Background: MS-DRGs are used or reimbursement in theinpatient setting as part of the inpatient prospectivepayment system (IPPS). Only one MS-DRGcan be assigned to an inpatient stay (this is different than theoutpatient prospective payment system (OPPS) where more than oneAPC can be assigned to an outpatient encounter). MS-DRG assignmentbegins after the patient is discharged from the hospital, with theassignment of diagnoses and procedure codes. Diagnoses andprocedures are assigned ICD-10-CM (diagnoses) and ICD-10-PCS(procedures) codes, and they are sequenced according to CMSofficial coding guidelines. Codes for comorbidities (coexistingconditions) and complications (conditions that develop duringinpatient admission) are also assigned. Medical coders alsoindicate whether the diagnosis/condition was present on admissionby assigning a POA indicator.

Each hospital discharge is first categorized into one of 25major diagnostic categories (MDCs).Theprincipal diagnosis determines the MDCassignment (so proper assignment and sequencing of codes iscritical). Within most MDCs, cases are divided intosurgical MS-DRGs and medical MS-DRGs. Somesurgical and medical MS-DRGs are further differentiated on thebasis of the presence or absence of complications or comorbidities.The appropriate MS-DRG is assigned to each discharge by computersoftware, called an MS-DRG grouper, that assignsthe appropriate MS-DRG based on information entered, includingICD-10-CM and ICD-10-PCS codes.  

Each MS-DRG is assigned a predetermined relative paymentweight that is based on the average resources used totreat Medicare patients in that DRG. A weight of 1.000 is average;meaning a relative payment weight higher than 1.000 means moreresources are required to treat the patient and the payment iscorrespondingly higher. MS- DRG reimbursement is assigned using theDRG relative payment weight, a hospital base paymentrate (a hospital specific per-encounter rate that is basedon historic claims data), and any adjustments fordisproportionate share hospital (DSH) status (facilitieswho treat a high percentage of low income patients),indirect medical education (IME) adjustment(facilities with approved graduate medical education program)and/or add-ons (for outliers and new medicalservice/technology).

Assignment: Administration wants to know the estimatedMDS-DRG payment for several MS-DRGs. The grouper on your system hascrashed. Administration needs this information immediately, so youneed to calculate the MS-DRG payments manually. The add-onpercentage for your facility is 1.03%. The hospital’s base rate is$6,321.67. The MS-DRGs that administration is concerned about areshown below in Table #1. The MS-DRG relative weights are shown inTable #2. Use Table #2 to obtain the MS-DRG relative weights, enterthem into table #1, and calculate the estimated payments.The MS- DRG formula is Payment = MS-DRG Relative Weight xHospital’s Base Rate x Add-on percentage. The first one isdone for you.

Table #1

MS-DRGs with Relative Weight and EstimatedPayment
MS-DRG	MS-DRG Title	Relative Weight	Estimated Payment
190	Chronic Obstructive Pulmonary Disease without MCC	1.1924	$7,764.10
193	Simple Pneumonia & Pleurisy with MCC
231	Coronary Bypass with PTCA with MCC
281	Acute Myocardial Infarction Discharged Alive with CC
304	Hypertension with MCC
334	Rectal Resection without MCC/CC
374	Digestive Malignancy with MCC
389	GI Obstruction with CC
472	Cervical Spinal Fusion with CC
509	Arthroscopy

Table #2

MS-DRG	MS-DRG Title	Relative Weight
190	Chronic Obstructive Pulmonary Disease without MCC	1.1924
193	Simple Pneumonia & Pleurisy with MCC	1.4796
231	Coronary Bypass with PTCA with MCC	7.8582
281	Acute Myocardial Infarction Discharged Alive with CC	1.1912
304	Hypertension with MCC	1.0263
334	Rectal Resection without MCC/CC	1.6267
374	Digestive Malignancy with MCC	2.0674
389	GI Obstruction with CC	0.9344
472	Cervical Spinal Fusion with CC	2.7722
509	Arthroscopy	2.7722

MS-DRG 190 Estimated Payment Calculation:

Payment = MS-DRG Relative Weight x Hospital’s Base Rate x Add-onpercentage

               = 1.1924 x $6321.67 x 1.03 = $7,764.09808724 = $7,764.10

#3 – Case Mix Index Assignment

The MS-DRG system creates a hospital’s case-mix index (types orcategories of patients treated by the hospital) cased on therelative weights of the MS-DRG. The case-mix index can befigured by multiplying the relative weight of each MS-DRG by thenumber of discharges within that MS-DRG. This provides the totalweight for each MS-DRG. The sum of all total weights divided by thesum of total patient discharges equals the case-mixindex.

Calculate the case-mix index for General Hospital:

General Hospital Case Mix Index
MS-DRG	Description	Number of Discharges	Relative Weight	Total Relative Weight
280	Heart failure & shock	50	1.8503
193	Simple pneumonia & pleurisy w CC	42	1.4796
377	GI hemorrhage w MCC	23	1.7541
190	COPD	18	1.1924
483	Major joint & limb reattach upper extreme w CC/MCC	17	2.4019
Total		150
Case Mix Index (CMI) = Total Relative Weight (for all 5MS-DRGs)/Total Discharges CMI for top 5 MS-DRGs at General Hospital =

Why is case mix index (CMI) important? The case-mixindex (CMI) can be used to help administration make financialdecisions and also to adjust the average cost per patient (or day)for a given hospital relative to the adjusted average cost forother hospitals by dividing the average cost per patient (or day)by the hospital’s calculated CMI. The adjusted average cost perpatient would reflect the charges reported for the types of casestreated in that year. For example, if hospital A has an averagecost per patient of $1,000 and a CMI of 0.80 for a given year,their adjusted cost per patient is $1,000/0.80 = $1,250. Likewise,if Hospital B has an average cost per patient of $1,500 and a CMIof 1.25, their adjusted cost per patient is $1,500/1.25 =$1,200.

Therefore, if a hospital has a CMI greater than 1.00, theiradjusted cost per patient or day will be lowered and conversely ifa hospital has a CMI less than 1.00, their adjusted cost will behigher. Ideally, a hospital likes their CMI to be as high aspossible.