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It was found in the old DRGs, that the order of secondary

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diagnoses or procedures could change DRG assignment and affect

hospital reimbursement.

The term "DRG Creep" was coined to describe deliberate

and systematic ordering of secondary diagnoses or procedures to

obtain the highest reimbursement.

In some instances, rearrange

ment of principal diagnosis was also attempted.

DRG Creep was

a problem with the old 383 DRGs because the computer could use

only principal diagnosis, first listed secondary diagnosis, and principal procedure (very rarely were secondary procedures used). Therefore, hospitals could order the codes for maximum reimbursement.

New Jersey instituted strict definitions.

First and most

important, principal diagnosis was defined as the reason, after

study, that the patient was admitted.

In accordance with the

Uniform Hospital Discharge Data Set definitions, additional diagnoses were to be coded only if they had bearing on the treat

ment or length of stay.

There was a four part definition of

principal procedure.

The view of New Jersey was that if a hospital did indeed

treat a patient for a severe secondary or perform multiple severe

procedures, then the reimbursement should be reflective of this

resource consumption.

However, the necessity for treatment must

be documented in the medical record, and those procedures performed

must also be documented.

So, not only did the State of New Jersey institute strict

definitions of what diagnoses and procedures could be coded for DRG assignment, it also mandated that documentation for everything

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matter because GROUPER searches all codes listed in the record.

This computer program is "smarter" than the old program.

Significant secondary diagnoses and procedures which affect

resource consumption will be taken into account when the payment

rates are calculated.


The data requirements for the DRG patient classification system

are massive.

The proposed Medicare Prospective Payment System (PPS)

may not have the same sheer volume of data (abstracts, bills,

cost reports and Uniform Bill-Patient Summary) but the principles

will still apply.

Hospitals must have computer capabilities.

The 467 DRGs cannot

routinely be assigned by hand.

There must be the capability for all

pieces of a patient's record to flow to a central point for DRG


(See Attachment B).

collection of the pieces and DRG

assignment must be done as rapidly and efficiently as possible.


must be the capability to verify and correct records.

There must be

the clincial or financial management information.

Above all,


hospital and its billing and medical abstract vendors must understand

how to work with the DRG system.

Hospitals are not the only agencies which need to have

computer capabilities. The volume of data received necessitates computer capability at the intermediary and payer level. They must have the ability to collect, verify and correct data sub

missions. They must be able to check DRG assignment and dollars


They must have edit and submission checks to obtain

accurate data on a timely basis. Data requirements and timeliness for data submission should be worked out ahead of time and then



During 1978 and 1979, while in a developmental mode, New

Jersey established experimental rates for approximately 20 hospitals. The rates were based upon available data sets and various methods

of calculation were utilized.

This experiment allowed refinement

of both the data sets and the methodology as a result of the

hospital's experience with the experimental rates.

Even though New Jersey had a two year simulation, implementation

brought additional problems which were not fully anticipated.

Examples of these problems were data management (at all levels)

and concern about quality medical care.



The logistics of data management and reporting presented an

enormous challenge.

There have been refinements made each year and

continued simplification. Despite these refinements, one of New Jersey's main problems remains the sheer volume of data and the errors involved in manipulation of a massive data base (1.2 million

hospital inpatients per year). Data quality, timeliness of submissions, correction turn-around time, and programming have all presented problems. These problems were uncovered in 1980

when New Jersey implemented the DRG system for 26 hospitals, two

intermediaries, and 380 thousand patients. It is conceivable that Medicare may experience some difficulties implementing a system for 6,000 hospitals, 100 intermediaries and 10 million patients. The disruptions and changes caused by the discovery and correction

of problems were minimized in New Jersey by phasing in the system with only 26 hospitals rather than all 100 acute care hospitals.



Since the DRG system provides incentives for hospitals to

reduce Los, there was concern expressed that quality of care

would suffer (e.g. patients discharged too early). Likewise, since there is an incentive for hospitals to decrease unnecessary resource consumption, the question of decreasing quality by

utilizing fewer tests or other resources was raised by some

critics of the DRG system.

The Professional Standard Review

Organizations (PSROS) have become the focal point for addressing

quality of care issues.

New Jersey has found no evidence

that quality of care has diminished under the DRG system.

While great care can be taken to anticipate and resolve problems prior to implementation, additional problems will be

discovered when the system is actually in place and functioning.

It was for this reason that New Jersey phased-in hospitals

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There are several other issues that should be raised.


first is the tremendous importance of education for hospitals,

physicians, patients, intermediaries, PSROS, and planning agencies.

Hospitals must learn to use DRGs to manage clinically, operationally and financially in the most efficient manner. The importance and

dire necessity of thorough education of a hospital's medical staff cannot be over-emphasized. Physicians must understand their role in hospital resource consumption. Patients must understand the classification and billing. Intermediaries must understand DRG

assignment and claim check.

PSROs must understand their role in

assuring quality data and quality care under DRGS.

Planning agencies

must be able to use DRGs as tools to make their planning decisions.

If the entire hospital is not involved in the DRG system,

then the hospital cannot effectively function under DRGs.


C lists areas of management consideration for a hospital going onto


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