Alternative Comorbidity Adjustors for the Medicare Inpatient Psychiatric Facility PPS

By Drozd, Edward M.; Maier, Jan et al. | Health Care Financing Review, Winter 2008 | Go to article overview

Alternative Comorbidity Adjustors for the Medicare Inpatient Psychiatric Facility PPS


Drozd, Edward M., Maier, Jan, Hales, Jan F., Thomas, Frederick G., Health Care Financing Review


BACKGROUND

The Medicare acute inpatient prospective payment system (IPPS) was implemented in 1983 to pay acute care hospitals a per case payment using the diagnosis related groups (DRG). However, psychiatric hospitals and psychiatric units, known as Medicare-certified distinct part psychiatric units (DPUs), were excluded from this system, and continued to be paid under the cost-based system required by the Tax Equity and Fiscal Responsibility Act of 1982. These providers were excluded because of concerns that DRG based per case payments would result in inaccurate and unfair payments (Schweiker, 1982). Subsequent studies (English et al., 1986; Horgan and Jencks, 1987; Mitchell et al., 1987; Freiman, Mitchell, and Rosenbach, 1988) supported this concern by showing that the psychiatric and substance abuse DRGs performed poorly in explaining per case costs in psychiatric hospitals and DPUs. Nationally, these providers deliver about 75 percent of Medicare inpatient psychiatric care days.

The Balanced Budget Refinement Act of 1999, mandated the development of a per diem PPS for these IPPS excluded facilities. CMS published final regulations in November 2004 to implement the IPF-PPS to be phased-in over a 4-year period (Federal Register, 2004). The IPF-PPS uses existing DRGs (originally the CMS DRGs; as of October 2007, the Medicare Severity DRGs [MS-DRGs]) combined with a set of payment adjustors for comorbidities (medical and behavioral) recorded as secondary diagnoses on a Medicare claim. In addition to a set of facility, patient age, day-of-stay, electroconvulsive therapy (ECT) use, and 15 (17 as of October, 2007 using the MS-DRGs) psychiatric DRG adjustors, the IPF-PPS includes 17 comorbidity categories (CCs) to adjust payments for specific high-cost patient populations. Patients can be assigned to multiple IPF-PPS CCs. There is a separate payment multiplier for each IPF-PPS CC, and the overall comorbidity adjustment is computed as the product of the adjustments for the individual CCs. The payment increase for a particular CC does not depend on other diagnoses or patient characteristics (e.g., age or ECT use). Because the IPF-PPS payment rates were set to keep payments budget neutral, higher payment for some cases must result in lower payment for others. To the extent that the higher payments are focused on a relatively small number of patients, any payment reductions would presumably be small. In addition, there is also an outlier payment, after which a hospital is paid 80 percent of the costs in excess of an outlier threshold.

Several studies published before and after the IPF-PPS regulations, using data on Veterans Affairs' patients (Ashcraft et al., 1989; Sloan et al., 2006) and on Medicare patients (Cromwell et al., 2005; Drozd et al., 2006), developed hierarchical case mix classification systems for inpatient psychiatric care based on the Diagnosis and Statistical Manual of Mental Disorders, Revised Third Edition or Fourth Edition and interacting other patient characteristics within each group. Heller and Vaz (2001) estimated a model of per diem costs in IPPS-exempt psychiatric facilities similar to CMS' basic model, featuring DRGs to identify the effect on cost of the primary diagnosis and separate indicators for comorbid conditions.

There are two potential limitations to the IPF-PPS comorbidity adjustors. First, a set of adjustors specific to only a small set of patients may be insufficiently sensitive in identifying higher than average cost patients, and CMS may systematically underpay providers for such patients. About 10 percent of Medicare patients have an IPF-PPS CC (Cromwell et al., 2005). Many of the conditions are in fact quite rare (e.g., only 0.015 percent of cases were assigned the cardiac conditions IPF-PPS CC). However, a study by Heller and Vaz (2001) developed comorbidity groups for use with the existing CMS DRGs have included more patients (38 percent) whose diagnoses would trigger a payment adjustment. …

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Alternative Comorbidity Adjustors for the Medicare Inpatient Psychiatric Facility PPS
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