The final rule regarding fiscal year (FY) 2008 revisions to the Medicare hospital inpatient prospective payment system (IPPS) was published in the August 22, 2007 issue of the Federal Register and became effective on October 1, 2007.  Because of changes made to the system, now, more than ever before, physicians are required to accurately document patient encounters. 

The Deficit Reduction Act of 2006 (DRA) required The Centers for Medicare and Medicaid Services (CMS) to identify at least two hospital-acquired conditions that result in higher DRG payments.  By October 1, 2007, hospitals will have to document that these conditions were present on admission.  By FY 2008, 13 different hospital-acquired conditions were described by CMS.  Effective October 1, 2007, six of these conditions will be implemented per THIS DRA provision.  The result is this, Diagnosis Related Group (DRG) payments cannot be increased if these conditions occurred after admission. They are:

• Catheter-associated urinary tract infections
• Pressure ulcers
• Objects left in surgery
• Air embolism
• Blood incompatibility
• Staphylococcus aureus septicemia

Again, if there is no documentation that any of these conditions existed at the time of admission, then the hospital will bear the additional costs associated with the treatment of these hospital-acquired conditions.  CMS will no longer authorize the additional payments.

In addition to the above, the new Medicare severity DRGs (MS-DRG) increases the current 538 DRGs with 745 DRGs.  First, current DRGs are being consolidated to 335 base MS-DRGs.  Of these, 106 would be split into two subgroups and 152 would be split into three subgroups, which is how they have arrived at 745 total MS-DRGs.  The subgroups are determined based on the presence of complications or comorbidities (CCs) or major CCs (MCCs).

According to the Illinois Hospital Association:

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:

• S-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 the overall impact is intended to be budget neutral, CMS estimates urban hospitals will experience a 0.25 increase in payments because of the MS-DRG system and the transition to cost-based DRG weights, with a 1.8% decrease expected for rural hospitals.

In their review and assessment of the changes being implements by CMS, the American Health Information Management Association (AHIMA) made the following observations, "As part of the process of revising the CC list, CMS removed chronic diseases without a significant acute manifestation, as long as there are IDC-9-CM codes available that allow the acute manifestation of the disease to be coded separately.  Exceptions were made for diagnosis codes that indicate a chronic disease in which the underlying illness has reached an advanced stage or is associated with systemic physiologic decompensation and debility.  The revised CC list is essentially comprised of significant acute disease, acute exacerbations of significant chronic disease, advanced or end stage chronic disease, and chronic diseases associated with extensive debility.

The revisions to the CC list resulted in 40.34% of patients having at least 1 CC present, compared to 77.66% previously.  The revised CC list increased the difference in average charges between patients with and without a CC by 56% ($15,236 vs. $9,743)."

The increased payments are the results of two factors:  1)  Many CCs and MCCs were placed into existing DRGs, which eliminated the need to add these CCs or MCCs to the base DRGs, and 2) CMS implemented a 3.3% market basket inflation update to operating DRG rates.

In the absence of documentation of the existence of these complications and comorbidities or major complications and comorbidities, coders will be left to select the DRG which offers the least amount of reimbursement.  Therefore, the burden is placed on the physician to accurately dictate his findings at the time of admission.

The final rule can be reviewed in its entirety by going to the following link:  http://www.access.gpo.gov/su_docs/fedreg/a070822c.html.

To read AHIMA's summary of the new changes, go to the following link:  http://www.ahima.org/dc/documents/MicrosoftWord-IP-PPSanalysis-FY08_000.pdf

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