On Friday, April 13, the Centers for Medicare and Medicaid Services (CMS) issued the long-awaited FY 2008 inpatient prospective payment system (IPPS) proposed rule. This proposed rule contains a number of significant changes including the introduction of a new set of Diagnosis-Related Groups called Medicare Severity DRGs or MS-DRGs. The proposed MS-DRGs are self-developed by CMS and are very different from the Consolidated Severity-Adjusted DRGs proposed last year. MS-DRGs are not proprietary and use the current CMS DRGs as a starting point.

The 745 proposed MS-DRGs should be thought of as a complete replacement of the current 538 CMS DRGs. While the MS-DRGs are based upon the current CMS DRGs and retain most of the refinements and improvements made to the base CMS DRGs over the years, the underlying structure and numbering of the DRGs has changed. CMS re-examined each of the base DRGs making numerous changes and consolidations. For example, all pediatric splits have been eliminated, as well as current complication or co-morbidity (CC) splits and other diagnosis-driven complexity splits. Finally, a number of clinical areas with low volume are consolidated. The MS-DRGs recognize a set of 335 base DRGs, which may then be further refined by CC and major CC. In order to create groups with sufficient volume, not all base DRGs are refined or refined by both CC and major CC. In summary (and excluding the 24 newborn, maternity and error DRGs), 53 base DRGs are not refined further; 152 base DRGs are split by both CC and major CC; 63 base DRGs are split into two subgroups of (1) major CC/CC combined and (2) non-CC; and 43 base DRGs are split into two groups of (1) major CC and (2) CC/non-CC combined.
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CMS has posted two reports on its web site that anyone interested in hospital inpatient PPS may want to review. The first is an interim report prepared by researchers at RAND, Inc., that summarizes an evaluation of alternative, commercial off-the-shelf severity-adjusted DRG groupers. This report can be found at www.cms.hhs.gov/Reports/downloads/Wynn0307.pdf . The second is a report prepared by researchers at the Research Triangle Institute (RTI), "A Study of Charge Compression in Calculating DRG Relative Weights," that explores how to refine the cost-to-charge ratios that are used to transform Medicare claims data into estimates of average cost per DRG. This report can be found at: www.cms.hhs.gov/reports/downloads/Dalton.pdf .

Over the next several weeks, we will be reviewing and analyzing both of these reports. Look for our comments to be posted here. We also invite others to do the same and to share their thoughts about the content of these reports and their implications for future CMS policy.
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