The Industry Has Responded!

July 20, 2006 – I’m proud of the way the health care industry has rallied to voice its concerns about CMS’ proposed changes to the DRG system. To date, more than 1,800 pages of comment letters have been sent to CMS regarding its proposed rule: “Changes to the Hospital Inpatient Prospective Payment Systems and FY 2007 Rates.” Many of the comment letters that I have reviewed include lengthy and detailed explanations as to why the implementation of the CMS proposal needs further analysis and should be delayed.

To me, these thoughtful and carefully written comment letters demonstrate the depth of the industry’s concern and the magnitude of the proposed rule’s potential impact on the market place. Busy U.S. senators, hospital executives, state hospital associations, industry associations and software vendors made time within their hectic schedules to make sure their voices were heard on this issue. (A link to view the comments on the CMS site is listed below.) In fact, 53 senators and 189 congress people asked CMS to:

1. Carefully consider suggestions about methodology selection
2. Delay implementation by one year so the industry will have adequate time for thorough review and preparation
3. Phase in the new payment system over several years

Many of the comment letters agreed that the DRG system needs to be revised, but they disagreed with how CMS proposes to accomplish the changes. In general, nearly all of the comments focused on:

1. The aggressive timeframe that CMS proposes to implement such complicated changes
2. The level of details to effectively comment on the proposed rule

The comments noted that the implementation timeframe derails the work of existing regulatory changes in progress (e.g. ICD-10), and does not give hospitals and software vendors adequate time to prepare for the changes. Furthermore, with budgets and staffs already stretched thin at most hospitals, having them devote the resources necessary to address these changes in such an expedited manner is likely to wreak havoc on productivity and profitability at these organizations.

A large number of comment letters shared the position that HSS and Ingenix have taken on the issue, which include:

• Proprietary System – CMS proposes to use a proprietary system that limits the full disclosure and transparency of its casemix grouping and severity adjustment rules. The proposed rule does not address concerns for ongoing public input into the DRG process or the methodology and logic contained in the system. Given the proprietary nature of the APR-DRG system, it remains unclear just how and when changes in the system will occur and how the industry will be involved in this system in the future.
• Coder Productivity – The increased complexity of the proposed methodology will cause a decrease in coder productivity, which will lengthen hospital revenue cycles. The proposed system will require retraining of every inpatient coder.
• Alternative Solutions – CMS did not evaluate alternatives to the APR-DRG system that it proposes to use. CMS should have petitioned the industry for assistance in this process rather than continuing a sole-source arrangement.

As you can imagine, with more than 1,800 pages of comments, an abundance of concerns were presented besides the ones listed above. A significant number of prominent associations, hospital systems and software vendors said they feel as if the government has them working on competing efforts. On one hand, these organizations are devoting significant resources to help propel the government’s highly publicized initiatives to promote electronic medical records (EMRs) and value-based health purchasing. On the other hand, these same organizations would need to redeploy their resources to address the implementation of a new DRG system. Several other notable issues raised in the comment letters include:

• Collaboration – CMS should work through the American Health Information Community to create an implementation roadmap based on private and public-sector input. This roadmap should portray the relationship of priorities of the revised DRG implementation in relation to other significant health care infrastructure platform changes, such as e-prescribing, NHIN infrastructure, electronic claims attachments and ICD-10 migration.
• High-Wage States Penalized – The implementation of CMS’ proposal will have an additional negative impact on high-wage states that have received lower payment increases in previous years as a result of Medicare rate policies. This will require high-wage states to base costs on historical data that may be lower than national averages.
• ICD-10 Implementation – CMS’ proposal to revise DRGs based on ICD-9-CM may limit, and could negate, some of the anticipated benefits of a severity-adjusted DRG system. Since the implementation of ICD-10-CM and ICD-10-PCS is anticipated in the next few years, it would be administratively burdensome to implement a new DRG system now and then have to implement modifications to accommodate ICD-10 in a few years.
• HIPAA Violations – Implementation of CMS’ proposed system could result in violations of official coding guidelines mandated under HIPAA. For example, if a patient has a final diagnosis of non-cardiac chest pain and a history of coronary artery disease, the case is automatically assigned to a coronary artery disease APR-DRG, even though the documentation indicates the chest pain is not related to the coronary artery disease.
• Data Lag – A data lag will result in the shift from charge-based weights to cost-based weights, as the proposed cost-based system would rely on Medicare cost reports and claims. In some instances, this may cause the cost-based rates to be based on data from 2004 or earlier.
• Estimated Costs – CMS proposes to estimate the costs of a particular item by multiplying the charge with an average markup formula. This ignores the differences in cost structures between hospitals and penalizes hospitals that use new technologies.