Frightening Scenario or Manageable Change? Determining the Realistic Reimbursement Impact of ICD-10 on MS-DRGs and APR-DRGs August 16, 2013 Paul X. Allen, Johns Hopkins Health System Presented to Maryland HFMA

Financial Impact Analysis OBJECTIVES Processes to determine reimbursement Methodology used to calculate financial impact for this study Results of MS-DRG financial impact analysis with sample case scenario review Results of APR-DRG financial impact analysis with sample case scenario review Conclusions

Not-for-profit hospital located in Baltimore, MD 1, 059 beds Teaching hospital

SIBLEY MEMORIAL HOSPITAL Not-for-profit community hospital 318 beds Member of Johns Hopkins Medicine

MS-DRG Financial Impact

ICD-10 MS-DRG Reimbursement Developed by CMS using ICD-10-CM and ICD-10-PCS for inpatient hospital payment While not categorized as budget neutral, it should replicate ICD-9 MS-DRG reimbursement Recent study shows aggregate of -0.04% change in reimbursement comparing ICD-9 MS-DRG to ICD-10 MS-DRG MS-DRG categories are not changing

MS-DRG Shifts

Ways to determine change Ideal Method – Natively code the patient record using ICD-9 and natively code the patient record in ICD-10 and compare the two resulting DRGs Translation Method – Start with ICD-9 coded data and translate to ICD-10 using an enhanced translation methodology. This needs to take into account specificity changes as well as Coding Guideline changes

Translation Methodology For each ICD-9 code, a plausible ICD-10 code was determined using the GEMs. If an ICD-9 code translated to a single ICD-10 code, then that code was added If an ICD-9 code translated to multiple ICD-10 codes, then the following steps were taken: Both ICD-9 to ICD-10 forward mapping and backward mapping were utilized to narrow the ICD-10 code selection ICD-9 procedure codes without designation of body system were compared to the principal diagnosis to aid in the most accurate selection If multiple ICD-9 codes are need to make a cluster code and all the codes are present, then they are translated to a single ICD-10 code If a combination code in ICD-9 requires multiple codes in ICD-10 for the same meaning, then the translation includes all the multiple codes Gender specific codes in ICD-10 were selected based on the gender of the patient If the coding rules differ for ICD-10, then the translation follows those coding rules. Anemia secondary to cancer is sequenced as principal in ICD-9 and secondary in ICD-10 Remaining codes (19%) are translated using a uniform probability distribution as these involve conditions, such as laterality (right-left), which do not impact the MS-DRG assignment.

Sibley Reimbursement Variance

Date range of Claims Jan 2011 to Dec 2012 Variance Data Date range of Claims Jan 2011 to Dec 2012 Medicare claims volume - 6,810 Reimbursement difference $24,367 Medical – negative $48,752 Surgical – positive $73,119 DRG Changes 1.01% - 69 claims Case Mix variance 0.0006 Case Mix variance percentage 0.04%

Sibley Case Mix Variance

Product Line Revenue

Product Line Revenue Detail

Reasons for MS-DRG Changes Changes in coding guidelines Increased specificity of ICD-10 Decreased specificity of ICD-10 Changes in meaning of diagnostic descriptions Changes in MCC/CC designations Changes in ICD-10 MS-DRG attributable to ICD-9 coding errors Changes in ICD-10 MS-DRG attributable to ICD-10 coding errors Changes in ICD-10 MS-DRG versions

Drill Down into Case Detail MS-DRG 292 Heart Failure with a CC to MS-DRG 293 Heart Failure without a CC – 2 cases Cause – In both cases a secondary diagnosis of Malignant Hypertension (401.0) was listed in ICD-9-CM and this was a CC. In ICD-10-CM, Malignant Hypertension is coded I10 and is not a CC. Variance – Negative $4,100

Product Line Revenue Detail

Drill Down into Case Detail MS-DRG 311 Angina Pectoris to MS-DRG 303 Arteriosclerosis without MCC – 3 cases Cause – In ICD-9-CM angina and Coronary Artery Disease are assigned separate codes and sequencing determines the MS-DRG. In ICD-10-CM angina and CAD are assigned together as a combination code. Variance – Positive $1,191

Product Line Revenue Detail

Drill Down into Case Detail MS-DRG 194 Simple pneumonia with a CC changes to MS-DRG 195 Simple pneumonia without a CC Cause – In ICD-9-CM Major depression is a CC, but in ICD-10 it is not a CC without additional specificity Mitigation – Obtain additional specificity for Major Depression Variance – Negative $1,772.33 Patient with unspecified major depression is coded to F32.9 unspecified. On patient review, major depression can be coded to more specific code of F33.3, Major depressive disorder, recurrent, severe with psychotic symptoms, which is considered a CC in ICD-10

APR-DRG Financial Impact

What are APR DRGs? Developed by 3M Health Information Systems in conjunction with National Association of Children’s Hospitals and Related Institutions (NACHRI) An expansion of the basic DRG concept to include non-Medicare patients and to classify patients into groups that include adjustments for Severity of Illness (SOI) and Risk of Mortality (ROM) subclasses Read slide (or summarize slide) Added info: The Diagnosis Related Groups (DRGs) are a patient classification scheme which provides a means of relating the type of patients a hospital treats (i.e., its case mix) to the costs incurred by the hospital. There are currently three major versions of the DRG in use: basic DRGs, All Patient DRGs, and All Patient Refined DRGs. The basic DRGs are used by the Centers for Medicare and Medicaid Services (CMS) for hospital payment for Medicare beneficiaries. The All Patient DRGs (AP-DRGs) are an expansion of the basic DRGs to be more representative of non-Medicare populations such as pediatric patients. The All Patient Refined DRGs (APR-DRG) incorporate severity of illness subclasses into the AP-DRGs. APR’s allow us to analyze the non-elderly population, or illnesses not often present in the elderly. Some examples - there are extensive APRs related to the pediatric population. Also, APRs deal w/HIV and HIV related conditions. Both of these are areas not well delineated with CMS DRGs. With APRs you get a 3 digit APR, with 2 one digit additions – a 1-4 category for Severity of Illness and a 1-4 category for Risk of Mortality.

Why were APR DRGs Developed? Compare hospitals across a wide range of resource and outcome measures Evaluate differences in inpatient mortality rates Implement and support clinical pathways Identify opportunities for quality and cost improvement Serve as a basis for internal management and planning systems Support management of capitated payment arrangements

APR DRG Classification Data Elements MDC Major Diagnostic Category Base APR DRG Four Severity of Illness Subclasses Minor Moderate Major Extreme Four Risk of Mortality Subclasses Minor Moderate Major Extreme

Underlying Principle of 3M™ APR DRGs Severity of illness and risk of mortality are dependent on the patient’s underlying problem. High Severity of Illness and Risk of Mortality are characterized by multiple serious diseases and the interaction among those diseases.

ICD-10 APR DRG v30 is a replication of ICD-9 APR DRG v30 When ICD-9 APR DRG compared to ICD-10 APR DRG 1.44% of cases changed APR DRG 2.01% of cases changed SOI within the same DRG CMI changed by -0.025%

Johns Hopkins Reimbursement Variance

Date range of Claims Feb 2012 to Jan 2013 Volume of claims – 45,356 Variance Data Date range of Claims Feb 2012 to Jan 2013 Volume of claims – 45,356 Reimbursement difference -$6,251,989 Medical – negative $3,212,699 Surgical – negative $3,039,290 DRG Changes - 4.81% Case Mix Variance -0.0076 Case Mix Variance percentage -0.45%

Case Mix Variance

Estimated Revenue Impact

Product Line Revenue

Product Line Revenue Detail

Reasons for APR-DRG Changes Changes in coding guidelines Increased specificity of ICD-10 Decreased specificity of ICD-10 Changes in meaning of diagnostic descriptions Changes in MCC/CC designations Changes in ICD-10 APR-DRG attributable to ICD-9 coding errors Changes in ICD-10 APR-DRG attributable to ICD-10 coding errors

Drill Down into Case Detail Severity of illness level shift APR-DRG 194 SOI 3 Heart Failure, RW 1.028 to APR-DRG 194 SOI 2 Heart Failure, RW 0.6585 Cause – Patient admitted with heart failure and other comorbid conditions. Conditions in ICD-10 did not produce the same SOI results. Variance – $6,676.45

Product Line Revenue Detail

Drill Down into Case Detail Severity of illness level shift APR-DRG 135 with Severity level of 2, RW of 0.8567 changed to APR-DRG 135 with Severity level of 3, RW of 1.2855 Cause – Patient with traumatic pneumothorax with open wound which is reported with two codes in ICD-10 Variance – Change of $7,745.84

Product Line Revenue Detail

Drill Down into Case Detail APR-DRG 245 with Severity level of 4, RW of 2.2353 changed to APR-DRG 952 with Severity level of 3, RW of 2.256 Cause – Patient with ulcerative colitis received a steroid injection with no diagnosis to indicate the site of the injection. Computer picked ear which changed the DRG Variance – Change of $373.92

Product Line Revenue Detail

Drill Down into Case Detail APR-DRG 020 with Severity level of 3, RW of 3.9146 changed to APR-DRG 020 with Severity level of 2, RW of 2.5864 Cause – Patient with head injury, cranial surgery and eye evisceration. Variance – Change of $23,992.60

Reference Mills, Ronald E., et al., Estimating the Impact of the Transition to ICD-10 on Medicare Inpatient Hospital Payments, 2013 https://www.cms.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion- Project.html