Hospitals as a whole experienced an estimated increase of 3% in reimbursement, or nearly $2.3 billion, under the CMS new inpatient prospective payment system using severity-adjusted DRGs during the first three quarters of fiscal 2008, according to a new analysis by the American Hospital Directory.
These preliminary findings, scheduled for release on Jan. 5, appear to run counter to earlier predictions by hospital groups that the industry stood to lose money under the new severity-adjusted MS-DRGs, which took effect on Oct. 1, 2007. They also indicate that Congress decision to roll back part of the CMS so-called behavioral offset had a positive effect for the hospital industry.
Some medical services are going to get paid less, while others will get paid more under the MS-DRGs, said Paul Shoemaker, president and chief executive officer of the directory. The bottom line is hospitals experienced an overall increase in reimbursement for these services this past fiscal year, Shoemaker said, even with a 0.6% scheduled cut the CMS factored into the payment formula for 2008, to offset presumed upcoding that could occur in hospitals under the new payment system.
The CMS had established a 1.2% reduction to IPPS reimbursement in fiscal 2008, 1.8% in fiscal 2009 and 1.8% in 2010, all designed to counter upcoding expected to occur with the new MS-DRGs. But Congress overrode the decision in 2007 and halved those offset numbers for 2008 and 2009 (Oct. 1, 2007, p. 12).
As a result, the apparent biggest winners in the three quarters ended June 30, 2008, were the American Hospital Directory categories of: general medicine, which received a $946 million increase in reimbursement, a change of 8.4%; pulmonology, which increased $647 million, an 8% change; and orthopedic surgery, which increased $580 million, a 6.3% change. The general medicine category represents general medical admissions, not involving surgery.
The biggest estimated losers in dollar terms were cardiovascular surgery, which fell $622 million, or 5.2%; vascular surgery, which fell $122 million, or 5.1%; and surgery for a malignancy, which fell $55 million, or 6.8%.
Randy Fenninger, a lobbyist for Physician Hospitals of America, which represents doctor-owned facilities, thought the findings were pretty much in line with what the Medicare Payment Advisory Commission concluded in its original analysis on the MS-DRGs.
Cardiovascular services were judged to be the best-paying DRGs, and were expected to see the largest reductions. Other surgical services were not as profitable so they did not see decreases. The improvement in medical services was expected also, Fenninger said in an e-mail.
The American Hospital Directorys research included data for 3,593 short-term, acute-care hospitals. To report its data, the directory grouped patients into medical-service categories to compare DRG-based reporting in fiscal 2007 with MS-DRG-based reporting in fiscal 2008. These findings are significant in that its the first time that actual 2008 data has been available to study impact of the new MS-DRGs and weights, Shoemaker said. These shifts in reimbursement mean that hospitals should anticipate changes among their medical services even though the net effect on their bottom line may remain relatively unchanged, according to the directorys summary of the study.
The 745 new MS-DRGs were intended to account more precisely for differences in severity among individual cases while shifting to a system that weighted or calibrated the new DRGs according to reported hospital costs. The expectation was that MS-DRGs would increase payments for hospitals serving patients who are more severely ill and decrease pay for those that treat less-complex cases.
Although some of the directorys findings were validated by some hospitals, industry sources werent so quick to pin the changes exclusively on the new DRGs. Any changes in the relative ranking of services by volume reflect the many actors in the healthcare marketplace, said Steven Speil, senior vice president of health finance and policy at the Federation of American Hospitals.
MS-DRGs may play a limited role but the larger forces at play, such as the overall migration of services from inpatient to outpatient, seem to me to be a major influence in the setting for surgical and other hospital procedures, Speil said.
Cardiac hospitals may be getting hit the hardest, but O. Edwin French, president and CEO of MedCath Corp., Charlotte, N.C., didnt appear to be too worried about these initial results from the analysis. MedCath owns nine heart hospitals with one under construction and at least 78% of the corporations business represents heart procedures.
According to French, MedCaths hospitals experienced a bit of a decline in reimbursement in 2007. This year, even with the MS-DRG changes, were actually expecting a bit of an uptick. Although cardiovascular surgery may be taking a hit, thats likely to be offset by other procedures that are making money, such as cardiac catheterizations and the use of stents, he said.
Overall, I think on balance weve been in a neutral position over the last few years, with no major wins or losses. But thats just for MedCath, he added. I cant speak to other hospitals. It depends on the mix of procedures they have.