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Diagnostic Related Group Inpatient Hospital Reimbursement

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Presentation on theme: "Diagnostic Related Group Inpatient Hospital Reimbursement"— Presentation transcript:

1 Diagnostic Related Group Inpatient Hospital Reimbursement
Annual Update Process Presented by: APS Healthcare August 1, 2008

2 Overview DRG payment per discharge = DRG Weight x Peer Group Base Rate
+ Outlier Adjustment DRG Weight, Base Rate, and Outlier Adjustment are updated annually. 1

3 DRG 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 2

4 DRG 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 3

5 DRG 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 4

6 5 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 5

7 Grouper 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. 6

8 The formula for a DRG payment is:
DRG Payment Formula The formula for a DRG payment is: Payment = (DRG Relative Weight) x (Hospital Base Rate) + (Outlier Adjustment) 7

9 DRG 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 8

10 Hospital 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 9

11 Hospital Classification Data
Obtained from CMS H ealthcare C ost R eport I nformation S ystem 10

12 Five Classification Variables Obtained from HCRIS
Critical Access Hospital/Not C.A. Large/Small Hospital < 300 beds Teaching/Non-teaching Hospital Sole Community Hospital/Not S.C. Urban/Rural Hospital (from HCRIS or PPS Impact File Geographic Reclassification) These variables and cost-to-charge ratios are updated and verified with letters to Administrators in August. 11

13 Peer Grouping Procedure
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.) 32 different types of hospital are created from all combinations of the five variables. The regression equation is used to compute the predicted average cost for each type of hospital. The cumulative percentage distribution of predicted cost is divided into five quintiles. 12

14 32 Hospital Types and 5 Hospital Cost Groups
1 2 3 4 5 The 32 types are arranged from lowest to highest average cost, and grouped into five quintiles by cumulative percent of cost. 13

15 Peer-Group Base Rate Calculation Procedure
Use the observed distribution of discharges across the 32 hospital types to compute the weighted-average predicted cost for each peer group. The relative base rate is the ratio of the peer group average to the over-all average. 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. 14

16 Hospital Base-Rate Peer Groups (2008)
Peer Relative Absolute Group Hospitals Base Rate Base Rate % $3,957 % $4,042 % $4,094 % $4,260 % $4,411 15

17 Outlier 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 16

18 About 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 18

19 Contact Information APS contacts (608) : Spencer Anthony, MA Karyn Kriz, MPA Don Libby, Ph.D. 19


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