CCS Prep

An Inpatient Prospective Payment System Refresher: MS-DRGs

Besides understanding the assignment of diagnoses and procedure codes, those sitting for the certified coding specialist (CCS) exam are expected to understand the regulatory guidelines and reporting requirements for hospital acute care inpatient services. This article will provide an overview of Medicare Severity Diagnosis Related Groups (MS-DRGs), Medicare's Inpatient Prospective Payment System (IPPS) for acute care inpatient hospital stays. The reimbursement system was implemented in 2007 and has been updated annually on Oct. 1 since.

Before going into the structure of the MS-DRG payment system, an understanding of the Uniform Hospital Discharge Data Set (UHDDS) elements used in the system is necessary. An outline of the UHDDS definitions for diagnosis and procedure assignment is included in a 2006 CCS Prep! column on the original Medicare DRGs.

The MS-DRGs enable CMS to provide greater reimbursement to hospitals serving more severely ill patients. Hospitals treating less severely ill patients will receive reduced reimbursement.

The MS-DRG System
The MS-DRGs range from 001-999, with many unused numbers to accommodate future MS-DRG expansion.

One MS-DRG is assigned to each inpatient stay. The MS-DRGs are assigned using the principal diagnosis and additional diagnoses, the principal procedure and additional procedures, sex and discharge status. Diagnoses and procedures assigned by using ICD-9-CM codes determine the MS-DRG assignment. Accurate and complete ICD-9-CM coding by HIM professionals is essential for correct MS-DRG assignment and subsequent reimbursement.

With some exceptions, all principal diagnoses are divided into one of 25 Major Diagnostic Categories (MDC) that generally correspond to a single organ system. Examples of MDCs include:

  • MDC 1 Diseases and Disorders of the Nervous System
  • MDC 2 Diseases and Disorders of the Eye
  • MDC 3 Diseases and Disorders of the Ear, Nose, Mouth and Throat

In the MS-DRG system, many DRGs are split into one, two or three MS-DRGs based on whether any one of the secondary diagnoses has been categorized as an MCC, a CC or no CC.

Example of MS-DRGs with a three way split include:

  • MS-DRG 539, Osteomyelitis with MCC
  • MS-DRG 540, Osteomyelitis with CC
  • MS-DRG 541, Osteomyelitis without CC/MCC

Under MS-DRGs, CMS identified those diagnoses whose presence as a secondary diagnosis leads to substantially increased hospital resource use. They then categorized this list into two different levels of severity as follows:

  • Major complications or comorbidities (MCCs) reflect the highest level of severity. Examples: 348.39, Encephalopathy, NOS, and 707.07, Decubitus ulcer, heal
  • CCs represent the next level of severity. Examples: 344.1, Parapalegia, NOS, and 707.09 Decubitus ulcer, other site

Some MCCs and CCs are excluded because they are too closely related to the principal diagnoses. This is called the CC Exclusion List and identifies conditions that will not be considered a CC or MCC for a given principal diagnosis. For example, primary cardiomyopathy (425.4) is not a CC for congestive heart failure (428.0).

Pre-MCD MS-DRG: Because some patient groups are extremely resource intensive, they are put into a separate group, before MDC assignment, based on the OR procedure rather than principal diagnosis. This group is called pre-MDC MS-DRGs. The pre-MDC MS-DRGs include organ transplants, bone marrow transplants and tracheostomy cases. If a procedure places a case into a pre-MDC, the MS-DRG is assigned outside of the MDC. For example, MS-DRGs 001 and 002, Heart Transplant or Implant of Heart Assist System, are assigned based on the procedure performed pre-MDC and the presence or absence of an MCC. The principal diagnosis is not taken into consideration.

Operating room (OR) procedures: If a case is not assigned to a pre-MDC, patients are then classified by whether or not they had an OR procedure within each MDC. In some instances there are also non-OR procedures that may affect the MS-DRG assignment and may also be taken into consideration. There is a surgical hierarchy within each MDC and, in most instances, patients with multiple procedures are assigned to the most resource-intensive MS-DRG. An example of an MS-DRG assigned on the basis of an OR procedure is 470, Major Joint Replacement or Reattachment of Lower Extremity without MCC.

Procedures used as "proxy": The concept of procedures used as  "proxy" is used in MS-DRGs. As described above, CMS measures patient severity based on the presence or absence of MCCs, CCs or non-CCs. In addition, CMS identified several procedure/device codes that also caused an increase in complexity and could be considered a "proxy" for the presence of a CC or MCC secondary diagnosis. In these cases, the presence of the procedure/device or the presence of a CC or MCC will result in the assignment of a higher weighted MS-DRG (i.e., MS-DRG 129, Major Head and Neck Procedures w CC/MCC or Major Device). Patients undergoing a major head or neck procedure with a cochlear implant (procedure codes 20.96, 20.97 or 20.98) without a CC or MCC are assigned the same MS-DRG as patients undergoing a major head or neck procedure with a CC or MCC.

Unrelated OR procedure MS-DRGs: There are MS-DRGs for unrelated OR procedures. These MS-DRGs are assigned when the case has an OR procedure unrelated to the principal diagnoses within the MDC for the procedure.

Principal diagnosis: If no OR procedure is performed, the case is classified into medical categories by the principal diagnosis. Medical categories include neoplasms, specific conditions related to the anatomical site, symptoms and other diagnoses. For example, MS-DRG 064, Intracranial hemorrhage or cerebral infarction with MCC, is assigned based on the principal diagnosis because no OR procedure is performed.

MS-DRG Reimbursement
Hospitals are typically paid a set fee for treating all patients in an MS-DRG, regardless of the actual cost for that case. Each MS-DRG is assigned a weight. The weight is used to adjust for the fact that different types of patients consume different resources and have different costs. Groups of patients who are expected to require above average resources have a higher weight than those who require fewer resources.

Weights are updated annually to reflect changes in medical practice patterns, use of hospital resources, diagnostic and procedural definitions and MS-DRG assignment criteria.

To arrive at the reimbursement that a hospital will receive for a particular MS-DRG, the hospital's base rate is multiplied by the MS-DRG weight. In the most simplified terms, the hospital base rate identifies the reimbursement that a hospital would receive for treating the average patient.

Transfer Policies
Hospitals will receive adjusted reimbursement if Medicare patients are transferred to another acute-care facility or to a post-acute care facility. For patients transferring from one acute-care facility to another, the hospital that transfers the patient is paid an MS-DRG-based per-diem rate. The receiving facility receives the full MS-DRG payment. An example of an MS-DRG that meets the post-acute care transfer criteria is MS-DRG 100, Seizures w MCC.

Medicare Code Edits (MCE)
Under MS-DRGs, Medicare uses the MCE in the processing of IPPS claims. An overview of the MCEs is included in the 2006 CCS Prep! column on DRGs.

 The Need for Review
It is important that coders preparing for the CCS examination understand the basic MS-DRG methodology because questions related to the updated system may be on the exam.

The ICD-9-CM Official Guidelines for Coding and Reporting should be reviewed for proper assignment and sequencing of principal and secondary diagnoses codes used to calculate MS-DRG assignment.


Take the following quiz to test your understanding of the MS-DRG information contained in this article.

1. An acute-care hospital will always be reimbursed the same amount for all Medicare inpatients who group in the same MS-DRG.
a. True
b. False

2. Which of the following variables are used for MS-DRG assignment?
a. Age, sex, discharge status, secondary diagnoses
b. Sex, discharge status, secondary diagnoses
c. Age, sex, secondary diagnoses
d. Age, discharge status, secondary diagnoses

This month's column has been prepared by Cheryl D'Amato, RHIT, CCS, director of HIM, hospital solutions, and Melinda Stegman, MBA, CCS, clinical technical editor, OptumInsight (formerly Ingenix).

Coding Clinic is published quarterly by the American Hospital Association.
CPT is a registered trademark of the American Medical Association.


1. b. False: Generally this statement is true. However, there are instances when the payment will be different. For example, transfer cases and for new technology add-ons.

2. b. Of those listed, sex, discharge status and secondary diagnoses are some of the variables used to assign the MS-DRG. Age is not used as an input variable.

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