How Will All Patient Refined-Diagnosis Related Groups Affect Critical Access Hospitals?


Vol. 16 •Issue 15 • Page 24
How Will All Patient Refined-Diagnosis Related Groups Affect Critical Access Hospitals?

It’s time to educate your staff on the potential implications of APR-DRGs in CAH billing and coding.

When you read that headline you may think: “All Patient Refined-Diagnosis Related Groups (APR-DRGs) won’t affect critical access hospitals (CAHs) because they are paid on cost and not on DRGs or APR-DRGs.” Although this is true, let’s take a closer look starting with some history on both CAHs and APR-DRGs.

According to the American Hospital Association (AHA), as of Oct. 31, 2005, there were 1,168 CAHs, representing 54 percent of rural hospitals and 24 percent of community hospitals in the United States.

What Is a CAH?

To be designated a CAH, a facility must meet the following criteria developed by the Centers for Medicare and Medicaid Services (CMS):

  • Located in a state that has a State Flex Program;
  • Located in a rural area or be treated as a rural under a special provision that allows hospitals in urban areas to be treated as rural for purposes of becoming a CAH;
  • Provide 24-hour emergency care services;
  • Provide no more than 25 inpatient beds;
  • Have an average length of stay 96 hours or less;
  • Located 35 miles from another hospital or CAH or more than 15 miles in areas with mountainous terrain or only secondary roads, or be certified by the state as of Dec. 31, 2005, as being a “necessary provider” of health care services to residents in the area;
  • Meet the Medicare Conditions of Participation for CAHs;
  • Have a quality assessment and performance improvement program in place;
  • Meet designated staffing requirements; and
  • Comply with the Emergency Medical Treatment and Active Labor Act (EMTALA).

    CAHs should not be confused with Medicare Dependent Hospitals or Sole Community Hospitals; CAHs have their own conditions of participation and separate payment method (101 percent of their allowable and reasonable cost). CAHs also do NOT follow Medicare’s inpatient hospital or outpatient hospital prospective payment systems (IPPS and OPPS). Coinsurance rules and deductibles for Medicare Part A and Part B that apply to PPS hospitals also apply to CAHs and all outpatient services, except for the following, are subject to Medicare Part B deductible and coinsurance:

  • pneumonia vaccines
  • influenza vaccines
  • administration of vaccines
  • screening mammograms
  • clinical diagnostic laboratory tests

    CAH Payment Methods

    CAHs may choose between a standard payment method (Method I billing) or optional (elective) payment method (Method II billing). According to Section 1834 (g) of the Social Security Act, CAHs are paid under Method I billing (cost-based facility services) and bill the individual carrier (Medicare Part B) for the professional fees. A CAH may submit a request to CMS 30 days prior to the end of their fiscal year to request Method II reimbursement. Method II reimbursement allows the facility to be reimbursed on cost plus 115 percent of the physician fee schedule for professional services. The main difference between Method I and Method II billing is that with Method I, you submit the professional fee on a HCFA-1500 form and reimbursement is based on the physician fee schedule. With Method II billing, the facility submits the professional charge on the UB-92 with Revenue Codes 96X, 97X or 98X (along with the technical charges). Method II billing reimbursement allows the facility to receive 115 percent of the fee schedule. Method II billing only applies to outpatient Medicare services. Inpatient professional services are still billed on the HCFA-1500, whether you choose Method I or Method II billing.

    In a survey conducted by the University of Washington, CAH administrators saw cash flow improvements by utilizing the cost based Medicare reimbursement that accompanies CAH billing and credited this for retaining staff. You may also receive an incentive payment for professional outpatient services if you are located in a Health Professional Shortage Area (HPSA). This would amount to 115 percent multiplied by the amount under the Medicare Physician Fee Schedule, multiplied by 110 percent. Also if you are in a Physician Scarcity Area (PSA), you may be eligible for a 5 percent bonus payment if you use either the ÐAG modifier (primary physician) or the ÐAF modifier (specialty physician).

    The average CAH has 6.9 business office full-time equivalents (FTEs) and 2.4 coders. According to the CAH/FLEX National Tracking Project, 73.5 percent of chief financial officers were college graduates but there was no other business office or medical record office job category where most of the workers were college graduates or credentialed. Although inaccurate coding and billing may not appear to affect the payment your CAH receives, CMS still uses the DRGs you submit to compare to other hospitals that are paid on the IPPS. If you are not coding accurately, your data will not be reflected appropriately. Also, if CMS decides to start utilizing a PPS in CAHs, they will determine payments based on prior data and if your coding has been inaccurate, your base rates and weights will not accurately reflect your facility’s workload and your reimbursement may be lower.

    The New APR-DRGs

    DRGs initially were developed to focus on resource intensity. The new APR-DRGs, which were created by 3M Health Solutions for CMS, are based on:

  • severity of illness: decompensation or organ system loss of function;
  • risk of mortality: likelihood of dying; and
  • resource intensity: how much diagnostic, therapeutic and bed services utilized.

    APR-DRGs expand the current DRG system by adding four subclasses to each DRG to address patient differences according to severity of illness and risk of mortality. There are 956 APR-DRGs and only 526 DRGs. Although learning the new APR-DRG system may be quite labor intensive, higher reimbursement and a better tracking system may result. Because no relative weights have yet been assigned, the impact to providers is unknown at this time. So how can your CAH ensure accurate coding and billing? Simple — you must educate your staff on the potential implications of APR-DRGs in CAH billing/coding!

    Susan Rohde is a health care consultant for Eide Bailly LLP in Fargo, ND. She specializes in physician chart reviews for all specialties, as well as chart to payment reviews. She can be reached at srohde@eidebailly.com.

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