What is a DRG?
The ICD-10-CM coding systems contains over 72,000 codes. Imagine trying to determine a payment amount for each individual condition. And that doesn't include accounting for procedures (over 78,000 ICD-10-PCS codes). The most logical solution is to create a system that allows for broader classification of conditions and services for easier comparison and assignment into payment categories. DRGs were created for this purpose. I look at DRGs as a way to "organize the junk drawer" where patients are grouped into different categories based on similar conditions and cost to treat the patient.

History
DRGs were first developed at Yale University in 1975 for the purpose of grouping together patients with similar treatments and conditions for comparative studies. On October 1, 1983, DRGs were adopted by Medicare as a basis of payment for inpatient hospital services in order to attempt to control hospital costs. Since then, the original DRG system has been changed and advanced by various companies and agencies and represents a rather generic term. These days, we have various DRG systems in use - some proprietary and some a matter of public record - all of which group patients in different ways. Two of the main DRG systems currently in use are the Medicare Severity DRG (MS-DRGs) and 3M's All Patient Refined DRGs (APR-DRGs). Different DRG systems are used by different payers.

How to Get a DRG
All DRG systems are a little different, but the basic premise is the same. DRGs are based on codes. In effect, DRGs are codes made up of codes. The following elements are taken into consideration when grouping a DRG:

• ICD-10-CM diagnosis codes
• ICD-10-PCS procedure codes
• Discharge disposition
• Patient gender
• Patient age
• Coding definitions as defined by the Uniform Hospital Discharge Data Set (UHDDS) - in other words, the sequence of codes on the claim

MS-DRG Grouper Logic
The first step in assigning an MS-DRG is to classify the case into one of the 25 major diagnostic categories (MDC). These MDCs are based on the principal (first) diagnosis and, with a few exceptions, are based on body systems, such as the female reproductive system. Five MDCs are not based on body systems (injuries, poison and toxic effect of drugs; burns; factors influencing health status (V codes); multiple significant trauma; and human immunodeficiency virus infection). Organ transplant cases are not assigned to MDCs, but are immediately classified based on procedure, rather than diagnosis. These are called pre-MDC DRGs.

Once a case has been assigned into an MDC (with the exception of the transplant pre-MDCs), it is determined to be either medical or surgical. Surgical cases require more resource consumption (that's industry speak for "costs more!"), so they must be separated from the medical cases. If there are no procedure codes on the case (e.g., a patient with pneumonia may have no procedure codes), then it's simple - it's a medical case. But if the patient had a procedure, that procedure may or may not be considered surgical. For example, an appendectomy is quite clearly a surgical procedure. But something like suturing a laceration is not. It's all based on resource consumption - the cost of performing the procedure. For the most part, anything requiring an operating room is surgical.

Okay, so now that we have our MDC and a designation as medical or surgical, we need to look at the other diagnoses on the claim. Right now, Medicare is able to process the first 18 diagnoses on the claim. These other diagnoses, depending on their severity, may be designated as complications and comorbidities (CCs) or major complications and comorbidities (MCCs). Medicare maintains lists of CCs and MCCs and updates them annually. CCs and MCCs are conditions that have been identified as significantly impacting hospital costs for treating patient with those conditions. For example, it's been determined that congestive heart failure without further specification does not significantly impact costs and it is not a CC/MCC. However, patients with chronic systolic or diastolic heart failure do have slightly higher costs, so those conditions are CCs. More so, patients with acute systolic or diastolic heart failure have even higher costs, so they are designated as MCCs. Are you beginning to see how slight changes in a physician's diagnostic statement impact coding and thus payment?

DRG Weights
Now that we know the MDC, whether the case is medical or surgical, and whether or not there are any CCs or MCCs, how does that translate into reimbursement? Well, if you're using an encoder (and if you code for a hospital, you will), you hit a button and presto! You have a DRG with a relative weight. Now if only you knew what that relative weight meant. The DRG relative weight is the average amount of resources it takes to treat a patient in that DRG. Huh?

Let me demonstrate. The baseline relative weight is 1 and represents average resource consumption for all patients. Anything less than 1 uses less than average resources. Anything above 1 uses more than average resources. So let's compare some respiratory MS-DRGs:

• MS-DRG for lung transplant has a relative weight of 10.7863
• MS-DRG for simple pneumonia (no CC/MCC) has a relative weight of 0.6821
• MS-DRG for chronic obstructive pulmonary disease with an MCC has a weight of 1.144

Case Mix
You just might be asked in an interview if you understand case mix. It's a good indication of whether someone really understands DRGs. And I have to admit, in my sometimes sadistic manner, I like seeing that look of glazed-over confusion on someone's face when I bring up case mix. But case mix is simple. It's the average relative weight for a hospital. So get out a big piece of paper for your hospital and start writing down the relative weights for every single case and then divide to get your average. Okay, so it's computerized now. But that's all case mix is - an average.

In the industry, we officially refer to case mix as the type of patients a hospital treats. Let's say at Happyville, we have a high volume of transplant cases plus a trauma center and a well-renowned cardiac program. These are all highly weighted types of cases and our overall case mix will be higher than say, Anytown Hospital down the street that has no trauma center, no transplant program, and basic cardiac services (they transfer all their serious cardiac cases to Happyville!). Happyville's case mix will be higher than Anytown's.

As a coder, you don't need to know what your specific hospital's case mix is at any given time. But knowing what impacts case mix is an indication that you know your stuff. First and foremost, case mix fluctuates. Most hospitals monitor case mix on a monthly basis because changes in case mix are a precursor to changes in reimbursement. Of course your CFO wants case mix to continue to rise, but that could be a red flag. And he certainly doesn't want case mix to fall. If case mix begins to decrease, the first place hospital administration usually looks is coding - after all, case mix is based on DRGs, which are based on codes. But there are lots of things that can impact case mix and many of them have nothing to do with coding, such as:

• The addition or removal of a heavy admitting physician - especially specialty surgeons
• Opening or closing a specialty unit
• Changes in a facility's trauma level designation
• Movement of cases from the inpatient setting to outpatient, and
• Anything else that impacts the type of services the hospital provides

So are you ready for the challenge? Are you ready to apply DRGs?