The Hospital Billing Environment

1. PART ONE The Hospital Billing Environment Chapter 5 Payment Methods and Billing Compliance

2. LEARNING OUTCOMES After completing this chapter, you will be able to define the key terms and: Describe the purpose and use of the Medicare Inpatient Prospective Payment System. Explain how a DRG is assigned. Compare and contrast MCC, CC, and non-CC. List the eight conditions that will not be considered for assigning a DRG unless they are documented as existing when the patient was admitted. Discuss the types of errors that are detected by the Medicare Code Editor. Describe the purpose and use of the Medicare Outpatient Prospective Payment System.

3. LEARNING OUTCOMES (cont.) Explain how an APC is assigned. List the three types of CCI edits. Discuss fraud and abuse in the hospital billing setting. Describe the parts of a compliance plan. Explain the purpose of a pay-for-performance program.

4. KEY TERMS • fraud • hospital-acquired condition • Inpatient Prospective Payment System (IPPS) • internal audits • major CC (MCC) • major diagnostic category (MDC) • Medicare Common Working File (CWF) • Medicare Code Editor (MCE) • Medicare-Severity DRGs (MS-DRGs) • MS Grouper • non-CC • Office of the Inspector General (OIG) • abuse • ambulatory payment classifications (APCs) • base rate • benchmark • case mix index (CMI) • CCI column 1/column 2 code pair edits • CCI mutually exclusive edits • CC and MCC lists • compliance plan • compliance program guidance • Correct Coding Initiative (CCI) • diagnosis-related groups (DRGs) • DRG weight • external audit • Federal Register

5. KEY TERMS (cont.) • outlier payment • Outpatient Code Editor (OCE) • Outpatient Prospective Payment System (OPPS) • pay-for-performance programs • quality measures • status indicator (SI) • triggered reviews

6. THE MEDICARE INPATIENT PROSPECTIVE PAYMENT SYSTEM • Medicare sets rates in advance based on how long people are hospitalized, on average, for similar conditions, and the average cost incurred • DRGs • Principal diagnosis determines the major diagnostic category (MDC) • Other diagnoses, significant procedures, and patient’s age, sex, and discharge status refine MDC and determine diagnosis-related group (DRG) • Each DRG has a national relative DRG weight (the greater the weight, the more resource-intensive it is) • Hospital payment = DRG weight multiplied by hospital’s base rate

7. DRGs (cont.) • DRG weights and rates updated annually • Hospitals receive this amount regardless of the actual cost of care • MS Grouper, a software program, is used by hospitals to assign DRGs; however, final DRG is assigned during Medicare claim processing • Medicare-Severity DRGs • 2008: Medicare replaced DRG system with Medicare-Severity DRGs (MS-DRGs) system which accounts for different severities of illness among patients with the same diagnosis

8. Secondary Conditions: The CC Factor • Secondary conditions may increase payment if they affect patient care by requiring at least one of the following: • clinical evaluation • therapeutic treatment • diagnostic procedures • extended length of hospital stay • increased nursing care and/or monitoring • Secondary conditions are comorbidities or complications (CCs) • comorbidities: secondary conditions patients have at admission • complications: conditions that happen after admission and increase the length of stay

9. Secondary Conditions: The CC Factor (cont.) • Three Levels of Severity: every diagnosis code assigned to one of three levels of severity: • Major CC (MCC): generally requires double the additional resources of a normal CC • CC: normal level of severity of illness • Non-CC: chronic conditions that do not require additional resources • Combinations of principal diagnosis codes and secondary codes are grouped into DRG clusters

10. Related Payment Issues • Relating CCs/MCCs and the POA Indicators • The Deficit Reduction Act (DRA) requires CMS to reduce payment in cases where patients develop a hospital-acquired condition that moves them from a lower paying DRG to a higher paying DRG • There are very specific hospital-acquired conditions that do not increase the level of DRG unless they are documented as present on admission • Case Mix Index: an average of the DRG weights for all discharged patients during a certain period of time is a hospital’s Medicare case mix index (CMI).

11. Related Payment Issues (cont.) • Outlier Payments: if a hospital’s cost for treating a particular case exceeds the usual payment by a set threshold, Medicare must make a supplemental payment (outlier payment) • Transfer Payments: hospitals receive adjusted payments if Medicare patients are transferred to other acute care facilities • Transfer Payments and Discharge Status Codes: Medicare pays less than the full DRG amount if the patient’s discharge status code indicates the transfer to a home health agency within 3 days or a nursing home within 14 days of discharge

12. Medicare Code Editor • Medicare Code Editor (MCE) is a software program that identifies and reports errors in coding before the data go through MS Grouper and a DRG is assigned; it does not correct errors • Examples of errors MCE detects: • The code is not in the ICD-9-CM code set • The code does not include the required 4th or 5th digit • Duplicate entries • An E code is listed as the principal diagnosis

13. THE MEDICARE OUTPATIENT PROSPECTIVE PAYMENT SYSTEM (OPPS) • Medicare OPPS is used for services that are provided by hospitals on an outpatient basis. These services include most Medicare Part B services that do not require hospital admission. • Ambulatory Payment Classifications • OPPS is based on a prospective payment system that uses a pricing unit called the ambulatory payment classification (APC).

14. APC Payment Rates • Like DRGs, each APC has a preestablished amount associated with it; however multiple APCs can be assigned to one outpatient record if the patient received multiple services during the same visit • Rates for APCs are determined based on the national median cost for the procedures • Conversion factors are used that take into consideration the cost of inflation and geographical differences • Medicare reimbursement is the APC payment minus the patient’s coinsurance/copayment • One of the goals of a prospective payment system is to minimize reimbursement by bundling services (i.e., including all parts of a procedure such as anesthesia, drugs, recovery room services, etc.)

15. APC Structure • All CPT/HCPCS codes are linked to an APC code (each APC code represents a group of services) • Each code assigned to the group has the same relative weight, payment rate, etc. (In 2007, >8,000 outpatient services were grouped in approximately 350 APCs) • Each APC group is also classified into several large payment groups which have similar service categories (e.g., surgical procedures, medical visits, etc.)

16. Addenda to the OPPS Final Rule • Addendum B: Master List of CPT/HCPCS Codes • Published once a year, contains master list of CPT/HCPCS codes with corresponding APC codes and payment rates • Addendum D-1: Status Indicators • Every CPT/HCPCS codes is assigned a status indicator (SI) code that explains how a procedure is paid (e.g., full payment, discounted amount, no payment) • Addendum E: Inpatient-Only Procedures • Reviewed annually, Medicare list of surgical procedures payable only if performed on an inpatient basis • APC Grouper • Hospitals use a software program called an APC grouper to estimate APC reimbursement; however, actual reimbursement is determined during Medicare claim processing

17. The Medicare Outpatient Code Editor • The Medicare Outpatient Code Editor identifies and reports errors in outpatient hospital claims coding; the OCE also assigns APC codes • Functions of the OCE • Edits data to identify errors and returns edit flags • Edits can result in a number of dispositions including claim rejection, claim denial, claim return to provider, etc. • After edits are resolved, OCE assigns APC number for each service under OPPS and provides information for input to a pricer program • Assigns ambulatory surgery center (ASC) payment group on claims from certain non-OPPS hospitals

18. The OCE and the National Correct Coding Initiative Edits • The Correct Coding Initiative (CCI) is Medicare’s national policy on correct CPT coding; it is an ongoing process to control improper coding that would lead to inappropriate payments • The CCI list contains more than 90,000 CPT code combinations that check physician claims for improper coding • A subset of the CCI is now used for editing hospital coding • Two main types of CCI edits that identify procedure and service combinations that cannot be billed together on the same patient on the same day: • CCI column 1/column 2 code pair edits • CCI mutually exclusive edits

19. Column 1/Column 2 Code Pair Edits • Column 1 contains comprehensive codes and Column 2 contains its included component codes • Mutually Exclusive Edits • CMS regulations have determined that these services could not have been reasonably done during a single encounter • Medically Unlikely Edits (MUEs) • Unit-of-service edits that determine the maximum likely number of services for certain CPT/HCPCS codes; include anatomical edits (e.g., a claim with 2 service units for a hysterectomy) and typographical error edits

20. The Effect of Modifiers on CCI Edits • AMA and CMS created modifiers designated specifically for use with the column 1/column 2 code pair and mutually exclusive edits; currently no modifiers for MUEs • Modifiers include anatomical modifiers, global surgery modifiers, and others that identify circumstances when the NCCI edits can be legitimately bypassed • Purchasing the Hospital OPPS CCI Edits • Can be purchased from the National Technical Information Services (NTIS) or downloaded from CMS website; CMS considers these the only official sources • Updated quarterly

21. BILLING COMPLIANCE • Fraud and Abuse Defined • Fraud: act of deception used to take advantage of another person; fraudulent acts are intentional • Claim fraud: falsely reporting charges to payers (e.g., billing for services not performed, overcharging) • Abuse: action that misuses government money; abuse is not necessarily intentional • Example of abuse: ambulance company billing Medicare for transporting a patient when the patient didn’t need ambulance transportation = billing for medically unnecessary services

22. Fraud and Abuse Laws: • Health Care Fraud and Abuse Control Program is enforced by the HHS Office of the Inspector General (OIG) and has task of detecting health care fraud and abuse, and enforcement • Federal False Claims Act (FCA) prohibits submitting fraudulent claims or making a false statement or representation about a claim; it also protects whistle-blowers • Deficit Reduction Act (DRA) gives financial incentives to states for creating their own false claim acts related to the Medicaid program • OIG Enforcement: • Office of Inspector General enforces rules relating to fraud and abuse; OIG has authority to investigate suspected fraud and to audit the providers and payers • Investigators/auditors look for patterns such as: • intentionally coding services not performed or documented • coding services at higher levels than justified • billing for procedures not medically necessary

23. Compliance Plans • A compliance plan is a process for finding, correcting, and preventing illegal practices; its goal is to promote ethical conduct and establish a culture of compliance • Written document that establishes the steps to: • audit and monitor compliance with government regulations • have policies and procedures that are consistent • provide ongoing staff training and communication • respond to and correct errors

24. Compliance Plans (cont.) • Covers all areas of government regulation beyond HIPAA, fraud, and abuse (e.g., Equal Employment Opportunity regulations and Occupational Safety and Health Administration regulations) • Guidance on Compliance Plans: OIG has issued compliance program guidance based on type of covered entity, range of services, location, and business structure

25. Compliance Plans (cont.) • Parts of a Compliance Plan • Written policies and procedures • Appointment of a compliance officer and committee • Training • Communication • Auditing and monitoring • Disciplinary systems • Responding to and correcting errors

26. PAY-FOR-PERFORMANCE PROGRAMS • Pay-for-performance programs provide differential payments to hospitals and other providers based on their performance of a specific set of quality measures (e.g., quality of patient care, clinical outcomes, patient satisfaction)

27. CHAPTER REVIEW • What does “prospective” mean in the Medicare Inpatient Prospective Payment System? • [the fact that rates are set in advance, not paid for based on what the hospital charges] • What is the difference between DRGs and MS-DRGs? • [MS-DRGs take into account the severity of illness among patients with the same diagnosis] • If a patient develops a hospital-acquired condition, will Medicare move them to a higher-paying DRG? • [No] • What is the software that detects and reports errors in coding? Does the software automatically correct the error? • [Medicare Code Editor (MCE); no]

28. CHAPTER REVIEW (cont.) • What is the Outpatient Prospective Payment System pricing unit that is comparable to DRGs for inpatient services? • [ambulatory payment classification (APC) ] • What are the three types of CCI edits? • [Column 1/Column 2 Code Pair Edits, Mutually Exclusive Edits, Medically Unlikely Edits] • What is the difference between fraud and abuse? • [Fraud is an intentional act of deception to take advantage of another person. Abuse is an action of misusing government allocated money; it is not necessarily intentional.] • What is a compliance plan? • [a process for finding, correcting, and preventing illegal practices]

29. TERMINOLOGY QUIZ • MDC is an abbreviation for: • [major diagnostic categories] • A software program used to assign DRGs: • [MS Grouper] • Conditions that develop as problems related to surgery or other treatments: • [complications] • Average of the DRG weights for all discharged patients during a certain time period is a hospital’s: • [case mix index (CMI)]

30. TERMINOLOGY QUIZ (cont.) • MCE is the abbreviation for: • [Medicare Code Editor] • Medicare’s national policy on correct CPT coding: • [Correct Coding Initiative (CCI)] • Identification of services that could not have reasonably been done during a single patient encounter: • [CCI mutually exclusive edits] • Programs that align financial incentives with the delivery of high-quality care: • [pay-for-performance programs]