Diagnosis related groups are organized into

Medical Billing And Coding

Historical PersPective of cMs reiMburseMent systeMs In 1964 the Johnson administration avoided opposition from hospitals for passage of the Medicare and Medicaid programs by adopting retrospective reasonable cost-basis payment arrangements originally established by BlueCross. Reimburse- ment according to a retrospective reasonable cost system meant that hospitals reported actual charges for inpatient care to payers after discharge of the patient from the hospital. Payers then reimbursed hospitals 80 percent of allowed charges. Although this policy helped secure passage of Medicare and Medicaid (by entic- ing hospital participation), subsequent spiraling reimbursement costs ensued. Shortly after the passage of Medicare and Medicaid, Congress began inves- tigating prospective payment systems (PPS) (Table 9-1), which established pre- determined rates based on patient category or the type of facility (with annual increases based on an inflation index and a geographic wage index): ● Prospective cost-based rates are also established in advance, but they are based on reported health care costs (charges) from which a predetermined per diem (Latin meaning “for each day”) rate is determined. Annual rates are usually adjusted using actual costs from the prior year. This method may be based on the facility’s case mix (patient acuity) (e.g., resource utilization groups [RUGs] for skilled nurs- ing care facilities). ● Prospective price-based rates are associated with a particular category of patient (e.g., inpatients), and rates are established by the payer (e.g., Medicare) prior to the provision of health care services (e.g., diagnosis-related groups [DRGs] for inpatient care). TABLE 9-1 Prospective payment systems, year implemented, and type PROSPECTIVE PAYMENT SYSTEM YEAR TYPE Ambulance Fee Schedule 2002 Ambulatory Surgical Center (ASC) Payment Rates 1994 Clinical Laboratory Fee Schedule 1985 Durable Medical Equipment, Prosthetics/Orthotics, and Supplies (DMEPOS) Fee Schedule 1989 End-Stage Renal Disease (ESRD) Composite Payment Rate System 2005 Home Health Prospective Payment System (HH PPS) (Home Health Resource Groups [HHRG]) 2000 Hospital Inpatient Prospective Patient System (IPPS) 1983 Hospital Outpatient Prospective Payment System (HOPPS) 2001 Inpatient Psychiatric Facility Prospective Payment System (IPF PPS) 2004 Inpatient Rehabilitation Facility Prospective Payment System (IRF PPS) 2002 Long-Term (Acute) Care Hospital Prospective Payment System (LTCH PPS) 2001 Resource-Based Relative Value Scale (RBRVS) System (or Medicare Physician Fee Schedule 1992 [MPFS]) Skilled Nursing Facility Prospective Payment System (SNF PPS) 1998 Current Procedural Terminology © 2015 American Medical Association. All Rights Reserved. Cost-based Cost-based Cost-based Cost-based Price-based Price-based Price-based Price-based Cost-based Price-based Price-based Cost-based Cost-based

EXAMPLE: Prior to 1983, acute care hospitals generated invoices based on total charges for an inpatient stay. In 1982 an eight-day inpatient hospitalization at $225 per day (including ancillary service charges) would be billed $1,800. This per diem reimbursement rate actually discouraged hospitals from limiting inpa- tient lengths of stay. In 1983 the hospital would have been reimbursed a PPS rate of $950 for the same inpatient hospitalization, regardless of length of stay. The PPS rate encourages hospitals to limit inpatient lengths of stay because any reimbursement received in excess of the actual cost of providing care is retained by the facility. (In this example, if the $950 PPS rate had been paid in 1980, the hospital would have absorbed the $850 loss.) CASe MIX MANAGeMeNt The term case mix describes a health care organization’s patient population and is based on a number of characteristics, such as age, diagnosis, gender, resources consumed, risk factors, treatments received, and type of health insurance. A facility’s case mix reflects the diversity, clinical complexity, and resource needs of the patient population. A case mix index is the relative weight assigned for a facility’s patient population, and it is used in a formula to calculate health care reimbursement. If 1.000 represents an average relative weight, a weight lower than 1.000 (such as 0.9271) indicates that the resource needs of a hospital’s patient population are less complex. A facility’s case mix index is calculated by totaling all relative weights for a period of time and dividing by the total number of patients treated during that period of time. Thus, a facility assigned a lower case mix index will receive less reimbursement for services provided. Conversely, a facility assigned a higher case mix index will receive higher reimbursement for services provided. For example, a hospital’s case mix index is calculated by totalling all DRG relative weights for a period of time and dividing by the total number of patients treated during that period of time. (A list of DRG relative weights can be found at www.cms.gov.) Facilities typically calculate statistics for case mix management purposes by: ● ● Total relative weight (relative weight × total number of cases) Total payment (reimbursement amount per case × total number of cases) EXAMPLE: Hospital inpatients are classified according to diagnosis-related groups (DRGs) based on principal and secondary diagnosis, surgical proce- dures performed, age, discharge status, medical complexity (e.g., existence of comorbidities and/or complications), and resource needs. Each DRG has a relative weight associated with it, and that weight is related to the complex- ity of patient resources. Anywhere Medical Center’s case mix index (relative weight) is 1.135. In January, MS-DRG 123 had 54 cases with a reimburse- ment amount of $3,100 each. ● Total relative weight for MS-DRG 123 is 61.29 (1.135 × 54) ● Total payment for MS-DRG 123 is $167,400 (54 × $3,100)

cMs PayMent systeMs The federal government administers several health care programs, some of which require services to be reimbursed according to a predetermined reim- bursement methodology (payment system). Federal health care programs (an over- view of each is located in Chapter 2) include: ● CHAMPVA ● Indian Health Service (IHS) ● Medicaid (including the State Children’s Health Insurance Program, or SCHIP) ● Medicare ● TRICARE (formerly CHAMPUS) ● Workers’ Compensation (also a state health care program) Depending on the type of health care services provided to beneficiaries, the federal government requires that one of the payment systems listed in Table 9-1 be used for the CHAMPVA, Medicaid, Medicare, and TRICARE programs. aMbulance fee scHedule The Balanced Budget Act of 1997 required establishment of an ambulance fee schedule payment system for ambulance services provided to Medicare benefi- ciaries. Starting in April 2002, the ambulance fee schedule was phased in over a five-year period replacing a retrospective reasonable cost payment system for providers and suppliers of ambulance services (because such a wide variation of payment rates resulted for the same service). This schedule requires: ● Ambulance suppliers to accept Medicare assignment ● Reporting of HCPCS codes on claims for ambulance services ● Establishment of increased payment under the fee schedule for ambulance ser- vices furnished in rural areas based on the location of the beneficiary at the time the beneficiary is placed onboard the ambulance ● Revision of the certification requirements for coverage of nonemergency ambu- lance services ● Medicare to pay for beneficiary transportation services when other means of transportation are contraindicated. Ambulance services are divided into different levels of ground (land and water transportation) and air ambulance services based on the medically necessary treatment provided during transport EXAMPLE: A patient was transported by ambulance from her home to the local hospital for care. Under the retrospective reasonable cost payment system, the ambulance company charged $600, and Medicare paid 80 percent of that amount, or $480. The ambulance fee schedule requires Medicare to reimburse the ambu- lance company $425, which is an amount equal to the predetermined rate or fee schedule. aMbulatory surgical center PayMent rates An ambulatory surgical center (ASC) is a state-licensed, Medicare-certified supplier (not provider) of surgical health care services that must accept assignment on Medicare claims. An ASC must be a separate entity distinguishable from any

other entity or facility, and it must have its own employer identifier number (EIN) as well as processes for: ● Accreditation ● Administrative functions ● Clinical services ● Financial and accounting systems ● Governance (of medical staff) ● Professional supervision ● Recordkeeping ● State licensure In 1980 Medicare authorized implementation of ambulatory surgical center payment rates as a fee to ambulatory surgery centers (ASCs) for facility services furnished in connection with performing certain surgical procedures. (Physi- cian’s professional services are separately reimbursed by the Medicare physi- cian fee schedule, discussed later in this chapter.) Effective January 1, 2008, the MMA of 2003 mandated implementation of the outpatient prospective payment system (OPPS) payment amount as a substitute for the ASC standard overhead amount for surgical procedures performed at an ASC. Medicare allows payment of an ASC facility fee for any surgical procedure performed at an ASC, except those surgical procedures that Medicare has determined are not eligible for the ASC facility fee. This means that instead of maintaining and updating an “inclusive list of procedures,” Medicare maintains and updates an “exclusionary list of procedures” for which an ASC facility fee would not be paid (e.g., any procedure included on the OPPS inpatient list). Under the payment system (Table 9-2), Medicare uses the ambulatory pay- ment classification (APC) groups and relative payment weights for surgical pro- cedures established under the OPPS as the basis of the payment groups and the relative payment weights for surgical procedures performed at ASCs. Relative payment weights are based on the average resources used to treat patients in a particular APC, with a weight of 1.000 being the average; when a relative pay- ment weight is higher than 1.000, such as 1.435, that means more resources are required to treat the patient and, thus, the payment is correspondingly higher. These payment weights would be multiplied by an ASC conversion factor to calculate the ASC payment rates. The ASC relative payment weights are updated each year using the national OPPS relative payment weights for that calendar year and, for office-based pro- cedures, the practice expense payments under the physician fee schedule for that calendar year. Medicare makes the relative payment weights budget neutral to ensure that changes in the relative payment weights from year to year do not cause the estimated amount of expenditures to ASCs to increase or decrease as a function of those changes. clinical laboratory fee scHedule The Deficit Reduction Act of 1984 established the Medicare clinical laboratory fee schedule (Figure 9-1), which is a data set based on local fee schedules (for outpatient clinical diagnostic laboratory services). Medicare reimburses laboratory services according to the (1) submitted charge, (2) national limi- tation amount, or (3) local fee schedule amount, whichever is lowest. The local fee schedules are developed by Medicare administrative contractors who are: ● ● Local contractors that process Medicare Part B claims, including claims submitted by independent laboratories and physician office laboratories Local contractors that process Medicare Part A claims, including outpatient labo- ratory tests performed by hospitals, nursing homes, and end-stage renal disease centers.

durable Medical equiPMent, ProstHetics/ ortHotics, and suPPlies fee scHedule The Deficit Reduction Act of 1984 also established the Medicare durable medical equipment, prosthetics/orthotics, and supplies (DMEPOS) fee schedule (Figure 9-2). Medi- care reimburses DMEPOS either 80 percent of the actual charge for the item or the fee schedule amount, whichever is lower. (Fee schedule amounts are annu- ally updated and legislated by Congress.) The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) authorized Medicare to replace the current durable medical equipment (DME) payment methodology for certain items with a competitive acquisition process to improve the effectiveness of its methodology for estab- lishing DME payment amounts. The new bidding process established payment amounts for certain durable medical equipment, enteral nutrition, and off-the- shelf orthotics. Competitive bidding provides a way to create incentives for suppliers to provide quality items and services in an efficient manner and at reasonable cost. end-stage renal disease (esrd) coMPosite rate PayMent systeM Medicare’s ESRD benefit allows patients to receive dialysis treatments, which remove excess fluids and toxins from the bloodstream. Patients also receive items and services related to their dialysis treatments, including drugs to treat conditions resulting from the loss of kidney function, such as anemia and low blood calcium. CMS traditionally divided ESRD items and services into two groups for payment purposes: ● Dialysis and associated routine services (e.g., nursing, supplies, equipment, cer- tain drugs, and certain laboratory tests) are reimbursed according to a composite rate (one rate for a defined set of services). Paying according to a composite rate (or fixed) is a common form of Medicare payment, also known as bundling. ● End-Stage Renal Disease (ESRD) composite payment rate system bundles ESRD drugs and related laboratory tests with the composite rate payments, resulting in one reimbursement amount paid for ESRD services provided to patients. The rate is case-mix adjusted to provide a mechanism to account for differences in patients’ utilization of health care resources (e.g., patient’s age, documentation, and report- ing of comorbidities) (Table 9-3). The Medicare Prescription Drug, Improvement and Modernization Act (MMA) of 2003 required Medicare to change the way it pays facilities for dialy- sis treatments and separately billable drugs. A key purpose of the MMA was to eliminate the cross-subsidization of composite rate payments by drug payments. These revisions also resulted in more accurate reimbursement for drugs and the composite rate. Medicare spends the same amount of money as would have been spent under the prior system, but the cross-subsidy was eliminated. EXAMPLE: A health care facility’s composite rate is $128.35, which means that Medicare reimburses the facility $128.35 for an ESRD service. According to Table 9-3, that rate applies only to patients whose ages range from 60 to 69. When a 58-year-old patient receives ESRD services, the facility’s reimbursement increases to $135.41 because the composite rate ($128.35) is multiplied by the case-mix index (1.055).

HoMe HealtH ProsPective PayMent systeM The BBA of 1997 called for implementation of a Medicare home health prospec- tive payment system (HH PPS), which uses a classification system called home health resource groups (HHRGs) to establish prospective reimbursement rates for each 60-day episode of home health care, which is the period of time (two months) during which care is provided for a particular condition. If a patient is eligible for care after the end of the first episode, a second episode can begin, and there are no limits to the number of episodes of care a patient who remains eligible for the home health benefit can receive. EXAMPLE: A patient is discharged from the hospital after knee replacement sur- gery, and she begins a 60-day episode of home health care that includes physical therapy on July 5. Home health care concludes on September 2, and the patient is mobile. A second 60-day episode of care is not needed. Home health resource groups (HHRGs) classify patients into groups, which range in severity level. Each HHRG has an associated weight value that increases or decreases Medicare’s payment for an episode of home health care. Weight values are based on the average resources used to treat patients in a particular HHRG, with a weight of 1.000 being the average; when a relative payment weight is higher than 1.000, such as 1.435, that means more resources are required to treat the patient and, thus, the payment is correspondingly higher. HHRGs are reported to Medicare on HH PPS claims (UB-04, discussed later in this chapter) using the health insurance prospective payment system (HIPPS) code set. Codes in this set are five-character alphanumeric codes that represent case-mix groups about which payment determinations are made for the HH PPS. CMS originally created the HIPPS code set for the skilled nursing facility prospective payment system (SNF PPS) in 1998, and reporting requirements for the HH PPS (and inpatient rehabilitation facility PPS) were added later. HIPPS codes are determined after patient assessments using the Outcomes and Assessment Information Set (OASIS) are completed. Grouper software is used to determine the appropriate HHRG after Outcomes and Assessment Information Set (OASIS) data (Figure 9-3) are input on each patient (to measure the outcome of all adult patients receiving home health ser- vices). Home Assessment Validation and Entry (HAVEN) data entry software is then used to collect OASIS assessment data for transmission to state databases. HosPital inPatient ProsPective PayMent systeM Before 1983, Medicare payments for hospital inpatient care were based on a ret- rospective reasonable cost system, which meant hospitals received 80 percent of reasonable charges. Since 1983, when the inpatient prospective payment system (IPPS) was implemented, Medicare has reimbursed hospitals for inpatient hospital services according to a predetermined rate for each discharge. Each discharge is categorized into a diagnosis-related group (DRG), which is based on the patient’s principal and secondary diagnoses (including comorbidities and complications) as well as surgical and other procedures (if performed) (Figure 9-4). The DRG determines how much payment the hospital receives. Diagnosis-related groups are organized into mutually exclusive categories called major diagnostic categories (MDCs), which are loosely based on body systems (e.g., nervous system).

Because the IPPS payment is based on an adjusted average payment rate, some cases receive Medicare reimbursement in excess of costs (rather than billed charges), whereas other cases receive payment that is less than costs incurred. The system is designed to provide hospitals with an incentive to manage their operations more efficiently by finding areas in which increased efficiencies can be instituted without affecting the quality of care and by treat- ing a mix of patients to balance cost and payments. Note that a hospital’s pay- ment is not affected by the length of stay prior to discharge (unless the patient is transferred). It is expected that some patients will stay longer than others and that hospitals will offset the higher costs of a longer stay with the lower costs of a reduced stay. Each DRG has a payment weight assigned to it, based on the average resources used to treat Medicare patients in that DRG. Payment weights are based on the average resources used to treat patients in a particular DRG, with a weight of 1.000 being the average; when a relative payment weight is higher than 1.000, such as 1.435, that means more resources are required to treat the patient and, thus, the payment is correspondingly higher. The reimbursement rate can be adjusted according to the following guidelines: ● Disproportionate share hospital (DSH) adjustment. Hospitals that treat a high percent- age of low-income patients receive increased Medicare payments. ● Indirect medical education (IME) adjustment. Approved teaching hospitals receive increased Medicare payments. The adjustment varies depending on the ratio of residents-to-beds (to calculate operating costs) and residents-to-average-daily- census (to calculate capital costs). ● Outlier. Hospitals that treat unusually costly cases receive increased medical pay- ments. The additional payment is designed to protect hospitals from large finan- cial losses due to unusually expensive cases. Outlier payments are added to DSH or IME adjustments, when applicable. Several DRG systems were developed for use in the United States, including: ● Diagnosis-related groups (DRGs) ° Original system used by CMS to reimburse hospitals for inpatient care provided to Medicare beneficiaries ° Based on intensity of resources, which is the relative volume and types of diagnos- tic, therapeutic, and inpatient bed services used to manage an inpatient disease ° Replaced in 2008 by Medicare severity DRGs (MS-DRGs) (discussed below) ● All-Patient diagnosis-related groups (AP-DRGs) ° Original DRG system adapted for use by third-party payers to reimburse hospi- tals for inpatient care provided to non-Medicare beneficiaries (e.g., BlueCross BlueShield, commercial health plans, TRICARE) ° Based on intensity of resources ● All-Patient Refined diagnosis-related groups (APR-DRGs) ° Adopted by Medicare in 2007 to reimburse hospitals for inpatient care provided to Medicare beneficiaries (but discontinued when MS-DRGs were adopted in 2008) ° Expanded original DRG system (based on intensity of resources) to add two sub- classes to each DRG that adjusts Medicare inpatient hospital reimbursement rates for severity of illness (SOI) (extent of physiological decompensation or organ system loss of function) and risk of mortality (ROM) (likelihood of dying) ° Each subclass, in turn, is subdivided into four areas: (1) minor, (2) moderate, (3) major, and (4) extreme. ● Medicare severity diagnosis-related groups (MS-DRGs) ° Adopted by Medicare in 2008 to improve recognition of severity of illness and resource consumption and reduce cost variation among DRGs ° Bases DRG relative weights on hospital costs (instead of hospital charges that are associated with pre-2008 DRGs), and expanded number from 538 DRGs to over 750 MS-DRGs, but retained improvements and refinements made to DRGs since 1983 ° Recognized approximately 335 “base” DRGs, which are further refined by complications (undesirable effect of disease or treatment that can change the patient’s outcome and may require additional treatment), conditions that arise during hospitalization, and/or comorbidities (coexisting conditions treated during hospitalization) (CC) ° Re-evaluated CC list to assign all ICD-10-CM codes as non-CC status (conditions that should not be treated as CCs for specific clinical conditions), CC status, or major CC status, which prevents Medicare from paying additional costs of treating patients who acquire conditions (e.g., infections) during hospitalization ° Assigned diagnoses closely associated with patient mortality (cardiogenic shock, cardiac arrest, other shock without mention of trauma, respiratory arrest, and ventricular fibrillation) to different CC subclasses, depending on whether the patient lived or expired ° Emphasized the importance of proper documentation of patient care, relating it to reimbursement optimization (e.g., increased diagnosis specificity to justify more severe illnesses, resulting in increased reimbursement)—facilities imple- mented clinical documentation improvement (CDI) programs to ensure thorough and accurate documentation in patient records CodING for dIAGNoSIS-relAted GroupS (drGs) Diagnoses and procedures are assigned ICD-10-CM and ICD-10-PCS codes, and they are sequenced according to CMS official coding guidelines and the Uniform Hospital Discharge Data Set (UHDDS). This means that hospitals are not required to assign codes to every diagnosis and procedure documented in the patient record. However, hospitals must evaluate their institutional data needs to develop coding policies, which will determine the assignment of ICD-10-CM and ICD-10-PCS codes to diagnoses and procedures. When assigning codes to comorbidities (coexisting conditions) and complications (conditions that develop during inpatient admission), be sure to carefully review patient record documentation to assign the most specific code possible. Revisions to the MS-DRGs comorbidities and complications (CC) list eliminated many diagnoses that were considered CCs in the past. As a result, physicians must be educated about the importance of proper documentation practices. EXAMPLE: Under MS-DRGs: ● Chronic obstructive pulmonary disease (COPD) (J44.9) is not a CC. How- ever, acute exacerbation of COPD (J44.1) is a CC. ● Congestive heart failure (CHF) (I50.9) is not a CC. However, chronic sys- tolic heart failure (I50.22) is a CC and acute systolic heart failure (I50.21) is a major CC (MCC). ICD-10-PCS codes are assigned for documented OR (operating room) and non-OR procedures. (Non-OR procedures are performed in the patient’s room, emergency department, radiology department, and so on.) Whether ICD-10-PCS codes are assigned to other procedures, such as ancillary tests (e.g., EKG, laboratory tests, and so on), is dependent on the hospital’s coding policy. The present on admission (POA) indicator differentiates between patient conditions present upon inpatient admission and those that develop during the inpatient admission. Claims that do not report the POA indicator are returned to the facility for correction. Hospital-acquired conditions that are reported as not present at the time of admission are not considered when calculating the MS-DRG payment. This means that such conditions, even if included on the CC and MCC lists, are not considered a CC or MCC if diagnosed during the inpatient stay and the facility will not receive additional payment for such conditions.

To determine an IPPS payment, hospitals submit a UB-04 claim for each patient to a Medicare administrative contractor (MAC), which is a third-party payer that contracts with Medicare to carry out the operational functions of the Medicare program. MACs process claims and perform program integrity tasks for Medicare Part A and Part B and DMEPOS; each contractor makes program coverage decisions and publishes a newsletter, which is sent to providers who receive Medicare reimbursement. (Medicare transitioned fiscal intermediaries and carriers to create Medicare administrative contractors.) Based on the infor- mation provided on the UB-04, the case is categorized into a DRG, which deter- mines the reimbursement provided to the hospital. (DRG payments are adjusted as discussed previously.) The IPPS 3-day payment window (or IPPS 72-hour rule) requires outpatient pre- admission services provided by a hospital on the day of or during the three days prior to a patient’s inpatient admission to be covered by the IPPS DRG payment and reported on the UB-04 with ICD-10-PCS procedure codes (not CPT codes) for: ● Diagnostic services (e.g., lab testing) ● Therapeutic (or nondiagnostic) services for which the inpatient principal diagnosis code (ICD-10-CM) exactly matches that for preadmission services In addition, an IPPS transfer rule states that certain patients discharged to a post- acute provider are treated as transfer cases, which means hospitals are paid a graduated per diem rate for each day of the patient’s stay, not to exceed the prospective payment DRG rate. (Outliers are also recognized for extraordinarily high-cost cases.) Hospital-Acquired Conditions and Present on Admission Indicator Reporting Payment under the Medicare program for inpatient hospital services is gener- ally based on the inpatient prospective payment system (IPPS), and hospitals receive reimbursement for each inpatient discharge based in part on diagnosis codes that identify a Medicare severity diagnosis-related group (MS-DRG). Assignment of an MS-DRG can take into account the presence of secondary diagnoses, and payment levels are adjusted to account for a number of hospital- specific factors. The Deficit Reduction Act of 2005 (DRA) expanded hospital quality measures collected by Medicare and allowed for the adjustment of payments to hospitals for certain preventable hospital-acquired conditions (HACs), which are medical conditions or complications that patients develop during inpatient hospital stays and that were not present at admission (e.g., pressure ulcers, hospital-acquired infections, pulmonary emboli). HACs are categorized as those that (1) are high cost, high volume, or both; (2) result in the assignment of a case to a MS-DRG that has a higher payment when present as a secondary diagnosis; and (3) could reasonably have been prevented through the applica- tion of evidence-based guidelines. In 2002, the National Quality Forum (NQF) published Serious Report- able Events in Healthcare: A Consensus Report, which listed the previously noted adverse events, which were serious, largely preventable, and of concern to both the public and health care providers. These events were originally known as never events (now called adverse events).