Chapter 3 -Lesson 8, 9, 10,

Diagnostic Related Groups

So far, you have learned about procedural and diagnostic coding. There is, however, one part of diagnostic coding that still needs to be covered -- diagnostic related groups (DRG’s). The DRG concept, developed in the late 1970's and revised in 1982, had the goal of creating a system for reviewing patient treatment plans. DRG's were implemented nationwide in 1982, in response to the Tax Equity and Fiscal Responsibility Act of that year.

There are many facets to diagnostic related groups. In this lesson, we will cover the essential aspects of DRG’s, including their history, their components, and how the system works.

DRG's were developed in the late 1970's by two Yale professors, John D. Thompson and Robert B. Fetter. Their goal was to establish a method of classifying patients according to their required treatment. The DRG was designed to help in the utilization review system, as well as medical reimbursement and budget planning. By 1982, DRG's were in widespread use but still in need of some refinements. These adjustments helped create the system in use today and now represent a fair and equal system.

Medicare began using DRG’s in an effort to reduce health care costs. In conjunction with two concepts which we will later discuss, utilization review and the peer review organization, DRG’s are helping to control health care costs.

About the DRG System

We know how the DRG system was developed and by whom. But what exactly is it? Diagnostic related groups (DRG’s) provide a way to reimburse hospitals based upon the average cost of treating patients who have statistically similar conditions. Medicare cases were analyzed to determine how reimbursement payment rates should be set using statistical techniques. To determine the DRG rate, the following factors were considered:

This research produced 477 diagnosis-related groups, which were then divided into 25 basic groups.

The 25 diagnosis-related groups are called major diagnosis categories. Because there are so many variables in medicine, DRG’s cannot cover every possible situation. To provide for situations that are not in the 25 basic groups, the DRG system has established outliers, cases that require patients to have additional time in the event that other manual circumstances are present.

The DRG system is important to hospitals because it regulates the amount of the money hospitals receive for their services. The amount paid is based on national and regional averages. The reimbursements of virtually every hospital in the country are based on DRG's.

Here are some facts about how DRG's work, from admission to discharge:

If you are working as an independent medical claims and billing specialist, you do not need the computer program described in step 6 above. Generally, the bills you receive will already be coded with a DRG.

Who is responsible for reviewing cases and determining what treatment is appropriate? You will find the answer to this when you read the next section dealing with utilization review and peer review organizations.

Utilization Review

Hospitals and other organizations want to make sure patients are receiving proper and appropriate care. To do this, they have established a program of utilization review. This is the process of reviewing a patient's history and current problem, then determining if admission to the hospital is necessary.

In hospitals, utilization review is performed by a utilization review committee which consists of a group of doctors. The doctors review the patient's file, discuss the estimated length of the hospital stay, and determine all appropriate treatments in order to insure a proper course of action.

There are also utilization review companies that follow the above procedure for insurance companies and case management companies. These companies may take a more detailed look into a patient's file in order to determine if specific procedures and treatments are necessary. These reviews are based on DRG’s since the statistics they provide can show how necessary and helpful certain procedures are in certain cases.

The following list contains some examples of situations appropriate for utilization review:

1. surgical procedures

2. expensive diagnostic tests, such as magnetic resonance imaging (MRI)

3. hospital admission

4. length of stay

After the utilization review is completed, a DRG is assigned using the automated DRG grouper. This program takes into account the admission diagnosis, the procedures scheduled, the patient's age and any known secondary diagnoses. From this information, the grouper can assign a tentative reimbursement amount, so that the hospital and the patient will know the cost of the entire package before any action is taken. Although utilization review committees can act quickly and are well-suited to reviewing treatments, they are not the only programs of their kind. Another is the peer review organization.

Peer Review Organizations

Peer review organizations (PRO’s) are groups of doctors who have contracted with HCFA to control health care provided to Medicare beneficiaries. Overall, PRO’s perform various activities.

Peer review organizations (PRO’s) are responsible for the following activities:

1. admission review to determine the necessity of admissions:

2. readmission review in cases when patients are readmitted to the hospital within seven days of discharge for problems relating to the original complaint;

3. procedure review to determine whether a diagnostic or therapeutic procedure is appropriate;

4. DRG validation to establish whether or not the diagnostic and procedural information is correct and supports the DRG assignment; and

5. transfer review to oversee transfers to a different section of the hospital (the intensive care unit, for example).

The DRG Monitor

The DRG monitor is a position that might become more popular in the future as more medical practices are reimbursed through DRG’s. A DRG monitor is an individual who reviews current physicians’ fee schedules and compares them to a current list of DRG’s to make sure the physicians’ fees are in line with the DRG’s. This makes certain that the doctor receives maximum payment and helps to simplify budget and cost planning. The medical practice will now know that it will be paid a set amount for a particular diagnosis.

How does all of this information relate to you, the medical claims specialist? In the next section, we will show you how to handle DRG’s.

Handling DRG’s as a Medical Claims and Billing Specialist

You've seen how DRG’s work and how they are reviewed. But how do you handle a DRG claim with an insurance company? The first thing you need to do is identify the patients who are covered by companies that use DRG’s. The most common carrier is Medicare, but some private carriers are beginning to use DRG’s, as well. You must make certain that the doctor’s charts include the primary diagnosis, detailed facts about the primary diagnosis, the patient's age, and information about any complications. You may also need additional data to justify any procedures the physician has performed.

After you have this information, you can complete the insurance claim form just as you would any other claim. The difference between this and another claim form is the level of explanation that may be required for reimbursement. Sometimes the hospital or doctor's office will complete a DRG worksheet that lists, tentatively, the primary diagnosis, additional diagnoses, complications and procedures. A utilization review committee or company might take that worksheet and assign a DRG to the entire case. As circumstances change, the DRG might also change. Therefore, it is important that your information be completely up-to-date.

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