“Comparison of the Prospective Payment System Methodologies Currently Utilized in the United States” Toni Cade, MBA, RHIA, CCS, FAHIMA University of Louisiana at Lafayette -Some of you may be proficient in your knowledge and experience of 1 or 2 PPS. -This session will introduce you to the many different PPS. -In 1 hour, you will be able to understand the very basic differences among the many PPS. -Since mastering the PPS for your own job is extremely time-consuming and ever-changing, this presentation will include more that you ever want to know about the others.

Overview Some of the prospective payment systems covered will include MS-DRGs, RBRVS, RUGs, APCs, CMGs, HHRGs, MS-LTC-DRGs, and IPF-PPS.

Can you speak the jargon of Prospective Payment Systems? MS-LTC DRGs RBRVS MS-DRGs IRF-PAI HHRGs APCs CMGs RUGs IPF-PPS -At the conclusion of this presentation, you will learn the meaning of each of these acronyms and have a better understanding of each. -Some of these may be extremely familiar to you at your job, but others may be foreign to you.

Each of the prospective payment systems is unique and quite complex. We are all challenged to understand the application of these prospective payment systems. -In the 1980s, I was a Coding Supervisor in an acute care, short term, general hospital. We were preparing for the first ever PPS that was to be implemented, which was DRGs. It was a scary time for hospitals. DRGs stand for “Diagnosis-Related Groups”. I still remember everyone saying that DRGs really stood for “Dammed Regulations of the Government”. -Some people thought that PPS would not work and were hoping that it would go away. -On the contrary, PPS is here to stay and is being implemented in many settings (hospitals, inpatient & outpatient, doctor’s offices, rehab facilities, long term care facilities, skilled nursing homes, etc.) for Medicare reimbursement and other third party payer reimbursement.

Reimbursement is based upon the: third party payer healthcare setting or provider coding system used data set utilized encoder, grouper, and data entry software used Don’t expand here….. Let’s look at each of these.

Third Party Payers Third party payers are entities or organizations that pay for some or all of the covered medical expenses. There are many forms of health insurance coverage in the United States. Categories of health insurance include: Government plans (i.e., Medicare, Medicaid, TRICARE, CHAMPVA) Commercial or private insurance plans (i.e, Blue Cross/ Blue Shield, Prudential, Aetna) Managed care contracts Workers’ compensation plans -Medicare: program sponsored by the federal government for the elderly (over age 65), benefits also extend to certain disabled people and those individuals requiring kidney dialysis and kidney transplant patients. -Medicaid: program sponsored jointly by the federal, state, and local government to provide healthcare benefits to indigent or poor persons on welfare -TRICARE: government sponsored program, provides hospital and medical services for dependents of active service personnel and retired service personnel, as well as dependents of members who died on active duty. -CHAMPVA: Civilian Health and Medical Program of the Department of Veterans Affairs, federal program that covers medical expenses of spouses and children of veterans with total, permanent, service-connected disabilities, or of the surviving spouses and children of veterans who died as a result of service-connected disabilities. -Commercial or private insurance plans: companies that offer group or individual insurance to persons either through employment or independently. -MCO: managed care organizations are pre-paid health plans that deliver services to voluntarily enrolled members. Providers are usually reimbursed by a fixed periodic payment called “capitation”. Types of MCOs are: CMPs (Competitive Medical Plans), EPOs (Exclusive Provider Organizations), HMO (Health Maintenance Organizations), IPAs (Independent Practice Associations), PPGs (Physician Provider Groups), POS (Point of Service Plans), PPO (Preferred Provider Organizations), and Triple Option Health Plans. -Workers’ compensation plans: a contract purchased by the employer that insures the employee against on-the-job injury or illness.

Health Insurance Types Sources of Third Party Payers U.S. Census Bureau indicated that 84% of Americans had some type of health insurance and 16% had no health insurance in the calendar year 2006 Health Insurance Types U. S. Population with Coverage (%) Commercial or private insurance plans 69.9% Medicare 13.6% Medicaid 12.9% Military Healthcare 3.6% -In the year 2006, in the United States, about 84% of the population had insurance. -Of this 84%, the breakdown is as follows: Commercial or private insurance plans = 69.9% Medicare = 13.6% Medicaid = 12.9% Military Healthcare = 3.6% -16% of the population did not have insurance.

Healthcare Setting or Providers Providers are those persons, institutions, facilities and firms who are eligible to provide services and supplies. Examples of providers include: hospitals of all types (i.e., acute care, rehab, psych, long term, specialty) skilled nursing facilities intermediate care facilities home health agencies physicians independent diagnostic laboratories independent facilities providing x-ray services outpatient physical, occupational, and speech pathology services ambulance companies chiropractors facilities providing kidney dialysis or transplant services rural clinics veterinary clinics -These are the persons and facilities receiving the reimbursement. -These are the entities that are affected by the money they do or do not get paid. -Employees of these healthcare settings are required to understand the payment methodology for the facility.

The Coding System There are two primary coding systems utilized in reimbursement: ICD-9-CM CPT These and other coding systems are used for statistical purposes. -It is extremely important to understand the specific guidelines set forth for the use of codes. -The original intent for coding diagnoses and procedures was for statistical purposes. But it has also become important in reimbursement. -For some of the PPS, the codes reported are the most important contributing factor which is used to determine reimbursement. -Sometimes even though diagnoses are coded using ICD-9-CM and procedures are coded using CPT – only one coding system is used to determine reimbursement (for example: CPT codes are used to determine physician reimbursement under RBRVS (Medicare fee schedule)).

The Data Sets Some of the prospective payment systems require the standardized collection of a core set of common data items which can be utilized for many purposes, such as; measuring patient outcomes, assessing the quality of services, and measuring the effectiveness of interventions and treatments. These data sets can also be used to form the basis of reimbursement for the services provided.

The Data Sets Data Set Acronym Name of Data Set Healthcare Setting MDS/RAI Minimum Data Set/Resident Assessment Instrument Skilled Nursing Facility (SNF) MDS-PAC/PAI Minimum Data Set for Post Acute Care/Patient Assessment Instrument Inpatient Rehabilitation Facility (IRF) OASIS Outcomes and Assessment Information Set Home Health Agency (HHA) CMAT Case Mix Assessment Tool Inpatient Psychiatric Facility (IPF) -Copies of all of these data sets can be obtained on the internet. -Data sets require input from nursing and clinical staff.

Encoder, Grouper, and Data Entry Software Encoder: a computer software program designed to assist coders in assigning appropriate clinical codes to words and phrases expressed in natural human language. There are two types of encoders: Logic-based: prompts the user through a variety of questions and the choices are based upon the clinical terminology entered Automated codebook: prompts screen views that resemble the actual format of the coding book

Grouper Grouper: a computer software program that applies appropriate logic to assign a particular payment group (i.e, MS-DRG, APC) according to the information provided for that episode of care. -Groupers can interface with the encoder. The grouper can take the codes and apply it to the grouper logic to assign the patient case to a particular group (i.e., MS-DRGs)

Data Entry Software Data entry software: computerized data entry software may be required for the establishment of a database and for purposes of transmission of data. -Some PPS require the use of data entry software. -This software is used to transmit necessary data.

Data Entry Software Software Acronym Name of Software Used For RAVEN Resident Assessment Validation and Entry Skilled Nursing Facility (electronic transmission of data in MDS format) IRVEN Inpatient Rehabilitation Validation and Entry Inpatient Rehabilitation Facility (electronic transmission of data from the IRF-PAI) HAVEN Home Assessment Validation and Entry Home Health Agency (electronic transmission of data in OASIS format) -CMS (Centers for Medicare and Medicaid Services) developed computerized data entry software for specific applications.

Why prospective payment? Development of prospective payment systems was mandated by federal law for Medicare reimbursement Current retrospective payment systems were not effective in controlling costs or in controlling government expenditures for Medicare beneficiaries -The development of PPS started with Medicare, but other payors are following suit. -PPS do achieve the goal of controlling costs.

Retrospective Payment Systems Reimbursement is established after the healthcare services are rendered and the costs are incurred Increases in the length of stay translates to increased charges on the itemized bill and therefore an increase in the reimbursement Increases in the services rendered means increased charges on the itemized bill and therefore an increase in the reimbursement -Providers can charge whatever they desire. -Health care costs are spiraling upwards. -No incentives or consequences of controlling high costs.

Prospective Payment Systems Reimbursement is established before the healthcare services are rendered and monies are expended Reimbursement is based upon a specific prospective payment system methodology The length of stay and services rendered will result in increased charges on the itemized bill, but will not necessarily result in an increase in the reimbursement -Specific PPS methodology takes years to develop. -PPS use statistical techniques to develop a reasonable system to reimburse providers what is fair.

MS-DRG FACT SHEET Reimbursement to (Provider): Acute Care, Short Term Hospitals MS-DRG stands for: Medicare Severity Diagnosis Related Group Reimbursement for: Medicare and TRICARE Inpatients Coding System Used: ICD-9-CM Effective Dates for Original DRGs: October 1, 1983 for Medicare Inpatients October 1, 1987 for TRICARE Inpatients Effective Date for MS-DRGs: October 1, 2007 Number of MS-DRGs: about 745 -The original DRGs were implemented in October 1983. But in October 2007, the DRGs were revised to better account for severity and the MS DRGs replaced the DRGs.

MS-DRG ASSIGNMENT Diagnoses and major procedures are coded using ICD-9-CM codes. Case is categorized into an MDC (Major Diagnostic Category), which are divided by body systems. Case may be further divided into surgical versus medical partitioning. Case may be split into one of three alternatives: - with MCC, with CC, and w/o CC/MCC - with MCC and w/o MCC - with CC/MCC and w/o CC/MCC Each MS-DRG has a CMS “relative weight” and when multiplied by the “hospital’s specific rate”, the reimbursement is derived. -Each Medicare inpatient stay in an acute care, short term hospital is assigned to 1 MS-DRG. Each MS-DRG has a different price tag. -These steps oversimplify the process of MS-DRG assignment. -Under the original DRGs, cases were divided into 2 divisions (“with CC”) and (“without CC”); the new MS-DRGs are subdivided into 3 alternatives. -”Relative Weight” is printed in the Federal Register for each MS-DRG. -”Hospital’s Specific Rate” is unique to each hospital and is based on a complicated formula. -Additional adjustments may be applied: -(Disproportionate share-treat higher percentage of low income patients) -(Indirect medical education-teaching hospitals get more money) -(New technologies applied-get more money) -(Cost outlier-exceed threshold-get more money)

MS-DRGs with three subgroups (MCC, CC, and non-CC); referred to as “with MCC”, “with CC”, and “w/o CC/MCC) MS-DRG 682 Renal Failure w MCC MS-DRG 683 Renal Failure w CC MS-DRG 684 Renal Failure w/o CC/MCC

MS-DRGs with two subgroups (MCC and CC/non-CC); referred to as “with MCC” and “without MCC” Benign Prostatic Hypertrophy w MCC MS-DRG 726 Benign Prostatic Hypertrophy w/o MCC

MS-DRGs with two subgroups (non CC and CC/MCC); referred to as “with CC/MCC” and “without CC/MCC” Deep Vein Thrombophlebitis w CC/MCC MS-DRG 295 Deep Vein Thrombophlebitis w/o CC/MCC

RBRVS FACT SHEET RBRVS stands for: Resource Based Relative Value System Reimbursement to (Provider): Physicians Reimbursement for: Medicare Patients Coding System Used: HCPCS/CPT Effective Date: January 1, 1982 Number of RBRVSs: each CPT and HCPCS code has a payment amount (thousands) -Since each HCPCS/CPT Code has a payment amount, the patient could have multiple services and therefore more than one fee would be reimbursed. -Payment to physicians regardless of where the services were rendered (inpatient hospital, outpatient hospital, doctor’s office, nursing home, etc) -Under MS-DRGs, each Medicare hospital inpatient is grouped to only 1 MS-DRG, which has one price tag or payment amount. -Under RBRVS, each procedure or service, that is coded, groups to a separate RBRVSs, therefore there can be many price tags or payment amounts. -Under MS-DRGs, the hospital can lose money or make money when comparing the “price tag” or payment amount to the actual charges or total on the itemized bill because the hospital is paid the MS-DRG amount regardless of the total charges. -Under RBRVS, the physician can lose money or break even when comparing the ““price tag” or payment amount to the actual charges or total on the itemized bill because the physician is paid the lower of “his charges” or the “RBRVS (Medicare fee schedule) amount”

RBRVS ASSIGNMENT Each service and procedure is coded using the HCPCS/CPT codes. Each HCPCS/CPT code has RVUs (relative value units) for the physician’s work, practice expense, and malpractice. Each RVU is adjusted by a GPCI (geographical practice cost indices). The sum of the adjusted RVUs is multiplied by a conversion factor which constitutes the Medicare fee schedule amount. The physician is reimbursed the lower of the Medicare fee schedule amount or the actual charges.

ASC FACT SHEET ASC stands for: Ambulatory Surgery Center Reimbursement to (Provider): Free-Standing Surgery Centers Reimbursement for: Medicare Ambulatory Surgery Coding System Used: HCPCS/CPT Effective Date: January 1, 1997 Number of ASCs: Originally only 9 groups, effective January 1, 2008 there were several hundred payment groups (APCs) -CMS implemented a revised ASC payment system using the Outpatient Prospective Payment System (OPPS) relative payment weights as a guide. -The ASC final rule greatly expands the types of procedures that are eligible for payment in the ASC setting. The federal government publishes a list of procedures by CPT. These procedures can be done safely at an outpatient free-standing surgery center. -Medicare makes a single payment to ASCs for covered services, which includes ASC facility services that are furnished in connection with a covered procedure. Beginning in CY 2008, about 3,400 procedures are approved for ASC payment and categorized into one of several hundred payment groups.

ASC ASSIGNMENT Ambulatory surgery is coded using CPT codes. The CPT code should appear on the approved list of ASC procedures. Each CPT code is categorized into one of several hundred payment groups. Each payment group has a payment rate.

RUG FACT SHEET RUG stands for: Resource Utilization Group Reimbursement to (Provider): Skilled Nursing Facilities Reimbursement for: Medicare Inpatients Coding System Used: ICD-9-CM Effective Date: July 1, 1998 Number of RUGs: 53 -Differentiate between SNFs and ICFs: -RUGs are used for Skilled Nursing Facilities (SNFs) which are usually allocated beds in a hospital as a separate unit. -Medicare does not pay for Intermediate Care Facilities (ICFs), mom and pop nursing homes. -Swing beds are paid under RUGs.

RUG ASSIGNMENT This case mix payment system utilizes information from the MDS (Minimum Data Set). The patient is classified into 1 of 7 major categories depending on the patient type (rehab, extensive services, special care, clinically complex, impaired cognition, behavior problems, and reduced physical function). Each of these 7 categories is further differentiated to yield 53 specific patient groups used for payment. Each of the 53 RUGs has a per-diem rate. -This PPS (RUGs) is different than most of the other PPS in that payment is based upon a PER DIEM (per day) rate, rather than an “episode of care”. -The per diems are from highest to lowest, $400 - $100 per day. -CMS mandates that RNs must coordinate the MDS activities.

APC FACT SHEET APC stands for: Ambulatory Payment Classification Reimbursement to (Provider): Hospitals Reimbursement for: Medicare Outpatients Coding System Used: HCPCS/CPT Effective Date: August 1, 2000 Number of APCs: about 850 -This payment system is used for Medicare Hospital Outpatients and includes services, such as: -ER visits -clinic (outpatient) visits -outpatient/ambulatory/daytime surgery (within a hospital) – not free-standing ASCs -observation visits -A patient often has more than 1 APC (hospital outpatient). This is different from MS-DRGs (hospital inpatient) whereby the patient is assigned to only 1 MS-DRG. -Another major difference is that APCs use HCPCS/CPT codes, whereby MS-DRGs uses ICD-9-CM codes for reimbursement.

APC ASSIGNMENT All services (major and minor) are coded using HCPCS/CPT codes. Each HCPCS/CPT code is grouped to an APC. There can be many different APCs. Each APC has a Medicare payment amount and a beneficiary coinsurance amount. The provider receives the sum of these dollar amounts as reimbursement for each APC.

CMG FACT SHEET CMG stands for: Case Mix Group Reimbursement to (Provider): Rehabilitation Hospitals and Units Reimbursement for: Medicare Inpatients Coding System Used: ICD-9-CM Effective Date: January 1, 2002 Number of CMGs: 92 -CMGs are used for both free-standing rehab hospitals and also for rehab units within an acute care hospital. -Keep in mind that a Medicare patient admitted to the hospital: -as an inpatient (hospital paid under MS-DRG), then transferred to a -rehab unit (hospital paid under CMG), then transferred to a -SNF (hospital paid under RUGs) -The physician(s) treating the patient in all of these settings is paid under RBRVS (Medicare Physician Fee Schedule)

CMG ASSIGNMENT This prospective payment system uses information from the Inpatient Rehabilitation Facility-Patient Assessment Instrument (IRF-PAI). Patients are classified into distinct Case Mix Groups (CMGs) based upon clinical characteristics and expected resource needs. The CMGs were constructed using rehab impairment categories, functional status (both motor and cognitive), age, comorbidities, and other factors. Each CMG has a different payment amount.

HHRG FACT SHEET HHRG stands for: Home Health Resource Group Reimbursement to (Provider): Home Health Agencies Reimbursement for: Medicare Patients Coding System Used: ICD-9-CM Effective Date: October 1, 2000 Number of HHRGs: 153

HHRG ASSIGNMENT This prospective payment system uses information from the Outcomes and Assessment Information Set (OASIS). Each HHRG has an associated weight value that increases or decreases Medicare’s payment for an episode of care and this payment is relative to a national standard per episode amount. -Per episode amounts vary from $1,300 to almost $8,000.

MS-LTC-DRG FACT SHEET MS-LTC-DRG stands for: Medicare Severity Long Term Care-Diagnosis Related Group Reimbursement to (Provider): Long Term Care Hospitals Reimbursement for: Medicare Inpatients Coding System Used: ICD-9-CM Effective Date: October 1, 2002 Number of MS-LTC-DRGs: 650 -Definition of LTC hospital: Hospitals with an average LOS of 25 days. -Uses the same grouper as MS-DRGs, but different reimbursement amounts.

MS-LTC-DRG ASSIGNMENT The assignment of a patient case into a MS-LTC-DRG is similar to the way a patient is classified to a MS-DRG. The biggest difference is that the relative weights are different.

IPF-PPS FACT SHEET IPF-PPS stands for: Inpatient Psychiatric Facility-Prospective Payment System Reimbursement to (Provider): Psychiatric Facilities Reimbursement for: Medicare Inpatients Coding System Used: ICD-9-CM Effective Date: January 1, 2005 Number of IPF-PPSs: 15

IPF-PPS ASSIGNMENT This prospective payment system is based on the cost of an average day of care in a psychiatric facility. Payment for the average day or per diem would be the Federal per diem base rate, to which various adjustments would be applied applicable to the patient treated and facility characteristics. The proposed IPF-PPS uses the existing inpatient hospital MS-DRG system to group inpatient psychiatric patients into one of the 15 allowed psychiatric MS-DRG groups, but does not use the inpatient PPS payment amount. The IPF-PPS has its own set of payment adjusters for each of the MS-DRG codes. The MS-DRG payment adjustment amount is applied to the Federal per diem rate along with the applicable payment adjusters to derive the final per diem amount for each inpatient psychiatric stay. -IPF uses some of the existing hospital inpatient MS-DRGs. -LTC also uses the existing hospital inpatient MS-DRGs. -Payments are “per diem” (per day) like RUGs for SNFs.

CHALLENGE YOUR MISSION IS TO STAY INFORMED OF THE PARTICULAR PROSPECTIVE PAYMENT SYSTEM(S) THAT RELATES TO YOUR JOB!