Suggested Alternatives for the Inpatient Hospital Fee Schedule

Prepared for the Inpatient Hospital Fee Schedule Advisory Committee Meeting

The purpose of this document is to discuss various alternatives to the current payment method for DRGs 496 through 500. We would like to explore these and any other alternatives with the goal of arriving at a viable method that is satisfactory to the parties.

I. Current Inpatient Hospital Fee Schedule

The current Inpatient Hospital Fee Schedule (IHFS) schedule for the California workers’ compensation system is set forth in Title 8, Code of California Regulations, Section 9792.1.

Maximum reimbursement for inpatient medical services = 1.20 x health facility's composite factor x DRG weight* [8 CCR, §9792.1(a)]

Implantable hardware and/or instrumentation for DRGs 496 through 500, where the admission occurs on or after April 13, 2001, shall be separately reimbursed at the provider's documented paid cost, plus an additional 10% of the provider's documented paid cost not to exceed a maximum of $250, plus any sales tax and/or shipping and handling charges actually paid. [8 CCR, 9792.1(c)(7)]

Cost Outlier cases [8 CCR, 9792.1(c)(8)] Inpatient services for cost outlier cases where the admission occurs on or after June 29, 2001, shall be reimbursed as follows

Step 1: Determine the Inpatient Hospital Fee Schedule payment amount = DRG relative weight x 1.2 x hospital specific composite factor.
Step 2: Determine costs. Costs = total billed charges x total cost-to-charge ratio.
Step 3: Determine outlier threshold. Outlier threshold = Inpatient Hospital Fee Schedule payment amount + hospital specific outlier factor.

If costs exceed the outlier threshold, the case is a cost outlier case and the admission is reimbursed by the following calculation.

Reimbursement = Inpatient Hospital Fee Schedule payment amount + (0.8 x (costs - cost outlier threshold)).

NOTE: For purposes of determining whether a case qualifies as a cost outlier case under this subsection, implantable hardware and/or instrumentation reimbursed under subsection (8) below is excluded from the calculation of costs. Once an admission for DRGs 496 through 500 qualifies as a cost outlier case, any implantable hardware and/or instrumentation shall be separately reimbursed under subsection (8) below.

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Footnote:
1  Or revised DRG weight if a revised weight has been adopted by the administrative director.
2 Determined pursuant to Section 9792.1(a)

II. Hospital Fee Schedule recommended by the Gardner/Kominski report

• Continue the cost outlier provision as currently enacted, with annual re-evaluation to assess the percent of cases and dollars that are qualifying as outliers.

• Continue to base inpatient hospital reimbursement on the Medicare PPS fee schedule using the composite factors, the DWC-revised DRG weights (with the additional revisions noted below) and the 1.20 multiplier.

• Eliminate the exemption for implantable hardware and/or instrumentation for DRGs 496-500.

• �Re-evaluate the DRG weights, the revisions suggested herein and the overall comparison between WC and GH annually, based on updated data.

Note: Medicare is proposing to revise its weights for DRG 497 and 498 to remove lower charge codes for the fusions of the cervical spine procedures. It will be assigning these procedures to new DRGs. According to Medicare, the net effect of the proposal would be an increase in the weights for DRGs 497 and 498 since the lower charges for the cervical fusions would be removed. (See Attachment A from the Centers for Medicare and Medicaid Services, especially 3b)

• Encourage the use of appropriate, nationally peer-reviewed selection criteria to reduce inappropriate utilization of implantable hardware and other high-cost medical technology.

• Implement revised DRG weights for the seven DRGs where the IHFS reimbursement appears not to be equitable compared with the group health sector. Seven DRGs met the criteria to be considered candidates for an adjustment in reimbursement.

• The reimbursement for these seven DRGs should be adjusted by revising their DWC DRG weights. The seven DRGs that were determined to be candidates for a potential adjustment in the IHFS reimbursement amount, the current (2001) DRG weights and the suggested revised weights for 2002 are as follows:

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Footnote:
3 The criteria to be considered for reimbursement adjustment were as follows:

• The percent reimbursement should be at least 10% lower for the Workers' Compensation (WC) admissions than for the Group Health (GH) admissions.

• The absolute reimbursement amount should be at least $5,000 lower for the WC admissions than for the GH admissions.

• There should be at least 100 WC admissions in the sample.

• The DRG should not be exempt form the IHFS
  

DRG Candidates for Revised Weights

Assumption: True provider costs for DRGs 496-498 are not adequately reflected in the current payment weights for those DRGs because the weight is an average of cases that do and do not use very expensive implants, and some providers do a disproportionate share of the cases that need implants.

1. Split each DRG into a Part A and a Part B where A is for situations where an implant is NOT required and B is for those situations were an implant is required.

2. Establish a medical advisory committee to determine objective criteria for implants in each of the DRGs.

3. If a provider can demonstrate that the case in question meets all of the criteria established by the medical advisory committee then that case can be paid at the higher B rate.

It should be noted that the new A rate for a particular DRG may in fact be lower than the current value and the B rate higher.

See Attachment A, especially 3b-Fusion of cervical spine.

3. MDC 8 (Diseases and Disorders of the Musculoskeletal System and Connective Tissue)

a. Refusions

We have received questions from correspondents regarding the appropriateness of the spinal fusion DRGs: DRG 496 (Combined Anterior/Posterior Spinal Fusion); DRG 497 (Spinal Fusion with CC); and DRG 498 (Spinal Fusion without CC). Several correspondents expressed concern about the inclusion of all refusions of the spine into one procedure code, 81.09 (Refusion of spine, any level or technique). The correspondents pointed out that because all refusions using any technique or level are in this one code, all of these cases are assigned to DRG 497 and DRG 498. They also pointed out that fusion cases involving both an anterior and posterior technique are assigned to DRG 496. Although cases with the refusion code that involve anterior and posterior techniques would appear to be more appropriately assigned to DRG 496, this is not the case.

We recognized this limitation in the refusion codes and further acknowledged that this limitation in the ICD-9-CM coding system creates DRG problems by preventing the assignment to DRG 496 even when both anterior and posterior techniques are used for refusion cases. Therefore, we referred the issue to the ICD-9-CM Coordination and Maintenance Committee and requested the Committee to consider code revisions for the refusions of the spine during its year 2000 public meetings.

After its deliberations, the Committee approved a series of new procedure codes for refusion of the spine that could lead to improvements within DRGs 497 and 498. These new codes, listed below, go into effect on October 1,2001.

81.30 Refusion of spine, not otherwise specified
81.31 Refusion of atlas-axis spine
81.32 Refusion of other cervical spine, anterior technique
81.33 Refusion of other cervical spine, posterior technique
81.34 Refusion of dorsal and dorsolumbar spine, anterior technique
81.35 Refusion of dorsal and dorsolumbar spine, posterior technique
81.36 Refusion of lumbar and lumbosacral spine, anterior technique
81.37 Refusion of lumbar and lumbosacral spine, lateral transverse process technique
81.38 Refusion of lumbar and lumbosacral spine, posterior technique
81.39 Refusion of spine, not elsewhere classified

As previously stated, all refusions of the spine and corrections of the pseudarthrosis of the spine are assigned to code 81.09. Code 81.09, which is always assigned to DRG 497 or DRG 498, includes refusions at any level of the spine using any technique. With the creation of the new procedure codes listed above, it will be possible to determine the level of the spine at which the refusion is performed, as well as the technique used, and assign the case to a more appropriate DRG.

These new procedure codes should greatly improve our ability to determine the level and technique used in the refusion.

In the past, we have assigned new ICD-9-CM codes to the same DRG to which the predecessor code was assigned. If this practice were followed, these new codes would have been assigned to DRG 497 and 498 as they are currently. After data became available, we would have considered moving them to other DRGs. However, in accordance with section 533(a) of Public Law 106-554, which requires more expeditious methods of recognizing new medical services or technology under the inpatient hospital prospective payment system, we will reconsider this longstanding practice when possible. Since the new codes clearly allow us to identify cases where the technique was either anterior or posterior and these cases are clinically similar and, therefore, should be handled in the same fashion, we are proposing to immediately assign these cases on the same basis as the fusion codes (81.00 through 81.09). We would not wait for actual claims data before making this change. These proposed assignments are reflected in Chart 6 and also can be found in Table 6B, in section V. of the Addendum to this proposed rule.

b. Fusion of Cervical Spine

We have received an additional inquiry concerning the spinal DRGs that focused on fusions of the cervical spine. The inquirer stated that there was a significant difference between inpatients who undergo anterior cervical spinal fusion and other types of spinal fusion in regard to treatment, recovery time, costs, and risk of complications. Anterior cervical spinal fusions are assigned to procedure code 81.02, Other cervical fusion, anterior technique. The inquirer pointed out that anterior cervical fusions differ significantly from anterior techniques at other levels since the anatomic approach is far less invasive. Thoracic anterior techniques require working around the cardiac and respiratory systems in the chest cavity, while lumbar anterior working around bowel and digestive system and the abdominal muscles. The inquirer recommended that code 81.02 be removed from DRGs 497 and 498 and grouped separately.

We analyzed claims data from 100 percent of the FY 2000 MedPAR file containing hospital bills received through May 31,2000, and confirmed that charges are lower for fusions of the cervical spine than fusions of the thoracic and lumbar spine. This was true for both anterior and posterior cervical fusions of the spine. Our medical consultants agree that the data and their clinical analysis support the creation of new DRGs for cervical fusions of the spine. Therefore, we are proposing to remove procedure codes 81.02 and 81.03 from the spinal fusion DRGs (currently, DRGs 497 and 498) and assign them to new DRGs for cervical spinal fusion with and without CC. We are proposing to make four groupings for fusion DRGs. We believe that the net effect of this proposal would be an increase in the weights for DRGs 497 and 498, since the lower charges for the cervical fusions would be removed. The average standardized charge for all spinal fusions with CCs was $26,957. For all spinal fusions without CCs, the average charge was $16,492. The table below also shows average standardized charges for these types of cases before and after the proposed revisions.

Based on the proposed groupings, we would create two new DRGs: DRG 519 (Cervical Spinal Fusion with CC); and DRG 520 (Cervical Spinal Fusion without CC). The procedure codes that would be included in the proposed DRGs 519 and 520 are reflected in Chart 6 below.

We are also proposing to add the new ICD-9-CM procedure codes for refusion of the cervical spine (81.32 and 81.33) to the new cervical spine fusion DRGs because they are clinically similar.

We are proposing to retitle DRG 497 "Spinal Fusion Except Cervical with CC" and DRG 498 "Spinal Fusion Except Cervical without CC." The retitled DRGs 497 and 498 would retain fusion codes 81.00, 81.01, and 81.04 through 81.08 and include the proposed new refusion codes 81.30, 81.31, and 81.34 through 81.39, as reflected in Chart 6 below.

c. Posterior Spinal Fusion

We received other correspondence regarding the current DRG assignment for code 81.07, Lumbar and lumbosacral fusion, lateral transverse process technique. The correspondent stated that physicians consider code 81.07 to be a posterior procedure. The patient is placed prone on the operating table and the spine is exposed through a vertical midline incision. The correspondent pointed out that code 81.07 is not classified as a posterior procedure within DRG 496 (Combined Anterior/Posterior Spinal Fusion). Therefore, when 81.07 is reported with one of the anterior techniques fusion codes, it is not assigned to DRG 496. The correspondent recommended that code 81.07 be added to the list of posterior spinal fusion codes for use in determining assignment to DRG 496.

We have consulted with our clinical advisors and they agree that this addition should be made. Since we are proposing to handle the new refusion codes in the same manner as the fusion codes, we also are proposing to assign DRG 496 when 81.37 is used with one of the anterior technique fusion or refusion codes. This would be similar to the manner in which code 81.07 is classified. For assignment to DRG 496, we would consider codes 81.01, 81.04, 81.06, 81.32, 81.34, and 81.36 to be anterior techniques and codes 81.03, 81.05, 81.07, 81.08, 81.33, 81.35, and 81.38 to be posterior techniques.

The Centers for Medicare and Medicaid Services (CMS) responded as follows to the method utilized by the California Division of Workers’ Compensation (DWC) to reimburse spinal DRGs (496 - 500)

The California Division of Workers' Compensation notified us of a possible problem with the following spinal DRGs:
DRG 496 (Combined Anterior/Posterior Spinal Fusion)
DRG 497 (Spinal Fusion with CC)
DRG 498 (Spinal Fusion without CC)
DRG 499 (Back & Neck Procedures except Spinal Fusion with CC)
DRG 500 (Back & Neck Procedures except Spinal Fusion without CC)

The Division of Workers’ Compensation uses the DRG categories developed by HCFA to classify types of hospital care. However, instead of using HCFA's weights for determining reimbursement for inpatient services, the Division sets a global fee for all inpatient medical services not otherwise exempted. This fee is established by multiplying the product of the DRG weight (or revised DRG weight for a small number of categories) and the health facility's composite factor by 1.20 to get the maximum amount for worker compensation admissions.

The Division of Workers’ Compensation has received reports that the formula it uses for reimbursing cases may be providing inadequate reimbursement. California hospitals and orthopedists have reported that certain spinal surgery DRGs (DRGs 496 through 500) may involve different types of care and/or technologies than those in use at the time these groups were formulated. Health care providers in California report "recent increased use of the new implantation devices, hardware, and instrumentation, coupled with requirements for intensive hospital services accompanying use of new procedures, has led to inadequate reimbursement in these DRGs." As a short-term response to these concerns, the California Division of Workers' Compensation is exempting the costs of hardware and instrumentation from the global fee of the fee schedule for DRGS 496 through 500. The Division also requested that HCFA examine these DRGs for any potential problem under the Medicare reimbursement system.

The ICD-9-CM coding system does not capture specific types of implantation devices, hardware, and instrumentation. Therefore, we were not able to verify the claim that these new devices have led to increased costs in specific cases. As discussed in section II.D. of this preamble, we believe that the adoption of a more detailed coding system, such as ICD-10-PCS, would supply greater amounts of detail on these items. However, in the short term, it is not possible to identify a specific problem that involves implantation devices, hardware, and instrumentation.