MS-DRGs nearly a reality for hospitals

The Centers for Medicare and Medicaid Services (CMS) decided to keep Medicare Severity DRGs (MS-DRGs) in their Inpatient Prospective Payment System Final Rule for Fiscal Year 2008.

It may have surprised some industry watchers that MS-DRGs were included in the Final Rule, after the U.S. House of Representatives voted for an amendment in late July that would require CMS to postpone MS-DRG implementation for a year. The amendment was attached to a Health and Human Services spending bill, which must still be passed by the U.S. Senate, and, if passed by Congress, signed into law by Pres. Bush.

Our sense was that some hospitals were in a “wait and see” mode about MS-DRGs, especially after the House vote. But today, with less than 60 days until Final Rule becomes Medicare policy, it is much more likely that MS-DRGs will be a reality.

A few changes from the Proposed Rule to Final Rule regarding MS-DRGs:

• MS-DRGs will use a blended weighting system. CMS will combine the weights of the Version 24 system with the originally proposed Version 25 weights. with 50% of the proposed weight. That means the payment ranges for DRGs will be much narrower, with the lower severity DRGs being paid more than CMS had originally anticipated in the FY2008 Proposed Rule. Conversely, the higher severity DRGs will be paid less.
• There will be a “documentation and coding adjustment.” Rather than adjust reimbursement by 2.4% over the next two years, Medicare will adjust reimbursement by 1.2% in FY2008, and by 1.8% in FY2009 and 2010. The end result is the same: a 4.8% adjustment in the name of budget neutrality.
• The final grouper logic is different than the logic spelled out in the proposed rule. CMS determined that certain procedure codes are always associated with a complicating condition. Those procedure codes will automatically be bumped into a higher severity DRG.