variables and cost-to-charge ratios are
updated and verified with letters toAdministrators in August.
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Peer Grouping ProcedurePeer Grouping Procedure
1) The independent contribution to cost is estimated for each of the five variables using multiple regression to analyze average cost (net of DRG-related cost.)
2) 32 different types of hospital are created from all combinations of the five variables.
3) The regression equation is used to compute the predicted average cost for each type of hospital.
4) The cumulative percentage distribution of predicted cost is divided into five quintiles.
1) The independent contribution to cost is estimated for each of the five variables using multiple regression to analyze average cost (net of DRG-related cost.)
2) 32 different types of hospital are created from all combinations of the five variables.
3) The regression equation is used to compute the predicted average cost for each type of hospital.
4) The cumulative percentage distribution of predicted cost is divided into five quintiles.
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32 Hospital Types and 5 Hospital Cost Groups32 Hospital Types and 5 Hospital Cost Groups
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1 2 3 4 5
Hospital Cost Peer Groups
7.45
7.5
7.55
7.6
7.65
7.7
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32
Pre
dic
ted
Co
st
0%10%20%30%40%50%60%70%80%90%100%
Cu
mu
lati
ve P
erce
nt
The 32 types are arranged from lowest to highest average cost, and grouped into five quintiles by cumulative percent of cost.
Peer-Group Base Rate Calculation ProcedurePeer-Group Base Rate Calculation Procedure
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1. Use the observed distribution of discharges across the 32 hospital types to compute the weighted-average predicted cost for each peer group.
2. The relative base rate is the ratio of the peer group average to the over-all average.
3. The absolute base rate is determined by iterative proportional fitting: DRG payments for all discharges are computed and the base rates are incremented proportionally until the sum of DRG payments equals the total approved budget.
Hospital Base-Rate Peer Groups (2008)Hospital Base-Rate Peer Groups (2008)
Peer Relative Absolute
Group Hospitals Base Rate Base Rate
1 1 95.30% $3,957
2 107 97.33% $4,042
3 138 98.58% $4,094
4 88 102.58% $4,260
5 176 106.21% $4,411
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Outlier AdjustmentOutlier Adjustment
• Hospitals receive an additional payment if cost remaining after DRG payment is greater than $27,000.
• Payment is equal to 70% of remaining cost after the $27,000 threshold is met
• Payment is modeled after CMS Medicare adjustment
• Hospitals receive an additional payment if cost remaining after DRG payment is greater than $27,000.
• Payment is equal to 70% of remaining cost after the $27,000 threshold is met
• Payment is modeled after CMS Medicare adjustment
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About APS Health IntelligenceAbout APS Health Intelligence
• DRG Annual Weight Setting• Program Evaluation Design and
Implementation• Performance Measurement and Quality
Assurance Services• Survey Development and Administration• Fraud and Abuse Detection• Health Policy Analysis• APS Has Been Working with OHCA since
2001
• DRG Annual Weight Setting• Program Evaluation Design and
Implementation• Performance Measurement and Quality
Assurance Services• Survey Development and Administration• Fraud and Abuse Detection• Health Policy Analysis• APS Has Been Working with OHCA since
2001
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Contact InformationContact Information
• APS contacts (608) 258-3350:– Spencer Anthony, MA
– Karyn Kriz, MPA•[email protected]
– Don Libby, Ph.D.•[email protected]
• APS contacts (608) 258-3350:– Spencer Anthony, MA
– Karyn Kriz, MPA•[email protected]
– Don Libby, Ph.D.•[email protected]
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