Changes to the IPPS: MS-DRGs

Vol. 17 •Issue 25 • Page 8
CCS Prep!

Changes to the IPPS: MS-DRGs

It is important that coders preparing for the CCS examination understand the basic MS-DRG methodology.

The Inpatient Prospective payment system (IPPS) DRGs were discussed in a 2006 CCS Prep! column. Candidates sitting for the certified coding specialist (CCS) exam are expected to understand the regulatory guidelines and reporting requirements for hospital acute care inpatient services. It is also important that coders keep themselves informed of major changes to this system. This column will provide an overview of the new Medicare Severity DRGs (MS-DRGs), which on Oct. 1 replaced the version 24 Centers for Medicare and Medicaid Services (CMS) DRGs. CMS implemented the new MS-DRG system to better account for differences in patient severity.

Before going into the structure of the DRG payment system, an understanding of the Uniform Hospital Discharge Data Set (UHDDS) elements used in the system is necessary. An outline of the UHDDS definitions for diagnosis and procedure assignment is included in the previous column that can be accessed at

From DRGs to MS-DRGs

Prior to Oct. 1 the CMS DRG classification system was the most widely utilized system for classifying acute care inpatients and measuring case mix. The implementation of MS-DRGs is a major change.

CMS moved to MS-DRGs in response to recommendations by the Medicare Payment Advisory Commission (MedPAC). In a 2005 report, MedPAC recommended that the Medicare DRG system be revised to take into account severity of illness. The MS-DRGs will enable CMS to provide greater reimbursement to hospitals serving more severely ill patients. Hospi-tals treating less severely ill patients will receive reduced reim-bursement. Using the previous DRG system and their own severity DRG research as a model, CMS developed the new MS-DRG system.

Development of the MS-DRGs involved a complete revision of the complication and comorbidity (CC) list. CMS preformed a comprehensive review of all diagnosis codes to determine which codes should be classified as CCs when present as a secondary diagnosis. CMS then categorized these diagnosis codes into the different severity levels described below. CMS also consolidated the CMS DRGs into a new set of base DRGs and then divided each into severity subclasses or MS-DRGs.

Revisions to CC List

The CC list has been completely revised for MS-DRGs. The MS-DRG CC list is a very different list than the CMS DRG CC list. Under CMS DRGs, a CC was defined as a secondary diagnosis that increased the length of stay by at least 1 day for 75 percent of the cases. Under MS-DRGs, CMS identified those diagnoses whose presence as a secondary diagnosis leads to substantially increased hospital resource use. They then categorized this CC list into three different levels of severity as follows:

  • Major complications or comorbidities (MCCs) reflect the highest level of severity. MCCs are new under MS-DRGs. Examples: 348.39, Encephalopathy, NOS, and 707.07, Decubitus ulcer, heal
  • CCs represent the next level of severity. Examples: 344.1, Parapalegia, NOS, and 707.09 Decubitus ulcer, other site
  • Non-CCs are at the lowest level of severity. Non-CCs are diagnosis codes that do not significantly affect severity of illness and resource use and do not affect DRG assignment. Examples: 428.0, Congestive Heart Failure, NOS; 427.31, Atrial Fibrillation; and 496, Chronic Airway Obstruction, NEC

    CC exclusions were carried over to MS-DRGs. Some MCCs and CCs are excluded because they are too closely related to the principal diagnoses. This is called the CC Exclusion List and identifies conditions that will not be considered a CC or MCC for a given principal diagnosis. The list was revised based on the revised CC/MCC list. For example, primary cardiomyopathy (425.4) is not a CC for congestive heart failure (428.0).

    There are five diagnoses that are assigned a different MCC designation depending on whether or not the patient was discharged alive. This is a new concept under MS-DRGs. The following codes are considered an MCC if the patient is discharged alive and a non-CC if the patient expires: 427.41(ventricular fibrillation), 427.5 (cardiac arrest), 785.51 (cardiogenic shock), 785.59 (other shock without mention of trauma) and 799.1 (respiratory arrest).

    The MS-DRG System

    The MS-DRG system consists of 745 MS-DRGs compared to the previous 538 CMS DRGs. The MS-DRGs range from 001-999, with many unused numbers to accommodate future MS-DRG expansion. Every CMS DRG has been completely renumbered. There is no correlation between the CMS DRG numbers and the MS-DRG numbers. For example: CMS DRG 006 is Carpal Tunnel Release, while MS-DRG 006 is Liver Transplant w/o MCC.

    As with CMS DRGs, one MS-DRG is assigned to each inpatient stay. The CMS DRGs are assigned using the principal diagnosis and additional diagnoses, the principal procedure and additional procedures, age, sex and discharge status. MS-DRGs use the same information; however, they do not take age into consideration. There are no MS-DRGs with the terminology of “Age 0-17” or “Age Greater than 17” in their titles. The CMS DRGs with age splits were incorporated into the MS-DRGs for the related conditions. Diagnoses and procedures assigned by using ICD-9-CM codes still determine the MS-DRG assignment. Accurate and complete ICD-9-CM coding by HIM professionals is even more essential for correct MS-DRG assignment and subsequent reimbursement.

    The Major Diagnostic Categories (MDCs) have not changed with the implementation of MS-DRGs. With some exceptions, all principal diagnoses continue to be divided into one of 25 MDCs that generally correspond to a single organ system. Examples of MDCs include:

    MDC 1 Diseases and Disorders of the Nervous System

    MDC 2 Diseases and Disorders of the Eye

    MDC 3 Diseases and Disorders of the Ear, Nose, Mouth and Throat

    MDC 4 Diseases and Disorders of the Respiratory System

    MDC 5 Diseases and Disorders of the Circulatory System

    In the CMS DRG system, many DRGs were split based on the presence or absence of a CC. In the new MS-DRG system, many DRGs are split into one, two or three MS-DRGs based on whether any one of the secondary diagnoses has been categorized as an MCC, a CC or no CC.

    Example of MS-DRGs with a three way split include:

  • MS-DRG 539, Osteomyelitis with MCC
  • MS-DRG 540, Osteomyelitis with CC
  • MS-DRG 541, Osteomyelitis without CC/MCC

    Pre-MCD MS-DRG: Because some patient groups are extremely resource intensive, they are put into a separate group, before MDC assignment, based on the OR procedure rather than principal diagnosis. This group is called pre-MDC MS-DRGs. Like with CMS DRGs, the pre-MDC MS-DRGs include organ transplants, bone marrow transplants and tracheostomy cases. If a procedure places a case into a Pre-MDC, the MS-DRG is assigned outside of the MDC. For example, MS-DRGs 001 and 002, Heart Transplant or Implant of Heart Assist System, are assigned based on the procedure performed pre-MDC and the presence or absence of an MCC. The principal diagnosis is not taken into consideration.

    Operating room (OR) procedures: If a case is not assigned to a pre-MDC, patients are then classified by whether or not they had an OR procedure within each MDC. Similar to CMS DRGs, in some instances there are also non-operating room procedures that may affect the MS-DRG assignment and may also be taken into consideration. There is a surgical hierarchy within each MDC and, in most instances, patients with multiple procedures are assigned to the most resource-intensive MS-DRG. An example of an MS-DRG assigned on the basis of an OR procedure is 470, Major Joint Replacement or Reattachment of Lower Extremity without MCC.

    Procedures Used As ‘Proxy’: The concept of procedures used as ‘proxy’ was introduced with MS-DRGs. As described above, CMS measures patient severity based on the presence or absence of MCCs, CCs or non-CCs. In addition, CMS identified several procedure/device codes that also caused an increase in complexity and could be considered a “proxy” for the presence of a CC or MCC secondary diagnosis. In these cases, the presence of the procedure/device or the presence of a CC or MCC will result in the assignment of a higher weighted MS-DRG. For example, MS-DRG 129, Major Head and Neck Procedures w CC/MCC or Major Device. Patients undergoing a major head or neck procedure with a cochlear implant (procedure codes 20.96, 20.97 or 20.98) without a CC or MCC are assigned the same MSDRG as patients undergoing a major head or neck procedure with a CC or MCC.

    Unrelated OR procedure MS-DRGs: As with the CMS DRGs there are MS-DRGs for unrelated operating room procedures. These MS-DRGs are assigned when the case has an OR procedure unrelated to the principal diagnoses within the MDC for the procedure. Unlike the CMS DRGs, the Unrelated OR procedure MS-DRGs are now assigned based on the presence of MCC, CC or no CC as seen in Table 1.

    Principal diagnosis: If no OR procedure is performed, the case is classified into medical categories by the principal diagnosis. Medical categories include neoplasms, specific conditions related to the anatomical site, symptoms and other diagnoses. For example, MS-DRG 064, Intracranial hemorrhage or cerebral infarction with MCC, is assigned based on the principal diagnosis because no OR procedure is performed.

    In the MS-DRG system some groups are differentiated by discharge disposition or may contain diagnoses or procedures designated for one sex or the other, so each case may be further analyzed for sex or discharge disposition.

    MS-DRG Reimbursement

    Similar to CMS DRGs, hospitals are typically paid a set fee for treating all patients in an MS-DRG, regardless of the actual cost for that case. Each MS-DRG is assigned a weight. The weight is used to adjust for the fact that different types of patients consume different resources and have different costs.

    Groups of patients who are expected to require above average resources have a higher weight than those who require fewer resources.

    For FY 2008, half of the relative weight for each MS-DRG will be based on the V24 CMS DRG relative weights, and the other half will be based on the MS-DRG relative weight. These blended weights will be 33 percent charge-based and 67 per-cent cost-based. In FY 2009, the relative weights will be based entirely on the MS-DRG relative weight and will be 100 percent cost-based.

    Examples of MS-DRGs and their weights can be found in Table 2. Weights are updated annually to reflect changes in medical practice patterns, use of hospital resources, diagnostic and procedural definitions and MS-DRG assignment criteria.

    To arrive at the reimbursement that a hospital will receive for a particular MS-DRG, the hospital’s base rate is multiplied by the MS-DRG weight. In the most simplified terms, the hospital base rate identifies the reimbursement that a hospital would receive for treating the average patient.

    Transfer Policies

    The transfer policy has been carried over to MS-DRGs. Hos-pitals will receive adjusted reimbursement if Medicare patients are transferred to another acute-care facility or to a post-acute care facility.

    For patients transferring from one acute-care facility to another, the hospital that transfers the patient is paid an MS-DRG-based per-diem rate. The receiving facility receives the full MS-DRG payment. There are 273 MS-DRGs affected by this policy. An example of an MS-DRG that meets the post-acute care transfer criteria is MS-DRG 100, Seizures w MCC.

    Medicare Code Edits (MCE)

    Under MS-DRGs Medicare will continue to use the MCE in the processing of IPPS claims. However, effective Oct. 1, two MCE edits were discontinued because of confusion on how these edits should be applied. These discontinued edits are: Nonspecific principal diagnosis and Nonspecific OR procedure.


    The changes related to MS-DRGs are the most significant changes to the IPPS system since its implementation more than 20 years ago. It is important that coders preparing for the CCS examination understand the basic MS-DRG methodology and not the previous CMS DRG methodology because questions related to the updated system may be on the examination.

    The ICD-9-CM Official Guidelines for Coding and Reporting should be reviewed for proper assignment and sequencing of principal and secondary diagnoses codes used to calculate MS-DRG assignment. The CMS Web site also has additional resources on the new MS-DRG methodology at Take the following quiz to test your understanding of the MS-DRG information contained in this article.

    1. An acute-care hospital will always be reimbursed the same amount for all Medicare inpatients who group in the same MS-DRG.

    a. True

    b. False

    2. Which of the following variables are used for MS-DRG assignment?

    a. Age, sex, discharge status, secondary diagnoses

    b. Sex, discharge status, secondary diagnoses

    c. Age, sex, secondary diagnoses

    d. Age, discharge status, secondary diagnoses

    3. A patient is admitted with syncope. On admission, the physical examination reveals a lump in the right breast, which is biopsied and reported as malignant. The syncope is evaluated and no cause is found. The patient is considered stable and an extended simple mastectomy is then performed. What codes must be assigned for this case?

    a. 780.2, 174.9, 85.43, 85.11

    b. 174.9, 780.2, 85.43, 85.11

    c. 174.9, 85.43

    d. 780.2, 174.9, 85.43

    This month’s column has been prepared by Cheryl D’Amato, RHIT, CCS, director of HIM, and Melinda Stegman, MBA, CCS, clinical technical editor, Ingenix (, which specializes in the develop-ment and use of software and e-commerce solutions for managing coding, reimbursement, compliance and denial management in the health care marketplace.

    Coding Clinic is published quarterly by the AHA.

    CPT is a registered trademark of the AMA.

    Answers to CCS PREP!: 1. b. False: Generally this statement is true. However, there are instances when the payment will be different. For example, additional payments are made for those cases that generate extremely high costs when compared to average cases in the same MS-DRG. These cases are called cost outliers. Hospitals may also receive different reimbursement for transfer cases and for new technology add-ons.; 2. b. Of those listed, sex, discharge status and secondary diagnoses are some of the variables used to assign the MS-DRG. Age is no longer used as an input variable because the age splits have been eliminated under MS-DRGs; 3. d. Code 780.2 is assigned first because it meets the UHDDS definition of principal diagnosis. Even though the syncope is a symptom, and no cause for the syncope was found, it was the reason for the hospital visit. Diagnosis code 174.9 is assigned as an additional diagnosis to report the malignant neoplasm of the breast found after admission. The first procedure in this instance is 85.43 for the mastectomy because it meets the UHDDS definition for principal procedure. Procedure code 85.11 (breast biopsy) may be assigned but is not required. Code 85.11 does not affect IPPS payment and does not meet the definition of a significant procedure. This case will group to MS-DRG 983, Extensive OR Procedure Unrelated to Principal Diagnosis Without CC/MCC because the OR procedure is not in the same MCD as the principal diagnosis.

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