Q&A: How will MS-DRGs affect contracting?

Both hospitals and insurance companies got together recently to understand how MS-DRGs may affect contracting arrangements between them. Ingenix hosted two webinars that focused on “Contracting Implications of MS-DRGs,” on Aug. 7 and 9. Below are highlights of the responses to questions asked by webinar participants.

As you read this post, keep in mind that Ingenix is hosting the following additional webinars in the future to address your questions:

• Preparing to Code Effectively under MS-DRGs, presented by Cheryl D'Amato, Aug. 28 and 30.
• The Adjustment Factor--Clinical Documentation under MS-DRGs, presented by Mike Evans, Sept. 11 and 13. For more information about this Webinar, e-mail Don.Seamons@ingenix.com or call 801-982-3034.
• What the CMS FY2008 Final Rule Doesn't Tell You About MS-DRGs, presented by Claire Kapilow, Cheryl D'Amato, David Hochheiser, and Doug Kundel, Sept. 18 and 20. For more information about this webinar, e-mail Don.Seamons@ingenix.com or call 801-982-3034.

Questions and Answers from the Aug. 7 and 9 contracting webinars

Question: Are the rates in Table 5 (List of MS-DRGs, RW, Y LOS) of the Final Rule already blended or will the blending be performed "behind the scenes" by the fiscal intermediaries?
Answer: The Table 5 weights already reflect the blended weights.

Q: Based on the Final Rule, when will the Present on Admission (POA) indicator be required for reporting? And will the POA indicator affect pricing?
A: POA indicators will be required for reporting purposes effective Oct. 1, 2007, but are not expected to affect claim-level pricing until 2009.

Q: Any specific reason why the outlier threshold dropped? What was CMS's intent?
A: The outlier threshold was reduced by CMS to allow for a greater number of cases to hit CMS outlier status and to assure that hospitals treating extremely ill (and therefore expensive) patients will qualify for outlier payments. CMS sets the threshold at a level that it expects will make total outlier dollars equal to 5.1 percent of total inpatient dollars. This is slightly higher than the 2007 outlier total of approximately 4.8 percent of total inpatient dollars.

Q: What are your recommendations to evaluate the crosswalking of current DRGs to MS-DRGs?
A: The changes from Version 24 to MS-DRGs are significant. Every hospital and payer needs to determine, in advance of the Oct. 1, 2007 implementation date, where the impact will be on their inpatient business. The impact is more than just financial. Both payers and providers need to understand that these changes can impact physician documentation, coding and compliance programs, as well as contracting processes between provider and private payers.

Q: Is there MS-DRG grouper software available for claim modeling?
A: Ingenix has developed an MS-DRG grouper for data analytic purposes. We have developed a set of MS-DRG Impact Reports for both the provider and payer markets that gives our clients valuable insight into the impact of MS-DRGs across the spectrum of service lines, MDCs and DRGs. The official Ingenix MS-DRG grouper, for existing or new software client internal use, is expected to be released in mid-to-late September.

Q: Are you recommending “lesser of” payment rules for use commercial only? Does Medicare apply “lesser of” payments?
A: Medicare does not apply "lesser of" payment rules. Nonetheless, private payers should consider this contracting language as it protects them from excessive claim payment where claim charges (a reflection of cost) are less than the DRG payment. In some cases, claims with charges that are less than the DRG payment amount may be a sign of up-coding and should be audited for accuracy and appropriate DRG assignment.

Q: How does our hospital convert our DRG contracts to MS-DRGs for budget neutrality? Is their a conversion table available?
A: Assuming you’re referring to commercial or private DRG contracts, you would need to first have your most recent cases grouped and priced to MS-DRG. Then compare your historic claim level payments to the simulated MS-DRG amounts across all DRGs and in aggregate. There is no “conversion” table that covers the multitude of DRG contractual payment variations used in the private payer marketplace.

Q: Has a decision been made about DRG 470 remaining "ungroupable" or will it be 999?
A: It will be MS-DRG 999.

Q: Do you have any idea what percentage of hospitals plan on implementing the new MS-DRG methodology on Oct. 1, 2007?
A: Every Medicare participating hospital will be paid via MS-DRG (with blended weights) starting Oct. 1, 2007.

Q: What impact do you think MS-DRGs will have on physician profiling?
A: Given the changes in DRGs, including weights, payments, coding and documentation, it simply makes good sense for providers to review physician cases at the MDC, specialty and DRG level to see what they can do to improve the legitimate acuity and reimbursement through improved documentation. Payers as well need to evaluate physician case-level data for high-volume/high-cost cases at their network provider facilities to determine the impact, evaluate concurrent case review protocols, audit criteria, etc.

Q: We currently use the Ingenix Web.Strat to price Medicare hospital claims. Will this system be using the new MS-DRG pricing effective Oct. 1, 2007 or will it still be based on V24?
A: As an Ingenix Web.Strat software licensee you will receive an MS-DRG version of Web.Strat prior to the Oct. 1, 2007 live date. We will, of course, continue to support Version 24.

Q: Ingenix has made an MS-DRG grouper/calculator available on HospitalBenchmarks.com. Is this based on the Proposed Rule? Will it be updated to the Final Rule?
A: HospitalBenchmarks.com has already been updated to reflect the Final Rule.

Q: Recently the House passed a bill to postpone MS-DRG implementation. What are your thoughts on it passing the Senate and being signed by the President?
A: Anything can happen, but it’s best to be prepared for MS-DRGs because their implementation according to the Final Rule is the most-likely scenario.