IPPS final rule: Where it started, and what it means for 2020

CDI Journal - Volume 13, Issue 6

Prior to 1983, Medicare reimbursed based on actual charges that inpatient healthcare facilities billed (often referred to as “fee-forservice” payments). The more tests, procedures, and services ordered by physicians, the more an organization was paid. This created the potential for unnecessary or excessive services, contributing to rising healthcare costs and the possibility of depleting Medicare funds.

To combat this, CMS implemented the inpatient prospective payment system (IPPS) in 1983. A core component of the IPPS is the use of diagnosis-related groups, or DRGs. Prior to the IPPS, the International Classification of Diseases (ICD) code assignment rules and regulations were loose: Coding professionals would simply interpret a record and assign codes. With the IPPS, coding standards became stricter in the interest of consistency.

Because of ongoing changes in healthcare trends as well as a need for increased diagnoses and care specificity, CMS releases an updated IPPS rule annually. Before a final rule is made in August, a proposed rule is published generally around June. The public is able to make comments and suggestions, and CMS takes them into consideration before publishing the final rule, which takes effect every October 1—the beginning of the government’s fiscal year (FY).

The birth of DRGs
The implementation of the IPPS, a nationwide reimbursement plan, created the need for a standardized set of codes and regulations. Under the FY 1983 IPPS final rule, CMS began categorizing patient care into DRGs. The original DRG system aimed to categorize similar patients with theoretically similar treatments and charges. By doing this, CMS would be able to keep a standardized reimbursement program and have a set way to determine the average cost for certain conditions. A hospital receives one DRG payment based on a principal diagnosis or procedure for a patient’s stay, regardless of the duration or how many procedures and tests are performed. CMS believed this payment system incentivized hospitals to try to reduce a patient’s length of stay and thereby better control costs.

In 2007, CMS developed the MS-DRG method, which is designed to be budget-neutral and uses cost data submitted two years prior to make budget predictions for the next FY. CMS then adjusts the payment rate for each MS-DRG to ensure budget neutrality and appropriate reimbursement when each MS-DRG is weighed against the overall system, also known as the relative weight (RW). DRG RWs are reviewed and adjusted with the annual IPPS final rule.

How the IPPS works
Medicare bases the IPPS per-discharge payment on two payment rates. One determining factor is the patient’s condition and treatment compared to the average Medicare case (the DRG RW). The other is the hospital’s base weight, which is established by the market conditions in the hospital’s location compared to national conditions. The hospital’s base rate is an assigned standardized amount that is predetermined with operating and capital expenses taken into consideration. It is adjusted based on bad debts, whether the facility is a teaching hospital, if the facility has a disproportionate share of low-income patients, care that involves new approved technology, and other factors.

A hospital’s Medicare reimbursement for each discharge is calculated by multiplying the DRG RW by the hospital’s base rate. This means that the higher a DRG’s RW is for a patient’s condition, the more the hospital will be reimbursed. CDI work and proper coding become imperative at this point to ensure a hospital is receiving the maximum accurate reimbursement possible for discharges and to prevent denials. (For more information about CDI specialists’ role in the denials management process, read the September/October edition of the CDI Journal.)

Incoporating Official Guidelines for Coding and Reporting CDI specialists need to stay informed about changes to the IPPS rule and to the Official Guidelines for Coding and Reporting to ensure appropriate query construction; understand changes to code assignment rules; determine the outcomes to finance, quality, and other metrics related to the changes; and help prevent claim denials.

“Professional coders are mandated to adhere to the Official Guidelines for Coding and Reporting when assigning the ICD-10-CM diagnosis codes is required under the Health Insurance Portability and Accountability Act (HIPAA),” says Laurie Prescott, RN, MSN, CCDS, CCDS-O, CDIP, CRC, CDI education director for HCPro/ACDIS in Middleton, Massachusetts. If CDI specialists and coding professionals are not keeping up with annual IPPS releases, there is a high probability that patient charts will not be coded according to the new specifications and hospitals will not be reimbursed properly.

More than simply stating specific changes to DRG weights and CCs/MCCs, the IPPS final rule also reminds healthcare professionals of overarching goals and standards. “The guidelines also tell us that a joint effort between the healthcare provider and the coder is essential to achieve complete and accurate documentation, code assignment, and reporting of diagnoses and procedures,” says Prescott, “which means we all need to work together to ensure adherence to the guidelines.”

When faced with the length and depth of the new guidelines, remember why they are necessary, Prescott says.

“These guidelines have been developed to assist both the healthcare provider and the coder in identifying those diagnoses that are to be reported,” she says. According to the Official Guidelines for Coding and Reporting, “The importance of consistent, complete documentation in the medical record cannot be overemphasized. Without such documentation, accurate coding cannot be achieved.”

The guidelines also reiterate that the entire patient record should be reviewed to determine the specific reason for the encounter and the conditions treated. “When I hear someone say [they] only code from the discharge summary, I like to remind them that the guidelines say we’re supposed to look at the entire record,” Prescott says. “I like to point that out because the entire record means not just the discharge summary, it means the entire record. That can be physician notes, ancillary documentation, […] and all of that combined helps us understand [which] diagnoses to report and what can be reported.” It also provides the CDI staff member reviewing that record with clinical evidence for additional diagnosis specificity necessary to support a query to the physician.

IPPS final rule highlights
Though CMS makes a host of updates annually, some main highlights for CDI professionals include changes to the CC/MCC lists, a future focus on social determinants of health, and adjustments to the wage index system.

The proposed rule in June named 837 deletions from the CC list and 145 from the MCC list. The final rule, however, contained only five CC deletions and no MCC deletions.

“We were all concerned that there was going to be several changes and reduction of the MCC list that was going to affect CDI practice and hospitals’ ability for reimbursement,” says Prescott. “Several organizations, including ACDIS, wrote in to make comment about that, and CMS decided to postpone those changes for further study.”

As for additions to the CC and MCC list, the overall trend was with added specificity for diagnoses such as the added specificities of heatstroke. New CCs include “heatstroke and sunstroke, initial encounter,” “exertional heatstroke, initial encounter,” and “other heatstroke and sunstroke, initial encounter.”

While the 2020 Hospital Readmissions Reduction Program (HRRP) did not add or remove any measures, CMS made a statement forecasting potential changes for 2021. The FY 2020 IPPS final rule says that “At present, dual-eligible status is the only social risk factor used for assessing disparities in hospital outcomes related to HRRP. We continue to explore the use of additional social risk factors for the hospital disparity methods.” The second portion of the statement stresses the importance of codes related to social determinants of health, insinuating they will likely influence reimbursement in future years. (For more information about CDI reviews for social determinants of health, see the article on p. 23.)

“Hospitals and health systems should educate necessary individuals, including physicians, nonphysician healthcare providers, and coding professionals, of the important need to collect data on the social determinants of health,” Prescott says, noting that the American Hospital Association advises the same. “Using these codes will allow hospitals and health systems to better track patient needs and identify solutions to improve the health of their communities.”

CMS is looking at factors such as homelessness and other social determinants of health that may indicate that a patient is at higher risk. “These are not codes we typically address, but we are seeing organizations start to, so CDI teams might want to start focusing on them,” she says.

In the FY 2020 IPPS final rule, CMS also addressed current inequities in healthcare delivery by focusing on the key priorities of rethinking rural healthcare and unleashing innovation. To do so, CMS finalized adjustments to the current wage index system to address disparities between highand low-income hospitals; the final rule increases the wage index for hospitals below the 25th percentile of the wage index value. The final rule also expanded access to new technologies by increasing new technology add-on payments and streamlining approval processes.

Overall, the FY 2020 IPPS final rule not only continues to focus on increased diagnosis specificity, but also foreshadows the importance of social determinants of health. As with anything, there is not a onesize- fits-all approach to healthcare reimbursement, and CMS appears to be attempting to take all significant factors into consideration.

“I have to encourage you to read the guidelines yourself,” Prescott says. “It’s important because every time I read them—and I read them quite frequently—I learn something. For example, a clear understanding of the guidelines and the IPPS final rule better facilitates the process of DRG reconciliation or coder/CDI disagreement.”