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CCS Prep

An Inpatient Prospective Payment System Overview: Diagnosis Related Groups

Besides understanding the assignment of diagnoses and procedure codes, coding professionals are expected to understand how those codes interact with other components in the billing process to determine reimbursement. In addition, candidates sitting for the certified coding specialist (CCS) exam are expected to understand the regulatory guidelines and reporting requirements for hospital acute care inpatient services. Although not all inpatient services are reimbursed via the Medicare inpatient prospective payment system (IPPS), the focus of this article is limited to those services. This article will provide an overview of Diagnosis Related Groups (DRGs), Medi- care's IPPS for acute care inpatient hospital stays. The reimbursement system was implemented for Medicare reimbursement throughout the country in 1983 and has been updated annually on October 1st since. There are provisions to allow for updates in April of each year. However, this has not occurred to date.

Before going into the actual structure of the DRG payment system, an understanding of the Uniform Hospital Discharge Data Set (UHDDS) elements used in the system is necessary.


The UHDDS definitions are used by acute care hospitals to report inpatient data elements in a standardized manner. The UHDDS data elements used in the DRG classification system are described below. Proper DRG assignment and resulting reimbursement is dependent on reporting these elements correctly.

Diagnoses: All diagnoses that affect the current hospital stay are to be reported.

Principal diagnosis is defined as "that condition established after study to be chiefly responsible for occasioning the admission of the patient to the hospital for care."

Other (Additional) diagnoses are defined as "all conditions that coexist at the time of admission, that develop subsequently, or that affect the treatment received and/or the length of stay."

Diagnoses that are related to an earlier episode of care, which have no bearing on the current hospital stay, are to be excluded. For reporting purposes the definition for 'other diagnoses' is interpreted as additional conditions that affect patient care in terms of requiring clinical evaluation; therapeutic treatment; diagnostic procedures; extended length of hospital stay; or increased nursing care and/or monitoring.

Procedures: All significant procedures are to be reported. Significant procedures are those that are surgical in nature; carry a procedural risk; carry an anesthetic risk; or require specialized training.

The principal procedure is one that was performed for definitive treatment rather than one performed for diagnostic or exploratory purposes, or was necessary to take care of a complication. If there appear to be two procedures that meet the above definition, then the one most related to the principal diagnosis should be selected as the principal procedure.

Under IPPS all procedures potentially affecting payment must be reported.

The DRG System

The DRG classification system is the most widely utilized system for classifying acute care inpatients and measuring case mix. Case mix is a means of defining and measuring the types of patients a hospital treats. DRGs group cases that are clinically similar and consume similar resources. One DRG is assigned to each inpatient stay. DRGs are assigned using the principal diagnosis, additional diagnoses, the principal procedure and additional procedures, age, sex and discharge status. Diagnoses and procedures assigned by using ICD-9-CM codes determine the DRG assignment. There- fore, accurate and complete ICD-9-CM coding by HIM professionals is essential for correct DRG assignment and subsequent reimbursement. A DRG is assigned as follows:

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 Dis-orders of the Ear, Nose, Mouth and Throat

MDC 4 Diseases and Disorders of the Respiratory System

MDC 5 Diseases and Dis-orders of the Circulatory System

Pre-MDC DRG: Because some patient groups are extremely resource intensive, they are put into a separate DRG group, before MDC assignment, based on the OR procedure rather than principal diagnosis. This group is called pre-MDC DRGs. Pre-MDC DRGs include organ transplants, bone marrow transplants and tracheostomy cases. If a procedure places a case into a Pre-MDC DRG, the DRG is assigned outside of the MDC. For example, DRG 103, Heart Transplant or Implant of Heart Assist System, is assigned based on the procedure performed pre-MDC. The principal diagnosis is not taken into consideration.

An Inpatient Prospective Payment System Overview: Diagnosis Related Groups

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