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Resource DRG & APC's

Diagnosis Related Group (DRG)​


A diagnosis-related group (DRG) is a patient classification system that standardizes prospective payment to hospitals and encourages cost containment initiatives.

In general, a DRG payment covers all charges associated with an inpatient stay from the time of admission to discharge. The DRG includes any services performed by an outside provider.

Claims for the inpatient stay are submitted and processed for payment only upon discharge.

DRG Assignments​

DRGs categorize patients with respect to diagnosis, treatment and length of hospital stay. The assignment of a DRG depends on the following variables:
  • Principal diagnosis
  • Secondary diagnosis(es)
  • Surgical procedures performed
  • Comorbidities and complications
  • Patient's age and sex
  • Discharge status

Outliers​

DRG payment is based on the care given to and resources used by a "typical" patient within the group. When the cost of treating a specific patient is unusually high compared to a typical patient in the same DRG classification, the case is referred to as an outlier.

Many facility contracts include provisions employing a different methodology of calculating payment in outlier situations. When a facility contract includes a DRG outlier provision, outlier cases processed under the provisions are identified by an outlier threshold based on covered charges. Providers should refer to their facility's Participating Agreement for details on the outlier threshold and payment methodology as it applies to their facility.

Grouper​

A grouper is a software program designed to assign the DRG classification.

MS-DRG Classifications and Software | CMS

Background Section 1886(d) of the Act specifies that the Secretary shall establish a classification system (referred to as DRGs) for inpatient discharges and adjust payments under the IPPS based on appropriate weighting factors assigned to each DRG.



Steps for Determining a DRG​

This is a simplified run-down of the basic steps a hospital’s coder uses to determine the DRG of a hospitalized patient. This isn’t exactly how the coder does it; in the real world, coders have a lot of help from software.1


1. Determine the principal diagnosis for the patient’s admission.
The most important part of assigning a DRG is getting the correct principal diagnosis. This seems simple but can be tough, especially when a patient has several different medical problems going on at the same time. According to the Centers for Medicare and Medicaid Services (CMS), “The principal diagnosis is the condition established after study to be chiefly responsible for the admission.”


The principal diagnosis must be a problem that was present when you were admitted to the hospital; it can’t be something that developed after your admission. This can be tricky since sometimes your physician doesn’t know what’s actually wrong with you when you’re admitted to the hospital. For example, maybe you’re admitted to the hospital with abdominal pain, but the doctor doesn’t know what’s causing the pain. It takes her a bit of time to determine that you have colon cancer and that colon cancer is the cause of your pain. Since the colon cancer was present on admission, even though the physician didn’t know what was causing the pain when you were admitted, colon cancer can be assigned as your principal diagnosis.

The DRG will also reflect various nuances related to the patient's healthcare needs, including the severity of the condition, the prognosis, how difficult or intensive the treatment is, and the resources necessary to treat the patient.

2. Determine whether or not there was a surgical procedure.
A couple of rules determine if and how a surgical procedure impacts a DRG.

First, Medicare defines what counts as a surgical procedure for the purposes of assigning a DRG, and what doesn’t count as a surgical procedure. Some things that seem like surgical procedures to the patient having the procedure don’t actually count as a surgical procedure when assigning your DRG.

Second, it’s important to know whether the surgical procedure in question is in the same major diagnostic category as the principal diagnosis. Every principal diagnosis is part of a major diagnostic category, roughly based on body systems. If Medicare considers your surgical procedure to be within the same major diagnostic category as your principal diagnosis, your DRG will be different than if Medicare considers your surgical procedure to be unrelated to your principal diagnosis. In the above example with Mrs. Gomez, Medicare considers the hip replacement surgery and the fractured hip to be in the same major diagnostic category.

3. Determine if there were any secondary diagnoses that would be considered comorbidities or could cause complications.
A comorbid condition is an additional medical problem happening at the same time as the principal medical problem. It might be a related problem, or totally unrelated.
Since it uses more resources and likely costs more to care for a patient like Mrs. Gomez who has both a broken hip and acute congestive heart failure than it does to care for a patient with a broken hip and no other problems, many DRG’s take this into account.


A comorbidity is a condition that existed before admission, and a complication is any condition that occurred after admission, not necessarily a complication of care.1 Medicare even distinguishes between major comorbid conditions like acute congestive heart failure or sepsis, and not-so-major comorbid conditions like an acute flare-up of chronic COPD. This is because major comorbid conditions require more resources to treat than not-so-major comorbid conditions do. In cases like this, there may be three different DRGs, known as a DRG triplet:

  1. A lower-paying DRG for the principal diagnosis without any comorbid conditions or complications.
  2. A medium-paying DRG for the principal diagnosis with a not-so-major comorbid condition. This is known as a DRG with a CC or a comorbid condition.
  3. A higher-paying DRG for the principal diagnosis with a major comorbid condition, known as a DRG with an MCC or major comorbid condition.

If you’re a physician getting questions from the coder or the compliance department, many of these questions will be aimed at determining if the patient was being treated for a CC or MCC during his or her hospital stay in addition to being treated for the principal diagnosis.


If you’re a patient looking at your bill or explanation of benefits and your health insurance company pays for hospitalizations based on the DRG payment system, you’ll see this reflected in the title of the DRG you were assigned. A DRG title that includes “with MCC” or “with CC” means that, in addition to treating the principal diagnosis you were admitted for, the hospital also used its resources to treat a comorbid condition during your hospitalization. The comorbid condition likely increased the resources the hospital had to use to treat you, which is why the hospital was paid more than they would have received if you'd only had a single diagnosis and no comorbid conditions.


DRG Code Assignment​

MS-DRG system classifies hospital inpatient cases based on the patient’s diagnoses and the procedures required to treat the patient’s condition. Classified into 25 major diagnostic categories (MDCs) based on organ system, these codes serve purposes such as:

  • Determine the hospital’s reimbursement based on severity of illness
  • Evaluate the utilization of services
  • Evaluate the quality of care provided
Annually, new ICD-10-CM codes are also incorporated into existing and new diagnostic related group codes added for that fiscal year. When assigning codes for an inpatient case, a present on admission (POA) indicator must also be recorded.

The following elements are assigned to each payment group –

  • Geometric mean length of stay (GMLOS) – a value used to calculate reimbursement
  • Arithmetic mean length of stay (AMLOS) – a value assigned to represent the average
  • Relative Weight (RW) – a value used to calculate total payment for the case. DRG groups with higher relative weights are paid more than those with lower relative weights.






Ambulatory payment classifications (APCs) are a classification system for outpatient services. APCs are similar to DRGs. Both APCs and DRGs cover only the hospital fees, and not the professional fees, associated with a hospital outpatient visit or inpatient stay. DRGs have 497 groups, and APCs have 346 groups.

The four types of APCS are:

• Surgical procedure APCs are surgical procedures for which payment is allowed under PPS. Only surgical APCs are subject to a payment reduction when multiple surgical procedures are performed during the same visit. Examples of surgical APCs include cataract removal, endoscopies, and biopsies.

• Significant procedure APCs are nonsurgical procedures that often are the main reason for the visit and account for the majority of the time and resources used during the visit. Examples of significant procedure APCs are psychotherapy, CT and MRI scans, radiation therapy, chemotherapy administration, and partial hospitalization.

• Medical APCs consist of encounters with a health care professional for evaluation and management services. The medical APC is determined based on the site of service (clinic or emergency department) and the level of the evaluation and management service (low, mid, or high), as indicated by the evaluation and management CPT-4 code and the diagnosis. An E&M code with a fifth digit of 1 or 2 is considered a low-level visit, a 3 is a mid-level visit, and a 4 or 5 is a high-level visit. The diagnosis is assigned to one of twenty major diagnostic categories. Low-level clinic visit for respiratory diseases, high-level ED visit for cardiovascular diseases, and critical care are examples of medical APCs. A medical APC is assigned in conjunction with a surgical APC only if the surgical procedure is a direct result of the evaluation and management service.

• Ancillary APCs include diagnostic tests or treatments that are not considered to be significant procedure APCs. Examples of ancillary APCs are plain film X-rays, electrocardiogram, and cardiac rehabilitation. An ancillary APC may be performed in conjunction with a medical APC, a significant procedure APC, a surgical APC , or independently if the ancillary procedure is the only reason for the visit.




 
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