Who makes the rules? CMS and IPPS

The introduction of the Medicare Inpatient Prospective Payment System (IPPS) through amendment of the Social Security Act in 1983 transformed hospital reimbursement in the United States. Under the IPPS, a new form of Medicare prospective payment that paid hospitals a fixed amount per discharge for inpatient services was created: the diagnosis-related group (DRG). This eliminated the preceding retrospective cost reimbursement system in an attempt to stop health care price inflation.

Each DRG represents a grouping of similar conditions and procedures for services provided during an inpatient hospitalization reimbursed under Medicare Part A. The Centers for Medicare & Medicaid Services uses the Medicare Severity DRG (MS-DRG) system to account for severity of illness and resource consumption. There are three levels of severity based upon secondary diagnosis: major complication/comorbidity (MCC), complication/comorbidity (CC), and noncomplication/comorbidity (non-CC).

Payment rates are defined by base rates for operating costs and capital-related costs which are adjusted for relative weight (the average cost within a DRG, compared with the average Medicare case cost) and market condition adjustments. As the largest single health care payer in the United States, CMS’ annual changes to the IPPS have a major impact on hospital reimbursement.

In May 2019, CMS released its annual proposed rule for the Hospital IPPS suggesting extensive changes to MS-DRG reimbursements. Notably, CMS proposed changing the severity level of nearly 1,500 diagnosis codes by adjusting their categorization between MCC, CC, or non-CC. The majority of these changes included downgrading MCCs to CCs or non-CCs. In fact, 87% of the changes involved a downgrade from one of the higher severity levels to a non-CC level, while only 13% involved an upgrade from a lower severity level to MCC level.

The CMS derived these changes from an algorithmic review and input from their clinical advisors to determine each diagnoses impact on resource utilization. Multiple major groups of codes were included in the downgraded groups, including secondary cancer diagnoses, organ transplant status, and hip fracture.

Evaluating codes based on coded resource use alone could have had a major negative impact on the clinical practice of hospitalists as it undervalues cognitive and clinical work associated with these secondary diagnoses. As an example, malignant neoplasm of head of pancreas (ICD-10, C25.0) was proposed to move to a non-CC. Under CMS’ proposed rule, if a patient was admitted with complications of pancreatic cancer such as cholangitis caused by biliary obstruction, the pancreatic cancer diagnosis would not serve as a CC since the primary condition for which the patient was hospitalized would be cholangitis. The anticipated increase in such a patient’s length of stay, severity of illness, and expected resource utilization would be grossly misrepresented in this case by CMS’ proposed rule changes. CMS also proposed to move major organ-transplant status (including heart, lung, kidney, and pancreas) from CC to non-CC status. Again, the cognitive work and resource utilization required to manage these patients would be underrepresented with this change, given the increased complexity of managing immunosuppressant medications or conducting an infectious diagnostic work-up in immunosuppressed patients.

The Society of Hospital Medicine Public Policy Committee provides comments annually to CMS on the IPPS, advocating for hospitalists and patients. After advocacy efforts from SHM and other groups, expressing concern about making such significant changes to the DRG system without further study, the IPPS final rule was released on August 2, 2019. SHM’s efforts paid off. The final rule excluded the proposed broad changes to the MS-DRG system that were in the proposed rule.

In deciding not to finalize the proposed severity level changes, CMS wrote that the adoption of these broad changes will be postponed in order “to fully consider the technical feedback provided” regarding the proposal. The final rule also describes making a “test GROUPER [software program] publicly available to allow for impact testing,” and allows for the possibility of phasing in changes and eliciting feedback. SHM is fully supportive of the decision to postpone major changes to the MS-DRG system in the IPPS until further review is obtained, and will continue to monitor this issue and provide appropriate input to CMS for our hospitalist members.

As hospitalists, it is important to understand the foundational role that public policy and CMS rule creation have on our work. Influencing change to the MS-DRG system is yet another example of how SHM’s work has impacted the policy domain, limiting negative effects on our members and advancing the practice of hospital medicine.

Dr. Biebelhausen is head of the section of hospital medicine at Virginia Mason Medical Center, Seattle. Dr. Cowart is a hospitalist at the Mayo Clinic in Jacksonville, Fla. Dr. Hamilton is a hospitalist and associate chief quality officer at the Cleveland Clinic.

The introduction of the Medicare Inpatient Prospective Payment System (IPPS) through amendment of the Social Security Act in 1983 transformed hospital reimbursement in the United States. Under the IPPS, a new form of Medicare prospective payment that paid hospitals a fixed amount per discharge for inpatient services was created: the diagnosis-related group (DRG). This eliminated the preceding retrospective cost reimbursement system in an attempt to stop health care price inflation.

Each DRG represents a grouping of similar conditions and procedures for services provided during an inpatient hospitalization reimbursed under Medicare Part A. The Centers for Medicare & Medicaid Services uses the Medicare Severity DRG (MS-DRG) system to account for severity of illness and resource consumption. There are three levels of severity based upon secondary diagnosis: major complication/comorbidity (MCC), complication/comorbidity (CC), and noncomplication/comorbidity (non-CC).

Payment rates are defined by base rates for operating costs and capital-related costs which are adjusted for relative weight (the average cost within a DRG, compared with the average Medicare case cost) and market condition adjustments. As the largest single health care payer in the United States, CMS’ annual changes to the IPPS have a major impact on hospital reimbursement.

In May 2019, CMS released its annual proposed rule for the Hospital IPPS suggesting extensive changes to MS-DRG reimbursements. Notably, CMS proposed changing the severity level of nearly 1,500 diagnosis codes by adjusting their categorization between MCC, CC, or non-CC. The majority of these changes included downgrading MCCs to CCs or non-CCs. In fact, 87% of the changes involved a downgrade from one of the higher severity levels to a non-CC level, while only 13% involved an upgrade from a lower severity level to MCC level.

The CMS derived these changes from an algorithmic review and input from their clinical advisors to determine each diagnoses impact on resource utilization. Multiple major groups of codes were included in the downgraded groups, including secondary cancer diagnoses, organ transplant status, and hip fracture.

Evaluating codes based on coded resource use alone could have had a major negative impact on the clinical practice of hospitalists as it undervalues cognitive and clinical work associated with these secondary diagnoses. As an example, malignant neoplasm of head of pancreas (ICD-10, C25.0) was proposed to move to a non-CC. Under CMS’ proposed rule, if a patient was admitted with complications of pancreatic cancer such as cholangitis caused by biliary obstruction, the pancreatic cancer diagnosis would not serve as a CC since the primary condition for which the patient was hospitalized would be cholangitis. The anticipated increase in such a patient’s length of stay, severity of illness, and expected resource utilization would be grossly misrepresented in this case by CMS’ proposed rule changes. CMS also proposed to move major organ-transplant status (including heart, lung, kidney, and pancreas) from CC to non-CC status. Again, the cognitive work and resource utilization required to manage these patients would be underrepresented with this change, given the increased complexity of managing immunosuppressant medications or conducting an infectious diagnostic work-up in immunosuppressed patients.

The Society of Hospital Medicine Public Policy Committee provides comments annually to CMS on the IPPS, advocating for hospitalists and patients. After advocacy efforts from SHM and other groups, expressing concern about making such significant changes to the DRG system without further study, the IPPS final rule was released on August 2, 2019. SHM’s efforts paid off. The final rule excluded the proposed broad changes to the MS-DRG system that were in the proposed rule.

In deciding not to finalize the proposed severity level changes, CMS wrote that the adoption of these broad changes will be postponed in order “to fully consider the technical feedback provided” regarding the proposal. The final rule also describes making a “test GROUPER [software program] publicly available to allow for impact testing,” and allows for the possibility of phasing in changes and eliciting feedback. SHM is fully supportive of the decision to postpone major changes to the MS-DRG system in the IPPS until further review is obtained, and will continue to monitor this issue and provide appropriate input to CMS for our hospitalist members.

As hospitalists, it is important to understand the foundational role that public policy and CMS rule creation have on our work. Influencing change to the MS-DRG system is yet another example of how SHM’s work has impacted the policy domain, limiting negative effects on our members and advancing the practice of hospital medicine.

Dr. Biebelhausen is head of the section of hospital medicine at Virginia Mason Medical Center, Seattle. Dr. Cowart is a hospitalist at the Mayo Clinic in Jacksonville, Fla. Dr. Hamilton is a hospitalist and associate chief quality officer at the Cleveland Clinic.

The introduction of the Medicare Inpatient Prospective Payment System (IPPS) through amendment of the Social Security Act in 1983 transformed hospital reimbursement in the United States. Under the IPPS, a new form of Medicare prospective payment that paid hospitals a fixed amount per discharge for inpatient services was created: the diagnosis-related group (DRG). This eliminated the preceding retrospective cost reimbursement system in an attempt to stop health care price inflation.

Each DRG represents a grouping of similar conditions and procedures for services provided during an inpatient hospitalization reimbursed under Medicare Part A. The Centers for Medicare & Medicaid Services uses the Medicare Severity DRG (MS-DRG) system to account for severity of illness and resource consumption. There are three levels of severity based upon secondary diagnosis: major complication/comorbidity (MCC), complication/comorbidity (CC), and noncomplication/comorbidity (non-CC).

Payment rates are defined by base rates for operating costs and capital-related costs which are adjusted for relative weight (the average cost within a DRG, compared with the average Medicare case cost) and market condition adjustments. As the largest single health care payer in the United States, CMS’ annual changes to the IPPS have a major impact on hospital reimbursement.

In May 2019, CMS released its annual proposed rule for the Hospital IPPS suggesting extensive changes to MS-DRG reimbursements. Notably, CMS proposed changing the severity level of nearly 1,500 diagnosis codes by adjusting their categorization between MCC, CC, or non-CC. The majority of these changes included downgrading MCCs to CCs or non-CCs. In fact, 87% of the changes involved a downgrade from one of the higher severity levels to a non-CC level, while only 13% involved an upgrade from a lower severity level to MCC level.

The CMS derived these changes from an algorithmic review and input from their clinical advisors to determine each diagnoses impact on resource utilization. Multiple major groups of codes were included in the downgraded groups, including secondary cancer diagnoses, organ transplant status, and hip fracture.

Evaluating codes based on coded resource use alone could have had a major negative impact on the clinical practice of hospitalists as it undervalues cognitive and clinical work associated with these secondary diagnoses. As an example, malignant neoplasm of head of pancreas (ICD-10, C25.0) was proposed to move to a non-CC. Under CMS’ proposed rule, if a patient was admitted with complications of pancreatic cancer such as cholangitis caused by biliary obstruction, the pancreatic cancer diagnosis would not serve as a CC since the primary condition for which the patient was hospitalized would be cholangitis. The anticipated increase in such a patient’s length of stay, severity of illness, and expected resource utilization would be grossly misrepresented in this case by CMS’ proposed rule changes. CMS also proposed to move major organ-transplant status (including heart, lung, kidney, and pancreas) from CC to non-CC status. Again, the cognitive work and resource utilization required to manage these patients would be underrepresented with this change, given the increased complexity of managing immunosuppressant medications or conducting an infectious diagnostic work-up in immunosuppressed patients.

The Society of Hospital Medicine Public Policy Committee provides comments annually to CMS on the IPPS, advocating for hospitalists and patients. After advocacy efforts from SHM and other groups, expressing concern about making such significant changes to the DRG system without further study, the IPPS final rule was released on August 2, 2019. SHM’s efforts paid off. The final rule excluded the proposed broad changes to the MS-DRG system that were in the proposed rule.

In deciding not to finalize the proposed severity level changes, CMS wrote that the adoption of these broad changes will be postponed in order “to fully consider the technical feedback provided” regarding the proposal. The final rule also describes making a “test GROUPER [software program] publicly available to allow for impact testing,” and allows for the possibility of phasing in changes and eliciting feedback. SHM is fully supportive of the decision to postpone major changes to the MS-DRG system in the IPPS until further review is obtained, and will continue to monitor this issue and provide appropriate input to CMS for our hospitalist members.

As hospitalists, it is important to understand the foundational role that public policy and CMS rule creation have on our work. Influencing change to the MS-DRG system is yet another example of how SHM’s work has impacted the policy domain, limiting negative effects on our members and advancing the practice of hospital medicine.

Dr. Biebelhausen is head of the section of hospital medicine at Virginia Mason Medical Center, Seattle. Dr. Cowart is a hospitalist at the Mayo Clinic in Jacksonville, Fla. Dr. Hamilton is a hospitalist and associate chief quality officer at the Cleveland Clinic.