1. 3M Health Information Systems, Inc. © 2007 3M Health Information Systems, Inc. All Rights Reserved. Assessing the Financial Impact of MS-DRGs Healthcare Financial Management Association-Utah Chapter September 20, 2007

2. 2 3M Health Information Systems, Inc. © 2007 3M Health Information Systems, Inc. All Rights Reserved. Major Changes Proposed in the Final Rule  DRG Reclassification and Relative Weight Recalibration  Medicare Severity DRGs (MS-DRGs)  Hospital-acquired Conditions (per the Deficit Reduction Act)  Relative Weight Modifications  Behavioral Offset  Update to Long Term Care DRGs  Updates to payment related changes including:  Wage Index  Operating and GME costs  Capital related costs  Rates for excluded hospitals  Operating and Capital Rates

3. 3 3M Health Information Systems, Inc. © 2007 3M Health Information Systems, Inc. All Rights Reserved. October 1, 2007  MS-DRGs will be used for IPPS  New DRGs  New reimbursement  POA and other regulatory changes

4. 4 3M Health Information Systems, Inc. © 2007 3M Health Information Systems, Inc. All Rights Reserved. How does a grouper work?  It is similar to a known recipe: + += Identification of diagnoses and procedures Coding the diagnoses and procedures Grouping the diagnoses and procedures DRG

5. 5 3M Health Information Systems, Inc. © 2007 3M Health Information Systems, Inc. All Rights Reserved. What’s driving severity documentation and coding today?  Severity based reimbursement : changes in hospital payment by Medicare, Medicaid, and private payers  Provider profiling and performance transparency : Patients are “sicker” and we need to demonstrate how this impacts our ability to deliver quality care  Hospital report cards : Consumers want to compare providers (and have more methods to do so today)  Aging population and increasing life expectancy : the need to conserve limited resources for increasing demand  Quality focused care : providers need ways to measure and improve their performance

6. 6 3M Health Information Systems, Inc. © 2007 3M Health Information Systems, Inc. All Rights Reserved.

7. 7 3M Health Information Systems, Inc. © 2007 3M Health Information Systems, Inc. All Rights Reserved. © 3M 2007. All rights reserved. Key Regulatory Changes: Regulation: Provider Implications  Must learn new DRG system  Must learn new CC and MCC lists  Must be ready by October 1  Creates Major CC subclasses  Increases number of DRGs from 538 to 745  Completely revised CC list CMS adopts MS-DRGs:

8. 8 3M Health Information Systems, Inc. © 2007 3M Health Information Systems, Inc. All Rights Reserved. © 3M 2007. All rights reserved. What are MS-DRGs?  Update to 1994 Severity DRGs  3 Step Process:  Consolidate current DRGs into base DRGs  Categorize each diagnosis as: Major CC (MCC) CC Non-CC  Subdivide each base DRG into subgroups based on CCs No Subgroups 3 groups (MCC, CC, non-CC) 2 groups (MCC/CC, non-CC) 2 groups (MCC, CC/non-CC)

9. 9 3M Health Information Systems, Inc. © 2007 3M Health Information Systems, Inc. All Rights Reserved. Consolidation of DRGs:  115 pairs of DRGs that were subdivided based on presence of a CC  Major cardiovascular conditions  3 pairs of burn DRGs  43 pediatric DRGs that were defined by age <=17  Several DRGs relating primarily to pediatric or adult population that have very low volume in the Medicare population  Several elective surgery DRGs that have shifted to outpatient settings  Some clinically related DRGs that had volume, but no difference in resource use  MDC 14 & 15 were not consolidated due to low volume

10. 10 3M Health Information Systems, Inc. © 2007 3M Health Information Systems, Inc. All Rights Reserved. MS DRGs Increases the Number of DRGs from 538 to 745 Subgroups Number of Proposed Base MS-DRGs Number of Proposed MS-DRGs No Subgroups53 Three subgroups152456 Two subgroups: major CC and CC; non-CC4386 Two subgroups: non-CC and CC; major CC63126 Subtotal311721 MDC 14, 1522 Error DRGs22 Total335745

11. 11 3M Health Information Systems, Inc. © 2007 3M Health Information Systems, Inc. All Rights Reserved. © 3M 2007. All rights reserved. MS vs. current CMS DRG Groups: Base Group, no splits MS vs. current CMS DRG Groups: 3 Groups - MCC, CC, non-CC

12. 12 3M Health Information Systems, Inc. © 2007 3M Health Information Systems, Inc. All Rights Reserved. © 3M 2007. All rights reserved. MS vs. current CMS DRG Groups: 2 Groups – with MCC, without MCC MS vs. current CMS DRG Groups: 2 Groups – with CC/MCC, without CC/MCC

13. 13 3M Health Information Systems, Inc. © 2007 3M Health Information Systems, Inc. All Rights Reserved. © 3M 2007. All rights reserved. MS vs. current CMS DRG Groups: Exception to rules:

14. 14 3M Health Information Systems, Inc. © 2007 3M Health Information Systems, Inc. All Rights Reserved. © 3M 2007. All rights reserved. Key Regulatory Changes: Regulation: Provider Implications Behavioral offset:  CMS anticipates improved documentation and coding  Payments reduced 1.2% to account for this  Blending of relative weights MS-DRGs and CMS DRGs  Unless documentation and coding is improved a significant loss of payment will occur impacting operating margins

15. 15 3M Health Information Systems, Inc. © 2007 3M Health Information Systems, Inc. All Rights Reserved. Behavioral Offset  Proposed Rule was 2.4% in FY2008 and FY2009  Final Rule is 1.2% in FY2008 and 1.8% in FY2009 and FY2010  This compromise to the proposed rule includes a 2 year phase in of the impact of MS-DRGs by blending the relative weights 50% base on CMS DRGs and 50% based on MS-DRGs

16. 16 3M Health Information Systems, Inc. © 2007 3M Health Information Systems, Inc. All Rights Reserved. © 3M 2007. All rights reserved. Key Regulatory Changes: Regulation: Provider Implications MS-DRGs are designed for payment of Medicare patients:  Not applicable to other payers  Not applicable for quality  Other payers will likely adopt other groupers  Hospitals need to maintain multiple groupers

17. 17 3M Health Information Systems, Inc. © 2007 3M Health Information Systems, Inc. All Rights Reserved. IPPS Applicability  “The focus of CMS’ efforts is in developing and maintaining a DRG system that is appropriate for its Medicare population.”  “We do not believe that Medicare should undertake the effort and expense to maintain and update a DRG system that will have no application for Medicare beneficiaries.”

18. 18 3M Health Information Systems, Inc. © 2007 3M Health Information Systems, Inc. All Rights Reserved. © 3M 2007. All rights reserved. Key Regulatory Changes: Regulation: Provider Implications Payment weight methodology modified:  Second year of three year transition to cost based weights  Impact on aggregate payments will vary by hospital  Relative profitability across service line will change

19. 19 3M Health Information Systems, Inc. © 2007 3M Health Information Systems, Inc. All Rights Reserved. © 3M 2007. All rights reserved. Relative Weights  CMS will continue to implement the cost-based DRG relative weights under the 3-year transition period that began in FY2007  This year the relative weights will be recalibrated using a blend of 67 percent of the cost relative weight and 33 percent of the charge relative weight  By FY 2009, the relative weights will be 100 percent cost-based  The 50/50% blend of MS-DRGs and CMS DRGs in calculating the relative weight is on top of the transition to cost based weights

20. 20 3M Health Information Systems, Inc. © 2007 3M Health Information Systems, Inc. All Rights Reserved. © 3M 2007. All rights reserved. Key Regulatory Changes: Regulation: Provider Implications Present on Admission Indicator (POA):  New POA data element must be submitted to Medicare  Must begin coding POA  Coder productivity will be impacted

21. 21 3M Health Information Systems, Inc. © 2007 3M Health Information Systems, Inc. All Rights Reserved. © 3M 2007. All rights reserved. Deficit Reduction Act Requirements  Deficit Reduction Act (DRA)—(Pub. L. 109-171)  Requires that the Present on Admission (POA) indicator be collected for all Medicare patients— beginning Oct 1, 2007  Requires CMS to select two or more conditions that are high cost/high volume.  Requires CMS to begin excluding those conditions from the calculation of the DRG when they are identified as not present on admission—beginning Oct 1, 2008.

22. 22 3M Health Information Systems, Inc. © 2007 3M Health Information Systems, Inc. All Rights Reserved. © 3M 2007. All rights reserved. Implementation Date for POA Data Collection  Deficit Reduction Act of 2005 (DRA) requires the POA indicator to be collected starting Oct. 1, 2007  Change Request #5499 instructs hospitals how to submit this data  Current Form ASC X12N 837, v4010 does not have POA field  Segment K3 in the 2300 loop, data element K301 should be used  Instructions on how to code the POA indicator are in the ICD- 9-CM Official Guidelines for Coding and Reporting

23. 23 3M Health Information Systems, Inc. © 2007 3M Health Information Systems, Inc. All Rights Reserved. © 3M 2007. All rights reserved. Key Regulatory Changes: Regulation: Provider Implications 8 Post admission complications excluded from DRG assignment:  Post admission complications excluded from DRG assignment  Model potential financial impact and initiate continual improvement measures  Evaluate post admission complication rates in your facility

24. 24 3M Health Information Systems, Inc. © 2007 3M Health Information Systems, Inc. All Rights Reserved. Hospital-Acquired Conditions not POA will not be included in MS DRG assignment beginning October 2008 ConditionConsidered in NPRM Proposed in NPRM Selected in FY 2008 Final Rule May Be Considered in Future Rulemaking 1. Serious Preventable Event- Object left in surgery Yes N/A 2. Serious Preventable Event- Air embolism Yes N/A 3. Serious Preventable Event- Blood incompatibility Yes N/A 4. Catheter Associated Urinary Tract Infections Yes N/A 5. Pressure Ulcers (Decubitus Ulcers) Yes N/A 6. Vascular Catheter Associated Infection Yes No (No FY 2008 code) Yes (Code Created for FY 2008) N/A 7. Surgical Site Infection- Mediastinitis after Coronary Artery Bypass Graft (CABG) surgery Yes (All surgical site infections, not just Mediastinitis) No (No unique codes) Yes (Comments suggested Mediastinitis which has unique code) N/A 8. FallsYesNo (Coding not unique) Yes (Operational difficulties will be overcome by FY 2009) Expand to all hospital acquired injuries, adverse events

25. 25 3M Health Information Systems, Inc. © 2007 3M Health Information Systems, Inc. All Rights Reserved. © 3M 2007. All rights reserved. Summary RegulationProvider Implications CMS adopts MS-DRGs on October 1,2007 Learn new DRG system, new CC and MCC lists Ensure software solutions are MS DRG ready Educate cross functional team on MS DRGs 1.2% Behavioral Offset in anticipation of coding and documentation improvement Educate HIM department about MS DRG coding implications Ensure most accurate documentation and coding processes in place MS-DRGs are designed for payment of Medicare patients: Other payers will likely adopt other groupers Hospitals need to maintain multiple groupers Continued transition from charge to cost based relative weights Analyze gap and impact analysis Ensure software systems are ready for reimbursement calculations Submit Present on Admission (POA) data to Medicare Ensure software tools are ready for POA collection Educate HIM department on POA coding guidelines Consider operational improvements for coder workflow 8 Post Admission complications identified for exclusion from DRG assignment (October 1, 2008) Model potential financial impact, gap and initiate continual improvement measures. Evaluate post admission complication rates in your facility.

26. 26 3M Health Information Systems, Inc. © 2007 3M Health Information Systems, Inc. All Rights Reserved. Financial Changes in the next three years 200820092010 Behavioral offset 1.2%1.8% Cost vs charge 67/33100% Complication not calculated in DRG 0% impactIf not POA, not calculated CMS/MS DRG weight blend 50/50 Full MS DRG

27. 27 3M Health Information Systems, Inc. © 2007 3M Health Information Systems, Inc. All Rights Reserved. © 3M 2007. All rights reserved. Complications/Comorbidities  Major CCs (MCC) were designated if:  they were a CC for CMS,  they were a Major CC in AP-DRGs  they were an APR DRG severity 3 (major) or severity 4 (extensive)  Non-CC:  non-CC diagnosis in CMS and in AP-DRGs  APR DRG default severity level 1 (minor)  CC:  any diagnosis that did not meet either of the above two criteria

28. 28 3M Health Information Systems, Inc. © 2007 3M Health Information Systems, Inc. All Rights Reserved. © 3M 2007. All rights reserved. Summary of 3M™ APR DRGs MDC/APR MDC Subdivide each APR DRG into subclasses Four Severity of Illness Subclasses 1.Minor 2.Moderate 3.Major 4.Extreme Four Risk of Mortality Subclasses 1.Minor 2.Moderate 3.Major 4.Extreme 316 APR DRGs 1,258 Subclass Cells

29. 29 3M Health Information Systems, Inc. © 2007 3M Health Information Systems, Inc. All Rights Reserved. © 3M 2007. All rights reserved. Examples of 3M™ APR DRG Subclasses

30. 30 3M Health Information Systems, Inc. © 2007 3M Health Information Systems, Inc. All Rights Reserved. © 3M 2007. All rights reserved. Complications/Comorbidities  Reduced CC list from 3,326 to 2,583 diagnoses codes in 2006; now there are 4,922 codes that are either a Major CC or a CC:  Major CC1,580 codes  CC3,342 codes  Patients under V 24 had at least one CC 77.6% of the time, under the proposed MS-DRG system, this will be reduced to 40.34%.  Chronic diseases were removed from the CC list unless there was a significant acute manifestation:  Mitral valve disorders  CHF  Stage I-II chronic renal failure  Chronic UTI

31. 31 3M Health Information Systems, Inc. © 2007 3M Health Information Systems, Inc. All Rights Reserved. © 3M 2007. All rights reserved. MS-DRG Categories  MS-DRGs with no qualifiers  Chest Pain Chest Pain CMS DRG 143 RW.5637 $2,749 Chest Pain MS-DRG 313 RW.5550 $2,707

32. 32 3M Health Information Systems, Inc. © 2007 3M Health Information Systems, Inc. All Rights Reserved. © 3M 2007. All rights reserved. MS-DRG Categories  MS-DRGs with 3 potential groups (MCC-CC-NCC) Congestive Heart Failure (No qualifiers required) CMS DRG 127 RW 1.0490 $5,117 MS-DRG 291 Heart Failure w MCC RW 1.4760 $ 7,200 MS-DRG 292 Heart Failure w CC RW 1.0169 $4,960 MS-DRG 293 Heart Failure w/o MCC or CC RW.7265 $3,544

33. 33 3M Health Information Systems, Inc. © 2007 3M Health Information Systems, Inc. All Rights Reserved. © 3M 2007. All rights reserved. MS-DRG Categories  MS-DRGs with MCC or w/o MCC CABG with Cath w Major CV CMS DRG 547 RW 6.1390 $29,946 CABG with Cath w MCC MS-DRG 233 RW 7.1350 $34,805 CABG with Cath w/o MCC MS-DRG 234 RW 4.6211 $22,542 CABG with Cath w/o Major CV CMS DRG 548 RW 4.6440 $22,653

34. 34 3M Health Information Systems, Inc. © 2007 3M Health Information Systems, Inc. All Rights Reserved. © 3M 2007. All rights reserved. MS-DRG Categories  MS-DRGs with CC/MCC or w/o CC/MCC Major Joint/Limb Reattachment UE CMS DRG 491 RW 1.7203 $8,392 Major Joint/Limb Reattachment UE w CC/MCC MS-DRG 483 RW 2.1931 $10,698 Major Joint/Limb Reattachment UE w/o CC/MCC MS-DRG 484 RW 1.6862 $8,225

35. 35 3M Health Information Systems, Inc. © 2007 3M Health Information Systems, Inc. All Rights Reserved. © 3M 2007. All rights reserved. MS-DRGs Demand Increased Coding Precision “In determining the CC subclass assigned to a diagnosis, imprecise codes were, in general, not assigned to the MCC or CC subclass.” Non CCHeart Failure NOS428.9 Non CCCongestive Heart Failure NOS428.0 CCSystolic & Diastolic Heart Failure428.40 CCChronic Diastolic Heart Failure428.32 CCChronic Systolic Heart Failure428.22 CCSystolic Heart Failure NOS428.20 CCLeft Heart Failure428.1 Major CCAcute On Chronic Diastolic Heart Failure428.33 Major CCAcute Diastolic Heart Failure428.31 Major CCAcute On Chronic Systolic Heart Fail428.43 Major CCAcute Systolic & Diastolic Heart Failure428.41 Major CCAcute Systolic Heart Failure428.21

36. 36 3M Health Information Systems, Inc. © 2007 3M Health Information Systems, Inc. All Rights Reserved. © 3M 2007. All rights reserved. Why is documentation and coding improvement so critical? Example: In MS DRGs the precise type of heart failure dramatically impacts payment  In prior versions of the CMS DRGs all heart failure codes were a CC so distinctions related to the type of heart failure did not impact DRG assignment 428.1Left Heart Failure 428.20Systolic Heart Failure NOS 428.22Chronic Systolic Heart Failure 428.30Unspecified Diastolic Heart Failure 428.32Chronic Diastolic Heart Failure 428.40Systolic & Diastolic Heart Failure 428.42Chronic combined Systolic and Diastolic Heart Failure With MCCWith CC Without CC or MCC 428.21Acute Systolic Heart Failure 428.23Acute on Chronic Systolic Heart Failure 428.31Acute Diastolic Heart Failure 428.33Acute on Chronic Diastolic Heart Failure 428.41Acute Systolic & Diastolic Heart Failure 428.43Acute on Chronic Systolic Heart Failure 428. 0 Congestive Heart Failure Not Otherwise Specified 428. 9 Heart Failure Not Otherwise Specified Major Small & Large Bowel Procedures $14,732 (1.8415) $23,148 (2.8935) $36,047 (4.5059) Payment Payment Weight MS-DRG 331MS-DRG 329MS-DRG 330

37. 37 3M Health Information Systems, Inc. © 2007 3M Health Information Systems, Inc. All Rights Reserved. Some conditions that are no longer CCs  CHF  Chronic blood loss anemia  Dehydration  COPD  Chronic Renal Failure Stage I-III  Seizure Disorder  Angina (stable)  Atrial Fibrillation  Hyperkalemia

38. 38 3M Health Information Systems, Inc. © 2007 3M Health Information Systems, Inc. All Rights Reserved. © 3M 2007. All rights reserved. UTI vs. Septicemia Example DRG With CC No longer CCs Major CC, but only if site specified In current CMS system, Septicemia was reimbursed at $7,803

39. 39 3M Health Information Systems, Inc. © 2007 3M Health Information Systems, Inc. All Rights Reserved. The Challenge Physician Documentation is recorded in CLINICAL terms Documentation for coding, profiling & compliance must contain specific DIAGNOSTIC terms Breakdown between the two languages

40. 40 3M Health Information Systems, Inc. © 2007 3M Health Information Systems, Inc. All Rights Reserved. © 3M 2007. All rights reserved. Common Documentation Issues Unable to CodeAcceptable to Code LUL InfiltrateLUL Pneumonia Hgb 5.2; TransfusedAcute or Chronic Blood Loss Anemia Emaciated; Total Protein/Albumin Low; Nutrition Supplements Started Malnutrition ABG 7.22/68/44; Will Treat AccordinglyRespiratory Failure, Acidosis, Alkalosis, Etc. Will Rehydrate PatientDehydration BP 70/40 on Dopamine for SupportShock Cardiac Enzymes Elevated; EKG PositiveAcute MI No Overt CHF; Will Continue Lasix and LanoxinCompensated CHF Unable to Void; Cathed for 600 ccUrinary Retention Sputum Gram Stain with Large Amount Gram- Negative Rods; Will Cover with Rocephin Questionable Gram-Negative Pneumonia

41. 41 3M Health Information Systems, Inc. © 2007 3M Health Information Systems, Inc. All Rights Reserved. Gender: FemaleAge: 55 Disposition: DiedLOS: 11 Days Principal Diagnosis: 431 Intracerebral hemorrhage Case 1Case2 LOS Case 3Case 4Description Secondary Diagnoses 78729 42731 78729 42731 2867 78729 42731 2867 5070 78729 42731 2867 5070 78001 Other dysphagia Atrial fibrillation Acquired coagulation factor def Pneumonitis due to inhalation of food or vomitus (MCC) Coma MS-DRG 66 w/o CC/MCC65 w/CC64 w/MCC Intracranial hemorrhage or cerebral infarction Reimbursement$5,025 $5,805$7,546 APR SOI 2234 APR ROM22 34 Expected Mortality Rate 14% 39%76%

42. 42 3M Health Information Systems, Inc. © 2007 3M Health Information Systems, Inc. All Rights Reserved. Questions