Get Ready for Severity-Adjusted DRGs!

Last spring, CMS proposed the most significant changes to the Inpatient Prospective Payment System since its implementation in 1983. Their proposal was two-pronged and called for the introduction of cost-based weights in FY 2007 and severity-adjusted DRGs in FY 2008. CMS proposed a new set of "consolidated-severity adjusted DRGs" (CSA-DRGs), which were based on 3M's proprietary APR-DRGs. Based on an overwhelming response from the industry (over 2,100 comment letters), CMS refined its proposed weight methodology and contracted with RAND to do an objective analysis of available severity-adjustment alternatives. CMS's response to industry comments highlight just how important it is for all stakeholders to monitor what is happening and to comment on all proposals. Last year's industry response to the IPPS proposed rule is a case-study in how your opinion really does matter and how you can influence what CMS does.

With this in mind, here are some key dates to put on your calendar.

• February/March 2007 - look for the RAND report. RAND is evaluating several alternative severity-adjustment methodologies, including the CSA-DRGs and Ingenix's Medicare-modified APS-DRGs. While RAND will not recommend any one methodology to CMS, they will objectively evaluate each methodology and score them using a set of comprehensive criteria. RAND is due to provide a draft of this report to CMS sometime in the next few weeks. This draft should be available to the public for review and comment. Reviewing the RAND report will give you insight on how severity-adjustment works and what approach CMS is most likely to adopt. Be prepared to comment to CMS on the conclusions of the RAND report.

• April/May 2007 - the FY 2008 proposed rule. The proposed rule for FY 2008 (effective October 1, 2007) will describe the severity-adjustment methodology that CMS plans to adopt next Fall. The proposed rule will be published no later than the first week of May. However, when CMS is proposing major changes, they generally attempt to publish as early as possible, often in a draft format. Start looking for publication of the proposed rule in draft format early in April, followed by a formal publication in the Federal Register later in the month. The content of both will be the same; just the display format will be different. Both the draft rule and the Federal Register version will be posted to the CMS Web site, at the following location:

• Early to Mid-June - comments to proposed rule. The industry generally has 30 days to comment on the proposed rule. Expect to have a slightly longer this year. Plan for comments to be due the first or second week of June. Understand that CMS needs time to review, analyze and react to comments for incorporation into the final rule. There will be numerous industry resources to help you understand and respond effectively to the proposed rule, including this blog. The only caveat - RESPOND TIMELY!

• Early August - final rule. The final rule will be published around August 1st (giving the industry 60 days to prepare for changes). It will be published on the CMS Web site at the location highlighted above. It will be long. It may seem complicated. Use available industry resources, including this blog, to guide you through an understanding of the final rule, as well as the implications.

Most importantly - your opinion matters. Get familiar with the RAND Report, as well as the proposed and final rules. Communicate your concerns to CMS in a timely fashion. Rely on this blog to help you digest all of the available information.