A congressional advisory panel last week formally recommended refining the way hospitals categorize patients for purposes of billing Medicare, a move that could result in a loss of billions of dollars of revenue for rural hospitals.
Though it did not endorse a specific classification plan, the Medicare Payment Advisory Commission's June 1 report to Congress said the current system of nearly 500 DRGs doesn't account for the differences in the severity of illnesses among patients within each DRG.
One possible method to correct the problem would be to double the number of DRGs to make each more sensitive to differences in illness acuity.
MedPAC's analysis grew from its 1999 report recommending changes to Medicare's formula for reimbursing costs related to teaching medical residents. Its formal recommendation on DRG refinement last week followed a detailed debate by the 17-member commission earlier this year (Jan. 31, p. 2).
"These are issues that have been raised and then dropped over the last 10 to 15 years," said MedPAC Chairwoman Gail Wilensky.
Under the current system, Wilensky said, hospitals that treat sicker patients are systematically underpaid as a result of payment inaccuracies, while others treat healthier patients and are overpaid.
A group of nearly 200 hospitals tried but failed in federal court to get more money for treating extremely ill Medicare beneficiaries (See story, p. 18).
The overpayments and underpayments occur because hospitals get paid roughly the same amount for patients in a single DRG, regardless of how costly it is for hospitals to treat them.
Such a system tends to favor small and rural hospitals that can treat only less-severe cases, while the large urban teaching facilities that have the expertise to treat more-severe cases are put at a disadvantage.
But that shift from rural hospitals to urban institutions might make DRG refinement a hard sell right now in Congress, which ultimately would have to approve such a change in payment formulas, said Carmela Coyle, senior vice president for policy at the American Hospital Association.
Rural hospitals have been among the loudest objectors to payment policies enacted under the Balanced Budget Act of 1997, which aimed to reduce Medicare spending by $112 billion from 1998 to 2002. They were instrumental last year in persuading Congress to increase federal healthcare spending by $16.1 billion over five years.
As a result, Congress isn't likely to want to endorse any change that would shift money away from rural providers.