Hospitals are under enormous pressure to reduce length of stay. Since the hospital is paid by the diagnosis and not by the number of days a patient spends in the...
The CMS websites have a wealth of information about our nation’s health and about medical economics. One of the more insightful is the Inpatient Charge Dataset that lists the average charges and average payments to hospitals for different diagnoses. You can also search the dataset to find out how much any given hospital in the United States gets paid on average for each diagnosis (for Medicare patients). The diagnoses are listed as DRGs, or “diagnostic-related groups”. These are essentially the reason why the patient was in the hospital: a disease, a condition, or a surgical procedure. Medicare will pay set amount of money to hospitals for each DRG. The Medicare payment per DRG is also affected by the amount of money a given hospital gets for being classified as a teaching hospital, by disproportionate share funds, by capital funds, and by outlier funds. Thus an academic medical center that cares for a disproportionate number of Medicaid or uninsured patients will be paid much more for any given DRG than a private hospital with relatively few Medicaid or uninsured patients a few blocks away. For example, in Chicago in 2016, the John H. Stroger Hospital (also known as Cook County Hospital) received an average Medicare payment of $10,858 for DRG 638 (diabetes with complication or comorbidity) whereas Louis A. Weiss Hospital received an average Medicare payment of $6,291 for the same DRG.
The Medicare payment amount can increase if a patient has certain other complications or comorbid conditions. For example, a hospital admission for a patient with “septicemia or severe sepsis with mechanical ventilation > 96 hours” (DRG 870) will result in higher Medicare payments to the hospital if that patient also had disseminated intravascular coagulation or if that patient also has acute kidney failure. Therefore, hospitals hire coders who spend a lot of effort tracking down and documenting all of those various co-morbidities in order to enhance revenue. So, for example, in 2016, DRG 281 (acute myocardial infarction, discharged alive with complication or comorbidity) resulted in an average Medicare hospital payment of $6,213 to the Carolina East Medical Center in New Bern, North Carolina but the same DRG resulted in an average payment of $4,741 to Lenoir Memorial Hospital in Kinston, North Carolina, 35 miles away (I picked these two hospitals semi-randomly because we vacation regularly in the area and they presumably have a very similar patient demographic in rural Eastern North Carolina).
The Medicare Inpatient Charge Dataset lists three prices:
- Average Covered Charges. This is what the hospital charges on the final hospital bill and is equivalent to the sticker price. This is largely an irrelevant number since no matter what different hospitals charge, they are all going to get paid the same amount from Medicare for any given DRG and the co-morbid conditions associated with that DRG. Virtually no one pays the sticker price at a hospital.
- Average Total Payments. This is what the hospital actually gets paid and includes whatever Medicare pays plus any co-pays that the patient pays plus anything that secondary insurance pays.
- Average Medicare Payments. This is what Medicare alone pays to the hospital for that DRG (adjusted for whatever co-morbid conditions that the hospital documented for each patient).
Therefore, to extend the example using Carolina East Medical Center in New Bern, North Carolina, the hospital’s average covered charge (sticker price) for DRG 281 was $20,828. The average total payments for this DRG (what they actually got paid in total) was $7,409. The average Medicare payment for this DRG was $6,213.
Here are the top 20 highest paying DRGs to hospitals (listed by the Average Medicare Payments):
- $223,532 – Heart transplant or implant of heart assist system with major complication or comorbidity.
- $140,536 – Extensive burns or full thickness burns with mechanical ventilation > 96 hours with skin graft.
- $129,842 – Heart transplant or implant of heart assist system without major complication or comorbidity
- $125,777 – ECMO or tracheostomy with mechanical ventilation > 96 hours with major O.R.
- $113,055 – Other heart assistant system implant
- $105,901 – Allogenic bone marrow transplant
- $100,462 – Liver transplant with major complication or comorbidity or intestinal transplant
- $86,809 – Lung transplant
- $81,707 – Combined anterior/posterior spinal fusion with major complication or comorbidity
- $76,561 – Intracranial vascular procedures with principal diagnosis hemorrhage with major complication or comorbidity
- $71,098 – Tracheostomy with mechanical ventilation > 96 hours without major O.R.
- $70,008 – Spinal fusion excluding cervical with spinal curvature/malignant/ infectious or extensive fusion with major complication or comorbidity
- $67,613 – Cardiac valve and other major cardio thoracic procedure with cardiac catheterization with major complication or comorbidity
- $59,975 – Cardiac defibrillator implant with cardiac catheterization with acute myocardial infarction/heart failure/shock with major complication or comorbidity
- $59,738 – Endovascular cardiac valve replacement with major complication or comorbidity
- $55,191 – Cardiac valve and other major cardio thoracic procedures without cardiac catheterization with major complication or comorbidity
- $54,852 – Combined anterior/posterior spinal fusion with complication or comorbidity
- $53,418 – Intracranial vascular procedures with principal diagnosis hemorrhage with complication or comorbidity
- $52,838 – Coronary bypass with PTCA with major complication or comorbidity
- $52,020 – Other O.R. procedures for multiple significant trauma with major complication or comorbidity
Not surprisingly, the highest paying diagnoses are for various transplants, major heart surgery, and major neurosurgery. However, these are generally procedures done in specialized and tertiary care hospitals and are relatively few in total numbers compared to other DRGs. Here are the top 10 most common diagnoses in the United States and their average Medicare payments in 2016:
- $11,632 – Septicemia or severe sepsis without mechanical ventilation > 96 hours with major complication or comorbidity
- $11,837 – Major joint replacement or reattachment of lower extremity without major complication or comorbidity
- $9,404 – Heart failure and shock with major complication or comorbidity
- $6,026 – Heart failure and shock with complication or comorbidity
- $4,359 – Esophagitis, gastrointestinal and miscellaneous digestive disorders with out major complication or comorbidity
- $6,392 – Septicemia or severe sepsis without mechanical ventilation > 96 hours without major complication or comorbidity
- $4,667 – Kidney and urinary tract infections without major complication or comorbidity
- $7,799 – Pulmonary edema and respiratory failure
- $5,692 – Renal failure with complication or comorbidity
- $8,600 – Simple pneumonia and pleurisy with major complication or comorbidity
There are many ways that hospitals can use the information from the Medicare Inpatient Charge Dataset. For example, let’s say that Lenoir Memorial Hospital in Kinston, North Carolina decides to target one DRG to improve throughput efficiency in order to improve its hospital margin. So, they put resources into case management, pharmacy, rehabilitation services, and post-discharge care with a goal of reducing expenses by 10% below the average payments that the hospital receives for that DRG. Should they choose knee & hip replacement (DRG 470) or exacerbation of chronic obstructive pulmonary disease with major complications or comorbidity (DRG 190)?
On the surface, one might think that since knee & hip replacement is a very expensive DRG, that by targeting it for expense reduction, the hospital stands to gain the most at the end of the year. However, even though admissions for COPD exacerbation pay far less on a per-admission basis ($7,532 versus $10,039), because there are so many more patients admitted with COPD exacerbation, the hospital will have a $40,000 greater end-of-the-year total positive margin if it puts the resources into reducing COPD exacerbation costs as opposed to reducing knee & hip replacement costs.
All of this underscores the critical importance of hospital coders in hospital finances. At the end of the day, choosing the correct DRG and capturing all of the various complications and comorbidities for each patient is more financially valuable than doing a few more inpatient surgeries each year.
June 2, 2019