Five Answers to Questions About Hospital DRG Codes

One question that MedTech sales and marketing teams definitely need to be prepared to answer is, “If our hospital uses your system, how will it impact our costs and reimbursement?” Understanding how Medicare and other insurers make decisions about how much to pay a hospital for procedures and patient care will help you accurately answer that question. The Centers for Medicare and Medicaid Services (CMS), under the Social Security Act, bases reimbursements on the Inpatient Prospective Payment System (IPPS), which categorizes cases according to diagnostic-related group (DRG).

MedTech companies may have some questions of their own about hospital DRGs and how CMS uses them to determine reimbursement. Here are five answers you need:

What Are Hospital DRG Codes?

DRGs categorize patients by their diagnoses and the costs associated with treating them. Hospital DRGs are divided into two types: medical DRGs, which don’t reflect operating room procedures, and surgical DRGs.

CMS adopted DRG classifications in 1983 with the goal of controlling rising costs. In 2008, CMS moved to Medicare Severity DRGs (MS-DRGs) to allow the healthcare provider to provide more information on the severity of the patient’s illness within the group, and allowing CMS to adjust costs based on different stages in the progression of an illness or complications or comorbidities (CCs). It was common for the original set of hospital DRGs to have one or two levels, but MS-DRGs often have three (triplet) levels of severity and associated costs.

What’s the Relationship Between Hospital DRG Codes & ICD-10 & CPT codes?

​DRG, ICD-10, and CPT are all codes used with Medicare and insurers, but they communicate different things. ICD-10 codes are used to explain the diagnosis, and CPT codes describe procedures that the healthcare provider performs. Both diagnosis and procedure are used to determine DRG. The DRG determines the single payment the hospital will receive for treating the patient — not for each syringe, swab, X-ray image, room supply, or pill, but one cost that covers the entire care episode. If a patient could be classified according to two DRGs, the hospital will receive the higher reimbursement amount.

Are DRG Systems Standardized Around the World?

​An AHIMA paper points out that because hospital DRGs were developed for Medicare reimbursements, they have had limited use outside the U.S. As a result, several different DRG systems have been developed for use outside the U.S. AHIMA identified 20 unique diagnostic groupings used in 58 different countries.

How Do Hospital DRG Codes Impact Hospital Revenue?

​Every year, CMS assigns a relative weight to each DRG. That weight, based on the severity of illness, required length of stay, and necessary treatments, determines the reimbursement the hospital will receive. Fever and inflammatory conditions, for example, had a weight of 0.8643 in the 2019 Final Rule, while lung transplant was weighted at 10.651. CMS states that DRG relative weight also takes changing treatment patterns, technology, and other factors that can influence the use of hospital resources into account.

How Can Hospital DRGs Impact MedTech Sales?

It’s essential for MedTech sales and marketing teams to understand hospital DRG coding and reimbursements your clients can expect from performing procedures or administering treatment using your system. It’s not a foregone conclusion that using every medical device that receives FDA approval will earn a reimbursement from Medicare or other insurers. Working to obtain coverage for your devices and systems from CMS — and then using that information in your marketing and sales materials — can provide purchasing agents and other decision makers with essential information.

Innovative devices and systems may be billable under current DRGs; however, it’s crucial for you to calculate the ROI your prospects can expect. The current reimbursement may be based on current standards and technologies, and it may not provide enough revenue to justify investing in a new system.

It may benefit your company to assist healthcare providers to request a new billing code associated with a higher reimbursement or a New Technology Add-On Payment (NTAP). An NTAP, which must not be similar to existing technologies, must be proven to improve clinical outcomes compared to using those technologies.

Balancing Costs With Quality Care

Although Medicare adopted hospital DRGs to control costs, ensuring that healthcare providers deliver the highest standard of care is paramount. Your MedTech device or system may provide answers to how to deliver quality care more efficiently and cost-effectively, with proven ROI. That’s a message that will grab your prospect’s attention.