Medicare pays for inpatient services under its Inpatient Prospective Payment System (IPPS). This system is called prospective because rather than paying for each service based on what the hospital charges, the rate has been set in advance. The IPPS uses diagnosis-related groups (DRGs) to classify patients into similar treatment and length-of-hospital-stay units and sets prices for each classification group. A hospital's geographical location and labor and supply costs also affect the DRG pay rate it negotiates with CMS. Hospitals receive the predetermined DRG amount regardless of the actual cost of care, although adjustments may be made in some cases.
In 2008, Medicare replaced the former CMS DRG system with the current Medicare-Severity DRGs (MS-DRGs) system to account for the different severities of illness among patients with the same diagnosis. Under the MS-DRG system, there are twenty-five major diagnostic categories and 745 DRGs. Each diagnosis code in ICD-9-CM is covered in one of the DRGs. To account for different severities of illness, every diagnosis code was assigned to one of three levels of CCs. CCs are secondary conditions—either comorbidities or complications—that affect the level of care.
The three levels of CCs are (a) major CCs (MCCs), which reflect a higher level of severity and require double the additional resources of a normal CC; (b) CCs, which involve regular or normal severity of illness and resource use; and (c) non-CCs, chronic conditions that do not require staff members to expend additional resources. Possible combinations of a principal diagnosis code and secondary codes are then grouped into DRG clusters to arrive at the appropriate DRG. A DRG cluster is a group of DRGs with the same principal diagnosis but varying degrees of severity in secondary condition codes.
The Deficit Reduction Act (DRA) requires CMS to reduce payment in cases where patients develop hospital-acquired conditions that would move them from lower-paying to higher-paying DRGs. Unless any of the following eight conditions are present on admission, CMS does not assign higher paying DRGs to patients who, during their hospital stay, have or suffer from (a) a serious preventable event—object left in surgery; (b) a serious preventable event—air embolism; (c) a serious preventable event—blood incompatibility; (d) catheter-associated urinary tract infections; (e) pressure ulcers (decubitus ulcers); (f) vascular catheter-associated infection; (g) surgical site infection—mediastinitis after coronary artery bypass graft (CABG) surgery; or (h) falls.
The Medicare Code Editor (MCE) is a software program used to detect and report errors in coding while processing inpatient hospital claims. The MCE software detects the following kinds of errors: (a) the code is not in the ICD-9-CM code set; (b) the code is not shown with its required fourth or fifth digit; (c) an E code is listed as the principal diagnosis; (d) entries are duplicated; (e) the age or gender of patient does not match the coding; (f) the code is not an acceptable principal diagnosis; (g) the discharge status code is not valid; (h) the operating room procedure is nonspecific or non-covered by Medicare; (i) the coded services have limited Medicare coverage.
The Medicare Outpatient Prospective Payment System (OPPS) is used to pay hospitals for services to Medicare patients that are provided on an outpatient basis. These services include most Medicare Part B services. Mirroring the DRGs for the IPPS, the OPPS is based on a prospective payment system that uses a pricing unit called the ambulatory payment classification (APC). APCs, which have predetermined payment amounts, are assigned for each outpatient procedure, service, or item. The total payment the hospital receives for the visit is computed as the sum of the individual APC payments for each service.
Similar to the DRG system, the APC system establishes groups of covered services so that the services within each group are comparable clinically and with respect to the use of resources. Payment rates are assigned to each group based on Medicare's analysis of the national median cost for outpatient procedures. Geographical differences are factored into the DRG payment rate and into the patient's copayment amount to account for differences in inflation across the country.
The Medicare Outpatient Code Editor (OCE) is a software program that is used to detect and report errors in coding while processing outpatient hospital claims. The OCE also assigns an APC number for each service that is covered under OPPS and returns information to be used as input to a pricer program. In addition to the Medicare edits built into the OCE, the OCE contains three types of National Correct Coding Initiative edits: (a) the column 1/column 2 code pair edits; (b) the mutually exclusive edits; and (c) the medically unlikely edits. The first two types are based on tables of code combinations used by Medicare to edit out those that do not match Medicare's payment rules. The third type involves unit-of-service edits that are used to determine the maximum allowed number of services for certain CPT/HCPCS codes.
The Health Care Fraud and Abuse Control Program, part of HIPAA, was enacted to prevent fraud and abuse in health care billing. This law, as well as the Federal False Claims Act and other related laws, are enforced by the Office of Inspector General (OIG).
A hospital compliance plan includes (a) consistent written policies and procedures; (b) appointment of a compliance officer and committee; (c) ongoing training; (d) effective lines of communication; (e) ongoing auditing and monitoring; (f) disciplinary guidelines and policies; and (g) corrective action.
CMS has launched various initiatives, such as the Physician Quality Reporting Initiative (PQRI), to encourage improved quality of care for patients in different health care settings. Pay-for-performance programs are rapidly expanding as part of these initiatives. Pay-for-performance programs consist of differential payment to hospitals and other providers based on the performance of a set of specified measures, including quality of patient care, clinical outcomes, patient satisfaction, and the implementation of information technology. These programs align financial incentives with the delivery of high-quality care.
