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“Comparison of the Prospective Payment System Methodologies Currently Utilized in the United States” Toni Cade, MBA, RHIA, CCS, FAHIMA University of Louisiana at Lafayette. Overview.

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“Comparison of the Prospective Payment System Methodologies Currently Utilized in the United States”Toni Cade, MBA, RHIA, CCS, FAHIMAUniversity of Louisiana at Lafayette


Some of the prospective payment systems covered will include MS-DRGs, RBRVS, RUGs, APCs, CMGs, HHRGs, MS-LTC-DRGs, and IPF-PPS.


Can you speak the jargon

of Prospective Payment Systems?











Each of the prospective payment systems is unique and quite complex.
  • We are all challenged to understand the application of these prospective payment systems.
reimbursement is based upon the
Reimbursement is based upon the:
  • third party payer
  • healthcare setting or provider
  • coding system used
  • data set utilized
  • encoder, grouper, and data entry software used
third party payers
Third Party Payers
  • Third party payers are entities or organizations that pay for some or all of the covered medical expenses.
  • There are many forms of health insurance coverage in the United States.
  • Categories of health insurance include:
    • Government plans (i.e., Medicare, Medicaid, TRICARE, CHAMPVA)
    • Commercial or private insurance plans (i.e, Blue Cross/ Blue Shield, Prudential, Aetna)
    • Managed care contracts
    • Workers’ compensation plans

Sources of Third Party PayersU.S. Census Bureau indicated that 84% of Americans had some type of health insurance and 16% had no health insurance in the calendar year 2006

healthcare setting or providers
Healthcare Setting or Providers
  • Providers are those persons, institutions, facilities and firms who are eligible to provide services and supplies.
  • Examples of providers include:
    • hospitals of all types (i.e., acute care, rehab, psych, long term,


    • skilled nursing facilities
    • intermediate care facilities
    • home health agencies
    • physicians
    • independent diagnostic laboratories
    • independent facilities providing x-ray services
    • outpatient physical, occupational, and speech pathology services
    • ambulance companies
    • chiropractors
    • facilities providing kidney dialysis or transplant services
    • rural clinics
    • veterinary clinics
the coding system
The Coding System
  • There are two primary coding systems utilized in reimbursement:
    • ICD-9-CM
    • CPT
  • These and other coding systems are used for statistical purposes.
the data sets
The Data Sets
  • Some of the prospective payment systems require the standardized collection of a core set of common data items which can be utilized for many purposes, such as; measuring patient outcomes, assessing the quality of services, and measuring the effectiveness of interventions and treatments.
  • These data sets can also be used to form the basis of reimbursement for the services provided.
encoder grouper and data entry software
Encoder, Grouper, and Data Entry Software
  • Encoder: a computer software program designed to assist coders in assigning appropriate clinical codes to words and phrases expressed in natural human language. There are two types of encoders:
    • Logic-based: prompts the user through a variety of questions and the choices are based upon the clinical terminology entered
    • Automated codebook: prompts screen views that resemble the actual format of the coding book
  • Grouper: a computer software program that applies appropriate logic to assign a particular payment group (i.e, MS-DRG, APC) according to the information provided for that episode of care.
data entry software
Data Entry Software
  • Data entry software: computerized data entry software may be required for the establishment of a database and for purposes of transmission of data.
why prospective payment
Why prospective payment?
  • Development of prospective payment systems was mandated by federal law for Medicare reimbursement
  • Current retrospective payment systems were not effective in controlling costs or in controlling government expenditures for Medicare beneficiaries
retrospective payment systems
RetrospectivePayment Systems
  • Reimbursement is established after the healthcare services are rendered and the costs are incurred
  • Increases in the length of stay translates to increased charges on the itemized bill and therefore an increase in the reimbursement
  • Increases in the services rendered means increased charges on the itemized bill and therefore an increase in the reimbursement
prospective payment systems
ProspectivePayment Systems
  • Reimbursement is established before the healthcare services are rendered and monies are expended
  • Reimbursement is based upon a specific prospective payment system methodology
  • The length of stay and services rendered will result in increased charges on the itemized bill, but will not necessarily result in an increase in the reimbursement
ms drg fact sheet
  • Reimbursement to (Provider): Acute Care, Short Term Hospitals
  • MS-DRG stands for: Medicare Severity Diagnosis Related Group
  • Reimbursement for: Medicare and TRICARE Inpatients
  • Coding System Used: ICD-9-CM
  • Effective Dates for Original DRGs:
    • October 1, 1983 for Medicare Inpatients
    • October 1, 1987 for TRICARE Inpatients
  • Effective Date for MS-DRGs:
    • October 1, 2007
  • Number of MS-DRGs: about 745
ms drg assignment
  • Diagnoses and major procedures are coded using ICD-9-CM codes.
  • Case is categorized into an MDC (Major Diagnostic Category), which are divided by body systems.
  • Case may be further divided into surgical versus medical partitioning.
  • Case may be split into one of three alternatives:

- with MCC, with CC, and w/o CC/MCC

- with MCC and w/o MCC

- with CC/MCC and w/o CC/MCC

  • Each MS-DRG has a CMS “relative weight” and when multiplied by the “hospital’s specific rate”, the reimbursement is derived.
ms drgs with three subgroups mcc cc and non cc referred to as with mcc with cc and w o cc mcc
MS-DRGs with three subgroups (MCC, CC, and non-CC); referred to as“with MCC”, “with CC”, and “w/o CC/MCC)
  • MS-DRG 682

Renal Failure w MCC

  • MS-DRG 683

Renal Failure w CC

  • MS-DRG 684

Renal Failure w/o CC/MCC

ms drgs with two subgroups mcc and cc non cc referred to as with mcc and without mcc
MS-DRGs with two subgroups (MCC and CC/non-CC); referred to as “with MCC” and “without MCC”
  • MS-DRG 725

Benign Prostatic Hypertrophy w MCC

  • MS-DRG 726

Benign Prostatic Hypertrophy w/o MCC

ms drgs with two subgroups non cc and cc mcc referred to as with cc mcc and without cc mcc
MS-DRGs with two subgroups(non CC and CC/MCC); referred to as “with CC/MCC” and “without CC/MCC”

MS-DRG 294

Deep Vein Thrombophlebitis w CC/MCC

MS-DRG 295

Deep Vein Thrombophlebitis w/o CC/MCC

rbrvs fact sheet
  • RBRVS stands for: Resource Based Relative Value System
  • Reimbursement to (Provider): Physicians
  • Reimbursement for: Medicare Patients
  • Coding System Used: HCPCS/CPT
  • Effective Date: January 1, 1982
  • Number of RBRVSs: each CPT and HCPCS code has a payment amount (thousands)
rbrvs assignment
  • Each service and procedure is coded using the HCPCS/CPT codes.
  • Each HCPCS/CPT code has RVUs (relative value units) for the physician’s work, practice expense, and malpractice.
  • Each RVU is adjusted by a GPCI (geographical practice cost indices).
  • The sum of the adjusted RVUs is multiplied by a conversion factor which constitutes the Medicare fee schedule amount.
  • The physician is reimbursed the lower of the Medicare fee schedule amount or the actual charges.
asc fact sheet
  • ASC stands for: Ambulatory Surgery Center
  • Reimbursement to (Provider): Free-Standing Surgery Centers
  • Reimbursement for: Medicare Ambulatory Surgery
  • Coding System Used: HCPCS/CPT
  • Effective Date: January 1, 1997
  • Number of ASCs: Originally only 9 groups, effective January 1, 2008 there were several hundred payment groups (APCs)
asc assignment
  • Ambulatory surgery is coded using CPT codes.
  • The CPT code should appear on the approved list of ASC procedures.
  • Each CPT code is categorized into one of several hundred payment groups.
  • Each payment group has a payment rate.
rug fact sheet
  • RUG stands for: Resource Utilization Group
  • Reimbursement to (Provider): Skilled Nursing Facilities
  • Reimbursement for: Medicare Inpatients
  • Coding System Used: ICD-9-CM
  • Effective Date: July 1, 1998
  • Number of RUGs: 53
rug assignment
  • This case mix payment system utilizes information from the MDS (Minimum Data Set).
  • The patient is classified into 1 of 7 major categories depending on the patient type (rehab, extensive services, special care, clinically complex, impaired cognition, behavior problems, and reduced physical function).
  • Each of these 7 categories is further differentiated to yield 53 specific patient groups used for payment.
  • Each of the 53 RUGs has a per-diem rate.
apc fact sheet
  • APC stands for: Ambulatory Payment Classification
  • Reimbursement to (Provider): Hospitals
  • Reimbursement for: Medicare Outpatients
  • Coding System Used: HCPCS/CPT
  • Effective Date: August 1, 2000
  • Number of APCs: about 850
apc assignment
  • All services (major and minor) are coded using HCPCS/CPT codes.
  • Each HCPCS/CPT code is grouped to an APC. There can be many different APCs.
  • Each APC has a Medicare payment amount and a beneficiary coinsurance amount. The provider receives the sum of these dollar amounts as reimbursement for each APC.
cmg fact sheet
  • CMG stands for: Case Mix Group
  • Reimbursement to (Provider): Rehabilitation Hospitals and Units
  • Reimbursement for: Medicare Inpatients
  • Coding System Used: ICD-9-CM
  • Effective Date: January 1, 2002
  • Number of CMGs: 92
cmg assignment
  • This prospective payment system uses information from the Inpatient Rehabilitation Facility-Patient Assessment Instrument (IRF-PAI).
  • Patients are classified into distinct Case Mix Groups (CMGs) based upon clinical characteristics and expected resource needs.
  • The CMGs were constructed using rehab impairment categories, functional status (both motor and cognitive), age, comorbidities, and other factors.
  • Each CMG has a different payment amount.
hhrg fact sheet
  • HHRG stands for: Home Health Resource Group
  • Reimbursement to (Provider): Home Health Agencies
  • Reimbursement for: Medicare Patients
  • Coding System Used: ICD-9-CM
  • Effective Date: October 1, 2000
  • Number of HHRGs: 153
hhrg assignment
  • This prospective payment system uses information from the Outcomes and Assessment Information Set (OASIS).
  • Each HHRG has an associated weight value that increases or decreases Medicare’s payment for an episode of care and this payment is relative to a national standard per episode amount.
ms ltc drg fact sheet
  • MS-LTC-DRG stands for: Medicare Severity Long Term Care-Diagnosis Related Group
  • Reimbursement to (Provider): Long Term Care Hospitals
  • Reimbursement for: Medicare Inpatients
  • Coding System Used: ICD-9-CM
  • Effective Date: October 1, 2002
  • Number of MS-LTC-DRGs: 650
ms ltc drg assignment
  • The assignment of a patient case into a MS-LTC-DRG is similar to the way a patient is classified to a MS-DRG.
  • The biggest difference is that the relative weights are different.
ipf pps fact sheet
  • IPF-PPS stands for: Inpatient Psychiatric Facility-Prospective Payment System
  • Reimbursement to (Provider): Psychiatric Facilities
  • Reimbursement for: Medicare Inpatients
  • Coding System Used: ICD-9-CM
  • Effective Date: January 1, 2005
  • Number of IPF-PPSs: 15
ipf pps assignment
  • This prospective payment system is based on the cost of an average day of care in a psychiatric facility.
  • Payment for the average day or per diem would be the Federal per diem base rate, to which various adjustments would be applied applicable to the patient treated and facility characteristics.
  • The proposed IPF-PPS uses the existing inpatient hospital MS-DRG system to group inpatient psychiatric patients into one of the 15 allowed psychiatric MS-DRG groups, but does not use the inpatient PPS payment amount. The IPF-PPS has its own set of payment adjusters for each of the MS-DRG codes.
  • The MS-DRG payment adjustment amount is applied to the Federal per diem rate along with the applicable payment adjusters to derive the final per diem amount for each inpatient psychiatric stay.