Background: MS-DRGs are used or reimbursement in the inpatient setting as part of the inpatient prospective payment system (IPPS). Only one MS-DRG can be assigned to an inpatient stay (this is different than the outpatient prospective payment system (OPPS) where more than one APC can be assigned to an outpatient encounter). MS-DRG assignment begins after the patient is discharged from the hospital, with the assignment of diagnoses and procedure codes. Diagnoses and procedures are assigned ICD-10-CM (diagnoses) and ICD-10-PCS (procedures) codes, and they are sequenced according to CMS official coding guidelines. Codes for comorbidities (coexisting conditions) and complications (conditions that develop during inpatient admission) are also assigned. Medical coders also indicate whether the diagnosis/condition was present on admission by assigning a POA indicator.

Each hospital discharge is first categorized into one of 25 major diagnostic categories (MDCs). Theprincipal diagnosis determines the MDC assignment (so proper assignment and sequencing of codes is critical). Within most MDCs, cases are divided into surgical MS-DRGs and medical MS-DRGs. Some surgical and medical MS-DRGs are further differentiated on the basis of the presence or absence of complications or comorbidities. The appropriate MS-DRG is assigned to each discharge by computer software, called an MS-DRG grouper, that assigns the appropriate MS-DRG based on information entered, including ICD-10-CM and ICD-10-PCS codes.

Each MS-DRG is assigned a predetermined relative payment weight that is based on the average resources used to treat Medicare patients in that DRG. A weight of 1.000 is average; meaning a relative payment weight higher than 1.000 means more resources are required to treat the patient and the payment is correspondingly higher. MS- DRG reimbursement is assigned using the DRG relative payment weight, a hospital base payment rate (a hospital specific per-encounter rate that is based on historic claims data), and any adjustments for disproportionate share hospital (DSH) status (facilities who treat a high percentage of low income patients), indirect medical education (IME) adjustment (facilities with approved graduate medical education program) and/or add-ons (for outliers and new medical service/technology).

Assignment: Administration wants to know the estimated MDS-DRG payment for several MS-DRGs. The grouper on your system has crashed. Administration needs this information immediately, so you need to calculate the MS-DRG payments manually. The add-on percentage for your facility is 1.03%. The hospitals base rate is $6,321.67. The MS-DRGs that administration is concerned about are shown below in Table #1. The MS-DRG relative weights are shown in Table #2. Use Table #2 to obtain the MS-DRG relative weights, enter them into table #1, and calculate the estimated payments. The MS- DRG formula is Payment = MS-DRG Relative Weight x Hospitals Base Rate x Add-on percentage. The first one is done for you.

Table #1

MS-DRGs with Relative Weight and Estimated Payment
MS-DRG	MS-DRG Title	Relative Weight	Estimated Payment
190	Chronic Obstructive Pulmonary Disease without MCC	1.1924	$7,764.10
193	Simple Pneumonia & Pleurisy with MCC
231	Coronary Bypass with PTCA with MCC
281	Acute Myocardial Infarction Discharged Alive with CC
304	Hypertension with MCC
334	Rectal Resection without MCC/CC
374	Digestive Malignancy with MCC
389	GI Obstruction with CC
472	Cervical Spinal Fusion with CC
509	Arthroscopy

Table #2

MS-DRG	MS-DRG Title	Relative Weight
190	Chronic Obstructive Pulmonary Disease without MCC	1.1924
193	Simple Pneumonia & Pleurisy with MCC	1.4796
231	Coronary Bypass with PTCA with MCC	7.8582
281	Acute Myocardial Infarction Discharged Alive with CC	1.1912
304	Hypertension with MCC	1.0263
334	Rectal Resection without MCC/CC	1.6267
374	Digestive Malignancy with MCC	2.0674
389	GI Obstruction with CC	0.9344
472	Cervical Spinal Fusion with CC	2.7722
509	Arthroscopy	2.7722

MS-DRG 190 Estimated Payment Calculation:

Payment = MS-DRG Relative Weight x Hospitals Base Rate x Add-on percentage

= 1.1924 x $6321.67 x 1.03 = $7,764.09808724 = $7,764.10

#3 Case Mix Index Assignment

The MS-DRG system creates a hospitals case-mix index (types or categories of patients treated by the hospital) cased on the relative weights of the MS-DRG. The case-mix index can be figured by multiplying the relative weight of each MS-DRG by the number of discharges within that MS-DRG. This provides the total weight for each MS-DRG. The sum of all total weights divided by the sum of total patient discharges equals the case-mix index.

Calculate the case-mix index for General Hospital:

General Hospital Case Mix Index
MS-DRG	Description	Number of Discharges	Relative Weight	Total Relative Weight
280	Heart failure & shock	50	1.8503
193	Simple pneumonia & pleurisy w CC	42	1.4796
377	GI hemorrhage w MCC	23	1.7541
190	COPD	18	1.1924
483	Major joint & limb reattach upper extreme w CC/MCC	17	2.4019
Total		150
Case Mix Index (CMI) = Total Relative Weight (for all 5 MS-DRGs)/Total Discharges CMI for top 5 MS-DRGs at General Hospital =

Why is case mix index (CMI) important? The case-mix index (CMI) can be used to help administration make financial decisions and also to adjust the average cost per patient (or day) for a given hospital relative to the adjusted average cost for other hospitals by dividing the average cost per patient (or day) by the hospitals calculated CMI. The adjusted average cost per patient would reflect the charges reported for the types of cases treated in that year. For example, if hospital A has an average cost per patient of $1,000 and a CMI of 0.80 for a given year, their adjusted cost per patient is $1,000/0.80 = $1,250. Likewise, if Hospital B has an average cost per patient of $1,500 and a CMI of 1.25, their adjusted cost per patient is $1,500/1.25 = $1,200.

Therefore, if a hospital has a CMI greater than 1.00, their adjusted cost per patient or day will be lowered and conversely if a hospital has a CMI less than 1.00, their adjusted cost will be higher. Ideally, a hospital likes their CMI to be as high as possible.