Are APR-DRGs the Best Choice for CMS?

May 19, 2006 -- After 23 years of supporting an open Diagnosis Related Group (DRG) architecture, CMS is proposing to revamp the system based on a proprietary methodology to implement severity-adjusted DRGs. While I applaud CMS’ decision to improve the DRG system, I disagree with many of the changes that CMS proposes and have advised CMS accordingly.

The most troubling component of the changes is CMS’ reliance on a derivative of the All Patient Refined Diagnosis Related Groups (APR-DRGs), a proprietary methodology owned by 3M Health Information Systems. (For background information on CMS’ proposed rule, click here to read one of my previous columns that discusses the details of the changes.)

The costs of implementing APR-DRGs extend beyond acute-care hospitals to include Medicare inpatient psychiatric and long-term care facilities, as well as Tricare/CHAMPUS, Medicaid and commercial payers that base their reimbursement on Medicare practices. Every change in coding or casemix classification is costly to the health care system in terms of:

• Software and interfaces that must be written, tested and deployed
• Databases that must be restructured
• Historical data that must be updated or aligned with new systems
• Staff that must be educated and/or retrained

Beyond the costs of implementing APR-DRGs, there are numerous other potential problems, including:

• APR-DRGs are a proprietary methodology owned by 3M Health Information Systems
  • The proprietary nature of APR-DRGs limits full disclosure of its logic and rules, it is neither transparent nor obvious in its implementation
  • It creates improper financial incentives by using procedures codes to measure severity
  • The complexity of the system will reduce productivity
• APR-DRGs are NOT based on the current Medicare DRGs
  • It is not compatible with the current Medicare payment system and will require substantial retraining and expansion of hospital coding staffs
• APR-DRGs are more complex
  • The definitions Manual is 3 volumes and 3,538 pages
  • There are many more steps required to assign severity levels
  • Some industry experts have estimated a 20-30% decrease in coder productivity
• CMS did not conduct any independent evaluations of alternatives
  • It did not evaluate any other systems available in the commercial market even though some of those systems may:
    • Be easier to implement
    • Impose less burden on the coding industry
    • Be more closely tied to the existing DRG system and the way the industry has been taught to code for the last 23 years
    • Achieve similar statistical performance
  • CMS did not evaluate:
    • Two alternatives which it developed and are currently in the public domain:
      • Refined DRGs (RDRGs) in 1988
      • Severity-adjusted DRGs (SDRGs) in 1994
    • APS-DRGs from Ingenix or various other privately developed alternatives
• CMS did not conduct an independent evaluation on the impact of implementing the proposed system on coding practices and productivity
• The basis for CMS’s recommendation to implement APR-DRGs appears to stem from the MEDPAC report in which they recommended that CMS implement a severity adjustment method for PPS like APR-DRGs (Physician-Owned Specialty Hospitals, March 2005)
  • MEDPAC did not recommend APR-DRGs
  • MEDPAC did not look at alternatives to APR-DRGs since they are not chartered to do evaluations of competitive systems but more to make recommendations on concepts
• Any system adopted by CMS must be open and transparent and available to the industry for similar costs as those born under the current system.

To increase industry awareness about CMS’ proposed changes, Ingenix’s subsidiary, HSS (which develops coding and reimbursement software), distributed an e-mail to its customer base on May 4. The e-mail highlighted some of the changes and provided a link to the HSS Web site for more information. Within 24 hours after the e-mail was sent, more than 60 provider organizations and HIM consultants registered on the site to voice their concerns about the proposed changes. Over 200 have signed up since. Many of the provider organizations indicated that they would be contacting CMS during the public comment period. The industry’s feedback to the e-mail indicates, to Ingenix, two things: First, provider organizations are either largely unaware of proposed changes or they are desperately seeking information to determine the impact of the regulations following implementation. Second, provider organizations have significant concerns about how they will comply with the regulations that are being implemented in such a rapid timeframe.

Therefore, it is vital that provider organizations and the software vendors serving the market learn about the issue and take the time to provide feedback during CMS’ comment period, which ends June 12, 2006.

What can you do? HSS and Ingenix are actively working with CMS and other Federal officials towards a positive outcome. CMS will accept comments on this issue until June 12, 2006. You can become involved in the following ways:

1. You can elect to receive additional information and links to press coverage on the proposed rule.
2. Contact CMS during the comment period to share your feedback on the proposed rule. You can contact CMS directly, or indicate on the following form that you would like to have us send you a template in a Word format that you can fill out and send to CMS. HSS will e-mail the CMS comment templates to you by the end of this week.
3. Add your opinions and concerns to the comment section of this Web site by completing the form mentioned above.

HSS and Ingenix will continue to provide updates on this proposal as the process evolves. CMS will accept comments on this issue until June 12, 2006. Find additional details by clicking here to read the CMS press release on its proposed rule.