Medical billing and coding experts work with tens of thousands of codes in their profession.
To make it easier to remember frequently used codes and simplify the process overall, they will place these codes into different categories which helps with organization and to speed up the completion of daily tasks.
These categories or groups are known as diagnosis-related groups.
While those who are new to the medical billing and coding industry may have a difficult time using DRGs at first, those who have worked as a coding or billing expert for years feel that DRGs are not complicated at all.
What Is A Diagnosis Related Group?
The Diagnosis Related Group was created in an effort to standardize reimbursement rates. The idea originated in New Jersey and was a collaboration between Yale University and CMS.
Analysts looked at the reimbursement rates for hospitals all throughout the state of New Jersey, including facilities that were operated on a surplus as well as those that stayed in a deficit. The results of their studies showed that the reimbursement rates were all over the place and varied greatly.
And that is why the DRG was created. To make things simpler for those in the medical billing and coding industry.
In simple terms, the diagnostic related grouping is how some health insurance companies and Medicare determine the cost of hospitalization and services performed at a hospital. It helps to determine how much the insurance company should pay for the patient’s hospital stay. Instead of paying the hospital the entire amount for what they spent while caring for the patient, Medicare pays the hospital a fixed rate that is based on the patient’s DRG or their diagnosis.
Basically, all patients who are on Medicare and are staying in the hospital for treatment after suffering a heart attack, will be in the same DRG and therefore Medicare will pay the hospital the same amount for each patient, regardless of what hospital they are in or the duration of their stay.
If a hospital provides the patient with care while spending less than their DRG payment, they will make a profit. If they end up spending more than their DRG payment while treating a patient, they will lose money.
The History Of The Diagnosis Related Group System
The DRG system has not been in effect for very long. In the past, if you had to stay in the hospital, the facility would send a bill to either your insurance company or Medicare. The bill would include charges for all supplies used, the use of the room, medication taken and more. There would be charges for every single bandage or alcohol swab used and that eventually got out of hand.
As the cost of health care went up, the U.S. government started looking for a way to better control the cost of a usual hospital stay, and the result they came up with was the Diagnosis Related Group system.
The DRG started in the 1980s, and it changed the way that Medicare and many other insurance companies pay for hospital stays. Instead of paying for each day that a patient is admitted in the hospital, or for each bandage that is used, Medicare and insurance companies only need to pay a flat rate for each patient’s hospital stay.
The amount that your insurance company or Medicare would pay for a single hospital stay would be determined by several factors; your diagnosis, any surgical procedures performed, your gender and your age.
The whole idea of a diagnosis related group is that each separate DRG categorizes patients with similar health issues and whose care needs a similar type of care and resources to treat. Because the amount of care and supplies used is similar for people with the same diagnosis and in the same age category, insurance companies can pay the same amount while medical billing and coding experts can spend less time filling out forms with multiple codes.
What Is An MS-DRG?
When the very first Diagnosis Related Group system was introduced in the State of New Jersey, there were only 467 categories. Today, DRGs are now required in all hospitals throughout the country.
However, there is no universal system for DRGs. Each organization, whether it is a health insurance company or a health care provider, must create their own DRG. But, there are also a few DRGs that are commonly used by hospitals. These are known as MS-DRG.
The MS-DRG is a coding and classification system that is commonly used by most major hospitals. First, the system divides all potential ailments that a person could have. These issues are divided into 25 categories known as Medical Diagnostic Categories or MDCs.
An MDC is based on the various systems of the body, such as the cardiovascular system, digestive system, or lymph system for example. There is also a subset of codes that are within the initial 25 MDCs that property identifies if the procedure involves surgery or not.
It is a billing and coding expert’s duty to learn about each of these categories and know how to code them correctly. The system allows for MDCs to branch out with additional ailments added if the patient needs more treatment.
Determining The Monetary Rate
After the medical billing and coding expert has determined which DRG code is correct for the procedure in mind, they are able to configure the dollar amount needed for reimbursement. This is done using the MS-DRG’s baseline rate.
Most medical procedures are not converted into a monetary rate. Instead, the baseline weight is used to come up with a factor for the services and reimbursement. The baseline weight is the median consumption of resources per patient. This is configured based on the equation that takes the complex range of issues into consideration.
Here is an example of a DRG code with a weight code.
If the DRG code for a medical procedure such as a hip replacement has a weight code of 2,543, that code could be found automatically in any type of electronic coding software or by searching a medical code database at the hospital.
If the hospital’s baseline rate was $4,000 (which means the average patient cost the hospital $4,000 for treatment), then the equation used to calculate the reimbursement rate would be as follows:
(2.543) X ($4,000) = $10,172
The following DRG groupings are used by 30% of all hospitals located in the United States,
Hip and knee replacement
Issues With The DRG System
The purpose of the diagnosis related group is to help equalize the profit margins for all hospitals throughout the country. This means that one hospital will not be paying out more for their services than another, regardless of what city they are located in or the type of patients they treat.
While it may seem to be a fool-proof system, inefficiencies still exist. And that has caused some hospitals to focus their resources on services that cause higher profit margins even while they use the system.
The Affordable Care Act provided a new series of payment reforms for Medicare insurance. These included bundled payments and ACOs (Accountable Care Organizations). However, most DGRs still based their calculations on the Medicare payment system.
The Impact Of The Diagnosis Related Group System
The introduction of DRGs has definitely made some changes with how hospitals benefit from insurance companies. It encourages hospitals to be more efficient in the way they treat patients. It also eliminates the need for hospitals to over-treat their patients and overuse supplies when it isn’t necessary.
The DRG system has also encouraged hospital staff members to ask patients to be more efficient with the use of hospital supplies during their stay.
While it is good that hospitals aren’t wasting supplies or keeping patients longer than needed, it is also a bad thing in some cases. There are many hospitals that will now discharge patients as quickly as possible in an effort to not lose funds or earn a profit from Medicare. This has caused many patients to become upset due to some facilities releasing patients before they are healthy and strong enough to return home safely.
But today, Medicare has set rules in place that financially punish hospitals any time a patient is re-admitted with the same diagnosis within 30 days of their discharge. This is to discourage hospitals from allowing patients to return home too quickly.
The Positive Side Of The DRG System
The Diagnosis Related Group system can have its benefits and disadvantages. However, Medicare has taken measures to stop some of the issues that affect patients.
On a positive note, the DRG system has helped medical billing and code experts save time while filing documents and has also helped prevent Medicare from the high cost of paying for multiple supplies.