Han Xu,Sun Lihua

(School of Business Administration,Shenyang Pharmaceutical University,Shenyang 110016,China)

Abstract Objective To study the successful experience of implementing diagnosis related group (DRG) payment system in the United States and provide a reference for China’s reform of health insurance payment.Since the United States is the first country to develop and apply the DRG in the world,its research and practice of DRG are always at the forefront.Methods Literature research method was used to investigate DRG payment system,the specific steps of the payment,the setting method of relevant indicators,and the quality supervision measures.Results and Conclusion There are mainly three aspects from the experience of DRG payment system in the United States.Firstly,the government’s responsibility for health insurance is clarified.Secondly,the relevant indexes are set reasonably.Thirdly,the DRG weight and base rate are adjusted dynamically to ensure the fairness of DRG payment.Therefore,China should pay attention to the following three aspects:clarifying the main responsibility of the government in the reform of health insurance payment,establishing the quality control system of the first page of medical records,and improving the supervision mechanism for medical quality.

Keywords:diagnosis related group; health insurance payment system; US; enlightenment

A diagnosis related group (DRG) is a system that sets fixed fee schedule for hospital services.Professor Fetter of Yale University,the founder of DRG,defined it as a new case mix that classified patients based on clinical and resource consumption similarity[1].It was originally created to develop a set of tools for hospital managers to improve health care quality and hospital performance,but it was later adopted by Medicare as a way to pay for hospital services.Generally,a DRG has the following four characteristics:regular collection of patient discharge data,assigning patients to a manageable group with the help of data,grouping with clinical significance,and grouping with similar resource consumption[2].According to the definition,characteristics and the specific practice of DRG,DRG payment is usually defined as assigning the patients to the corresponding DRGs based on their age,sex,length of stay,clinical diagnosis,disease,surgery,comorbidities,complications and discharge status,and then to pay for the hospital services[3].

1 Overview of US DRG payment system

Until 1983,Medicare’s payments to all inpatients were based on the cost of each medical service,namely fee for service (FFS).This post-payment system led to financial incentives for doctors to overtreat patients with a sharp rise in medical expenses.To curb the rising medical expenses,Congress enacted legislation that applied diagnosis related groups-prospective payment systems (DRG-PPS) to Medicare’s payments for patients in emergency hospitals in 1983.

Based on the DRG-PPS,hospitals are reimbursed for all expenses at a predetermined rate through contracts with Medicare,covering 90 days of treatment for each disease and an additional 60-day lifetime reserve.Patients are considered to have a course of illness treatment from hospitalization to discharge,or a continuous stay of 60 days in a professional nursing institution.In general,hospitals are paid by Medicare on a per-discharge or per-case basis[4].

Inpatients will be first assigned to the appropriate DRG.Variables such as primary diagnosis,comorbidities or complications,secondary diagnosis,surgical procedure,gender,age,or admission status will determine the DRG allocation for patients.The Centers for Medicare & Medicaid Services (CMS)will reevaluate the DRG each year to ensure that the cases in each DRG match the similarities in clinical and medical resource consumption.CMS may redistribute the cases to a different DRG or create a new DRG once a case in a DRG is assessed to show the resources consumed vary widely in the context of clinical similarity.CMS uses the Medicare severity diagnosis related groups (MS-DRG) version,which better reflects the severity of illness and resource consumption in Medicare patients.MS-DRG divides the cases into three severity levels based on the secondary diagnostic codes:(1) Major comorbidities/complications (MCC),reflecting the highest severity level.(2) Comorbidities/complications (CC),which is the second level of severity.(3) Non-comorbidity/complication (NON-CC),which has no significant impact on disease severity and resource consumption.

The DRG-PPS pays for discharge cases based on two national basic rates:one for surgical expenses and the other for capital expenses.In addition,hospitals can apply for an outlier.hospitals approved for graduate medical education (GME) residency programs also receive a separate payment to cover the cost of training residents.Teaching hospitals or hospitals that treat more low-income patients will be paid a higher rate.Additional payments will be made if the patient is treated with a new and expensive approved technique that represents a substantial clinical advance over existing treatment techniques.In some cases,payments will be reduced if the patient stays in a hospital for a short time and is transferred to another acute care hospital,or in some cases,to a post-acute care facility.

In order to further ensure the quality of medical services,the payment of DRG-PPS should be adjusted to the hospital’s value-based payment (VBP) and the hospital readmission reduction program (HRRP) for the inpatients on or after October 1,2012.According to the VBP program,only hospitals whose overall performance meets a range of quality measures are paid.According to HRRP program,hospitals with high readmission rates are paid less.Starting from fiscal year 2015,for the 25% of hospitals with the worst performance,their total payments will be reduced by 1% after risk adjustment based on hospital acquired conditions (HACs) program[5].

2 Steps of US DRG payment

(1) The physician records information related to the patient’s treatment (primary diagnosis,secondary diagnosis,and comorbidities/complications,etc.).

(2) The information is submitted to the hospital’s medical records department,where technicians encode diagnostic and surgical information with the international statistical classification of diseases and related health problems (ICD) codes.The hospital then submits an electronic bill to the Medicare administrative contractor (MAC) for each patient it treats.

(3) The MAC uses the Medicare coding editor to process the billing information,and then uses the “DRG grouper” to assign each case to the corresponding DRG.

(4) Basic rate for surgical expenses will be paid,including labor related and non-labor related parts.The labor-related part is adjusted through the wage index to reflect the regional labor cost differences.If the regional wage index is higher than 1.000 0,the labor component accounts for 69.6%.If the regional wage index is lower than or equal to 1.000 0,then the law requires 62% of the labor share[6].The non-laborrelated parts are adjusted through the cost of living adjustment (COLA),which is 1.000 0 in all States except Alaska and Hawaii[6].

(5) The base payment rate after salary adjustment is multiplied by the relative weight of DRG.The relative weight of each DRG is the ratio of the average cost of each DRG to the average cost of all DRG cases in the region.In fiscal year 2017,there were 757 DRGs[7].

(6) Additional payment should be made according to the circumstances,such as the hospital is a teaching hospital for resident doctors,hospitals treat a large proportion of low-income people,hospitals treat the patients with a new approved technique,and high costs for outliers.

(7) There are also payment adjustments for the hospital VBP,HRRP and HAC reduction programs.

(8) Payment for the capital portion follows the same steps,which are not described here.

The following is a demo of the payment rate for the surgical part (see Fig.1) and the payment rate for the capital part (see Fig.2),showing the calculation process of the two payment rates.

Fig.1 Operating based payment rate calculative process [8]

Fig.2 Capital based payment rate calculative process [8]

3 Methods for setting indicators related to DRG in the United States

There are 11 main indicators related to DRG payment[8].

3.1 Basic payment rate

As shown in Fig.1 and Fig.2,the payment amount of DRG-PPS is obtained after a series of adjustments to the base payment rate for the surgical part and the capital part.These base payment rates,which are set to compensate hospitals for surgery and capital costs,are updated annually.The payment of capital compensates for the cost of insurance and taxes related to depreciation,interest,rent and ownership.The base rate for surgery payments is set by Congress based on the expected increase in the market basket index.The market basket index measures the increase in the price of goods and services purchased by hospitals that offer medical services.

3.2 Relative weight of DRG

The relative weight of each DRG is the ratio of the average cost of each DRG to the average cost of all DRG cases in the region.The weight assigned to each MS-DRG reflects the average relative cost of that group of cases relative to the other.Surgery and capital base rate adjustments are made using the same MS-DRG weights.The MS-DRG weight is adjusted annually according to the standard cost and cost of all cases in each MS-DRG.Standardized the hospital bills can improve comparability,which includes adjusting charges to eliminate the deviation related to the hospital wage index in the labor market,the scale of hospital resident training activities,and the number of low-income patients treated in hospitals.In addition,expenses are reduced to costs by using the national average hospital cost-to-expense ratio of 19 hospital sectors.

3.3 Adjustments according to market conditions

Base rates for operations and capital components are adjusted by regional wage indices to reflect regional differences in labor market prices.CMS uses the core-based statistical area (CBSA) from the Office of Management and Budget to define labor market areas.The wage index is revised annually according to the report on the wage data of the DRG-PPS hospitals.The wage index is used to adjust the laborrelated portion of the surgical base rate,which reflects a percentage of the estimated cost of the area’s wage rate and fringe benefits.

3.4 Bad debts

Hospitals are compensated for 65% of bad debts incurred by Medicare patients in hospitals.Bad debts are unpaid co-payments and deductibles after hospitals press for payment.

3.5 Policy adjustment

In addition to surgical and capital compensation payments,there are some extra payments,which are common in various plans,such as direct graduate medical education (DGME),indirect costs of graduate medical education,disproportionate share hospitals(DSHs),and sole community hospitals (SCHs),etc.

3.6 Outliers

In order to ensure that patients with serious illness and high consumption of medical resources can also receive high-quality treatment,Medicare should make out-of-pocket payments for such cases.Outliers can be identified by estimating the cost of the case and comparing it with the fixed loss threshold.The fixed loss threshold is adjusted annually to reflect the cost of hospital labor in the local market.Medicare pays 80% more for costs above the fixed loss threshold,and 90% for burn cases.The part used for the Outliers is usually controlled at 5.1% of the total expenditure in the current fiscal year[9].

3.7 Transfer policy

DRG payments are reduced under the following conditions.First,the patient’s hospital stay is at least one day less than the geometric mean of the DRG.Second,patients are transferred to another DRGPPS covered hospital.Third,an MS-DRG case is transferred to the post-acute care facility.Fourth,patients are transferred to hospitals with no Medicare agreements (effective Oct.1,2010),etc.

3.8 Readmission

According to HRRP,the DRG payment for the surgical portion will be adjusted in the event of excessive readmission from October 1,2012 onwards.Excess is the comparison of the performance of a hospital’s readmission rate with the national average.Readmission usually refers to the condition in which DRG-PPS payment is required again within 30 days after discharge from the same or another hospital[10].

3.9 Hospital VBP adjustment

For cases discharged from hospitals on or after October 1,2012,DRG payments for surgery in hospitals enrolled in the VBP program are based on overall performance across a range of quality measures.With rare exceptions,the VBP program is commonly used in all acute DRG-PPS hospitals.

3.10 Adjustment of HAC reduction plan

For cases discharged on or after October 1,2015,the bottom 25% of all hospitals with hospital-acquired problems will receive 99% of the DRG-PPS payment in acute care hospitals[8].HAC refers to undesirable problems acquired during hospitalization.

3.11 Hospital Inpatient Quality Reporting (IQR) and Electronic Health Record (EHR) incentive plan

From fiscal year 2017,hospitals that report specific quality data to the United States Department of Health and Human Services (HHS) will receive a 1.65% payment incentive set by the congress,if they meet all the requirements of the hospital IQR program,and make meaningful use of the EHR at the same time.Hospitals that do not report specific quality data to HHS and do not make meaningful use of EHR will have a corresponding payment reduction[11].

4 US DRG quality supervision measures

The US government has followed congressional orders to ensure the quality of health care.Office of Inspector General (OIG) monitors medical fraud and abuse according to the Federal Claims Collection Act of 1966 (FCCA) and the Health Insurance Portability and Accountability Act (HIPAA).In addition,the compliance program was enacted to require full cooperation from hospitals.

Congress required the HHS to sign a contract with the Peer Review Organizations (PROs),which was renamed the Quality Improvement Organizations(QIOs) in 2002,to oversee the accuracy of diagnostic information,the integrity,appropriateness and quality of care provided by hospitals to Medicare patients,the appropriateness of admission and discharge,and the appropriateness of treatment for outliers.

To ensure the correctness of DRG assignment and disease classification codes,QIOs use National Clinical Data Abstraction Centers (CDAC) and Medicare provider analysis and review (MEDPAR) to conduct database analysis.Payment error prevention program (PEPP),program for evaluating the payment patterns electronic report (PEPPER),hospital payment monitor program (HPMP) and other supervision plans are executed in different stages[12].QIOs have considerable power to demand that hospitals comply with the HHS’s standards for quality of care.QIQs also can refuse to pay hospitals if they discover medical abuses.In some cases,further enforcement measures are reported directly to the HHS.

In addition,the federal government of the United States has formulated the Emergency Medical Treatment and Labor Act (EMTALA),which has strict regulations on the examination,treatment or referral of patients with emergency medical conditions.It can ensure hospitals to accept patients with severe diseases and other adverse payment conditions.

5 US DRG experience

(1) The responsibility of the government in social medical insurance should be emphasized[13].The government not only provides legal and institutional guarantees for the implementation of DRG payment system by issuing detailed guidelines,but also manages and supervises the services provided by medical institutions.For example,the HHS inspects medical practices in accordance with relevant laws (FCCA and HIPAA).The government has also made a series of quality-related programs,such as the VBP and the HACs reduction programs.Hospitals that meet the government’s medical quality requirements will receive additional payments accordingly.If the hospital services do not meet the government’s requirements,the hospital will be questioned,and the part that does not meet the quality requirements will not reimburse.In addition,medical insurance institutions will entrust special thirdparty quality promotion organizations to regularly review the medical programs adopted by hospitals or prescriptions issued by doctors.Hospitals or doctors will be punished if they include unnecessary medical items or drugs.

(2) Relevant indicators of DRG payment method should be set reasonably.To ensure the benefits of Medicare patients,governments have established schemes to punish hospitals for their bad quality services.Medicare,for example,pays hospitals 65%for bad debts.Besides,Medicare also pays for cases with serious illness and high consumption of medical resources so that patients can receive good quality treatment.For excessive transfer rate and readmission rate of hospitals,they will be punished through the payment.These targeted measures have greatly increased the fairness of payment and ensured the quality of medical services.

(3) DRG weight and base rate are dynamically adjusted to ensure the fairness of DRG payment.CMS will reassess the DRGs to ensure that the cases in each DRG are consistent with the similarities in clinical and medical resource consumption each year.Once a case in a DRG is assessed,and the resources consumed vary widely in the context of clinical similarity,CMS will redistribute the case to a different DRG or create a new DRG.Base rates for operations and capital components are adjusted by regional wage indices to reflect regional differences in labor market prices.

6 Enlightenment to China

6.1 Defining the main responsibility of the government in the reform of medical insurance payment

In essence,the medical insurance payment system is a legal contract.Medical insurance payers,medical service providers and medical service demanders shall enter into the medical contract and fulfill their respective rights and obligations according to the terms and conditions stipulated in the contract.The specific content of this legal contract should include the detailed description of the payment method,the specific clauses binding the parties to the transaction and so on.For example,patients pay premiums,the scope and quality of medical services provided by hospitals,the principles of payment,the conventions for special cases,and the corresponding liability clause for breach of contract.The payment system involves the interests of the three parties in the medical insurance market,which must be clearly agreed upon at the beginning of the implementation of the payment system.Then,the agreement must be followed.If there is a breach of contract,it shall be dealt with in accordance with the contract.

In addition,the medical insurance administrative department (government),as a third-party buyer,has to bear the responsibility in the medical payment reform.It should promulgate laws and regulations,organize research,publish and update the related guidelines and policies on payment reform,and supervise medical services.Medical insurance department should set specific medical quality indicators in conjunction with health department.It can set up the medical quality supervision system to play the role of third party quality supervision organization.Besides,it can link the payment with the medical service quality,ensuring low cost of medical services with high quality.

6.2 Establishing a quality control system for the home page of medical records

According to the definition,DRG is based on the principles of clinical similarity and resource consumption similarity,and patients are grouped according to their age,gender,length of stay,primary clinical diagnosis,secondary clinical diagnosis,surgery,comorbidities and complications.The medical information mentioned above is mainly from the home page of medical records.The payment to hospitals is also based on the results of DRG coding of the home page of medical records.Thus,accurate and highquality data on the home page of medical records is crucial for the construction of DRGs and the use of payment.In order to ensure the accuracy and fairness of DRG payment,China should establish a quality control system for the home page of medical records and improve its quality constantly.The following measures can be taken specifically.

First of all,medical personnel in hospitals should pay more attention to patients’ medical records.From the perspective of DRG payment,medical record is closely related to the interests of medical institutions.If the medical records are not standardized,it will directly affect the coding of DRG,thus affecting the revenue of medical institutions.In the period of paying by service items,medical staff generally paid little attention to the writing of the home page of medical records.However,DRG payment mode requires medical staff to put the home page of medical record information in a very important position,which makes them unsuitable for this change.Therefore,health management departments and medical institutions should strengthen the supervision and training of medical staff to focus on the work of medical records,and reduce the error rate of the home page of medical records.

Secondly,the skills of medical record managers should be improved.The management of medical records has been neglected in China’s public hospitals for a long time.At present,the personnel who undertake the management of medical records are not professional because of low pay and little training.Although they have some basic medical and clinical knowledge,they lack the management of medical record expertise and skills.Therefore,national and provincial health authorities at all levels should regularly hold training courses on data quality control of home page and DRG coding for them.Besides,hospitals should also encourage the personnel in charge of this work to participate in more training.Personnel responsible for the management and coding of medical records should be urged to communicate with clinical medical staff and review the quality of each medical record carefully to ensure the quality of the coding work.

Thirdly,the construction of medical record information should be strengthened.The home page data of medical records and DRG coding work are complicated and cannot be completed by human alone.Only by using information technology can DRG provide data accurately,efficiently and completely.Medical institutions should make full use of information management system,apply corresponding software and procedures to monitor the quality of the home page automatically,and urge doctors to rectify the home page timely that do not meet the requirements.

Finally,the quality of the home page of medical records should be included in the performance evaluation indicators of hospitals.The health administration department should organize experts to check the quality of the home pages of all hospitals regularly.These can urge and strengthen the further improvement of the home pages of medical records.

6.3 Establishing a quality supervision mechanism for the whole medical treatment

DRG payment is widely used to pay hospitals around the world,providing a powerful incentive to control costs.However,cost efficiency is only one aspect of DRG payment system,and the influence of DRG payment on medical quality has also been recognized by the medical insurance regulatory agencies in various countries.China can strengthen the supervision of medical service quality from the following three aspects.

First,the government should guarantee the quality of medical services at the legal and institutional levels.For example,the HHS in the US inspects medical practices in accordance with relevant laws (FCCA and HIPAA).A series of quality-related programs have been made,such as the VBP and the HACs reduction program,and additional payments will be given to hospitals that meet the government’s medical quality requirements.Hospitals will be questioned and will not reimburse the part that does not meet the quality requirements if their services do not meet the government’s requirements.

Second,medical insurance departments can use indicators related to DRG to supervise medical quality.For example,DRG mortality risk classification and other indexes are used to compare the overall medical quality.This method also refines the information provided by the evaluation results,which can be compared and analyzed from multiple perspectives,such as the risk types of admitted cases and the inhospital case fatality rate.Additionally,it can correct the deviation when evaluating in-hospital case fatality rate[14].Three days reemergence rate,readmission rate within 14 days,hospital stay,and hospital transfer rate all can help the medical insurance management department to monitor the quality of medical service under the DRG payment.

Third,a professional third-party quality review organization can be used for supervision.For example,HHS signs a contract with QIOs,a quality promotion organization,to monitor the quality of medical care.QIOs are licensed to use all national databases related to medical quality to monitor hospitals at various stages through the analysis of the data.Besides,QIOs can refuse to pay medical expenses to hospitals or report directly to the HHS in case of medical services abuse or failure to meet the HHS’s medical quality standards.