MS-DRG system offers opportunities, potential changes in the bottom line

Accurately documenting severity of illness is the key to success

The adoption of the new MS-DRG system, coupled with the Centers for Medicare & Medicaid Services' (CMS) move to cost-based relative weights is likely to have a significant financial impact on hospitals, says Deborah Hale, CSS, president of Administrative Consultant Services Inc., a health care consulting firm based in Shawnee, OK.

But the changes are not all bad. By better recognizing severity of illness, MS-DRGs shift payments from the less expensive to the more expensive cases. Much of the negative financial impact can be offset if hospitals pay attention to detail and document accurately to reflect the severity of illness of the patients they care for, she adds.

"Hospitals that want to do well financially have no choice about improving documentation and coding accuracy. Coders, case managers, and physicians must work collaboratively on documentation improvement. Documentation and coding must be accurate and complete for the hospital to get the reimbursement it is entitled to," Hale says.

Before you embark on your documentation improvement project

Before embarking on any kind of documentation improvement project, hospitals should determine the potential impact the new system will have on its bottom line, says Bert Amison, managing director of health care advisory services for KPMG.

One way is to conduct an analysis of the changes the new system will make on reimbursement by service line, either internally or by hiring an outside consultant.

"An analysis, by service line, of where reimbursement may improve and where it may go down, will allow the organization to make strategic decisions about where future investments go," Amison says.

The new system replaces 538 DRGs with 745 new MS-DRGs with a new number system designed to more accurately reflect the severity of each patient's condition by creating a distinction between severity levels.

MS-DRGs 'a coding improvement adjustment'?

"CMS has referred to the new MS-DRG system as a coding and documentation improvement adjustment. They believe that the new system will improve coding accuracy by forcing hospitals and physicians to document more thoroughly," says Carol H. Eyer, RHIA, senior manager of clinical compliance and reimbursement at Pershing Yoakley & Associates' Atlanta office.

The biggest change with the new system is the way secondary diagnoses are treated, Hale says. The MS-DRG system refines the list of secondary diagnoses and splits the DRGs, sometimes into three different categories — with a major complication/comorbidity (MCC), with a complication/comorbidity (CC), and with no CC or MCC.

"CMS projects that 41% of cases will have no CC. When you compare that with 20% of cases in the past with no CC, you can see that the impact will be significant," she says.

Only 40 medical MS-DRGs do not change with the presence of a CC or MCC, Hale adds.

"There are so many examples of DRGs where we haven't worried about CC conditions in the past because it didn't make any difference in reimbursement, but it can have a tremendous difference in reimbursement now," Hale says.

For instance, hospitals could receive a considerable reduction in payment for chronic obstructive pulmonary disorder (COPD), one of the most frequently assigned DRGs, if the documentation does not indicate the presence of a CC or an MCC, Hale points out.

For a hypothetical hospital with a hospital-specific rate of $5,500, reimbursement for COPD without a CC/MCC (MS-DRG 192) will be $4,480 in fiscal year 2008, compared to $5,173 for MS-DRG 191 (COPD with CC) or $6,127 for MS-DRG 190 (COPD with MCC). The reimbursement for COPD without a CC/MCC is projected to drop even further to $4,061 in 2009, when the relative weights are 100% cost-based, she says.

"Case managers will play a most important role in implementing the new system by learning the most common CCs and MCCs that occur among their patient population under the MS-DRG system and ensuring that they are documented correctly," Eyer says.

Identify your top CC, MCC diagnoses

Instead of trying to memorize the entire CC and MCC list, Eyer suggests that case managers work with their health information management departments to determine their facility's top CC and MCC diagnoses.

Identify those that you need to work on now vs. those that either occur less frequently or will have less impact and focus your efforts accordingly, she says.

With the new system, conditions that doctors are not accustomed to documenting can make a difference in the DRG that is assigned and, ultimately, the reimbursement, Amison says. For instance, surgeons tend to document what is relevant to the procedure they performed but not necessarily any other conditions that can affect the level of care needed, he says.

"There are new conditions altogether that in certain clinical examples do make a difference now. The MCCs take us to a greater level of acuity than we've ever been able to reach before," he says.

Many chronic conditions have been removed from the CC list because they don't necessarily cause an increase in the cost of care, Hale says.

For instance, emphysema, chronic bronchitis, and chronic obstructive pulmonary disease have been eliminated as CCs. However, if the COPD is acutely exacerbated and the physician documents "acute exacerbation," it is a CC.

At the same time, there are conditions that did not affect reimbursement in the past but do affect it now, Hale points out.

Among those are acute ulcer, Alzheimer's with behavioral disturbance, aphasia, a body mass index of less than 19 or more than 39, CAD of bypass graft, chronic pancreatic, hemiplegia, jaundice, diabetic osteomyelitis, pancytopenia, transient ischemic attack, and ulcerative colitis. Viral pneumonia and encephalopathy were not CCs in the previous system but now are major CCs, she adds.

Under the MS-DRGs, nutritional status can impact reimbursement. Protein-calorie malnutrition, malnutrition, cachexia, or a body mass index of less than 19 or more than 39 count as a CC. Severe malnutrition and protein malnutrition can be coded as MCCs.

If anyone on the staff sees evidence of behavioral disturbance, such as a patient wandering off, he or she can document it in the chart and the physician can include that in his or her documentation. Nurses or dietitians can document the body mass index values.

Body mass index values are the only conditions that do not have to be documented by a physician, Hale points out.

Gastrointestinal disorders such as diverticulitis, gastric ulcer, blood in stool, and GI hemorrhage are CCs. Diverticulitis or diverticulosis with hemorrhage or gastritis with hemorrhage are MCCs. The physician must link the bleed to the source.

When decubitus ulcers are a secondary diagnosis, physicians must be very specific, Hale points out, adding that decubitus ulcers can be an MCC, depending on the location. For instance, decubitus ulcers of the back, hip, buttock, ankle, or heel are MCCs but ulcers of the elbow and head or those with unspecified sites are CCs.

Documentation education program

The key to developing a documentation improvement education program is to know where your efforts will have the most effect, Amison says.

Look at MS-DRGs that are high volume in your hospital as well as conditions that you don't treat as frequently but that have a heavy weight, he suggests.

"It's up to physicians to document what they feel is appropriate and it's up to the coders to code following guidelines. The case managers can be a bridge between these two groups, creating a powerful compliance step for a hospital," Amison says.

As time goes by, track any changes in your case mix and revisit the MS-DRG educational process periodically to make sure the changes are covered, he suggests. For instance, if a new heart hospital opens in your area, you may be handling fewer cardiac cases and more of something else.

Build regularly scheduled meetings between coders and case management into your program, Amison suggests. It's effective for both disciplines to take 15 minutes or so each week to discuss trends and documentation gaps, he says. Either designate one coder and one case manager to meet and take the information back to their peers or rotate staff, he says.

"There needs to be an open line of communication between coding and case management," he adds.

(For more information, contact Bert Amison, managing director of health care advisory services, KPMG, e-mail:; Carol H. Eyer, RHIA, senior manager of clinical compliance and reimbursement with Pershing Yoakley & Associates, e-mail:; or Deborah Hale, CSS, president of Administrative Consultant Services Inc., e-mail: