Ms Drg Assignment Steps To Christ

by Sandy Routhier, RHIA, CCS, CDIP, AHIMA-Approved ICD-10-CM/PCS Trainer

(This article first appeared in

My introduction to inpatient coding took place more than 30 years ago, while I was working at a large teaching hospital performing concurrent coding and utilization review as a combined function on a surgical unit. The DRG (diagnosis-related group) methodology for Medicare inpatient reimbursement had recently gone into effect, and Medicare and Medicaid required prior authorization for many elective services – and some of the commercial payors required that each day of the hospital stay be approved prior to authorizing payment. It didn’t take long for me to realize that the work that I was doing had the potential to impact my hospital’s bottom line.

Now fast forward 30 years. The DRG system has evolved into MS-DRGs, APR-DRGs, and other variations used by Medicare, Medicaid, and some commercial payors. Recovery Auditor (RA) activities have increased to police coding quality and compliance with payor requirements. The coding classification system (ICD-9-CM) used for assigning the diagnosis and procedure codes needed for grouping DRGs has transitioned to ICD-10-CM/PCS, increasing the code options from less than 20,000 to more than 120,000. Paper medical records have been replaced by electronic health records (EMRs), which has improved access to medical information, allowing for coding to be done remotely and for the introduction of new technologies such as computer-assisted coding (CAC). EMRs have drastically increased the volume of information captured in the medical record without necessarily improving the quality in the documentation needed for accurate and complete code assignment.

Over the years, I have come to realize that coding is a challenging and detail-oriented job that requires two distinct skill sets. First is the ability of the coder to read and interpret a medical record and determine which diagnoses and procedures can be coded. This requires knowledge of medical terminology and abbreviations, anatomy and physiology, disease processes, surgical techniques, diagnostic testing, and treatments. Secondly, the ability to assign the correct codes based on the classification system’s index and tabular instructions, official coding guidelines, and American Hospital Association (AHA) Coding Clinic advice is essential. Correct code assignment and sequencing results in accurate DRG assignment, which equates to proper reimbursement for each inpatient encounter.

In addition to calculating the reimbursement for each inpatient hospital encounter, we must keep in mind that inpatient coded data has the potential to indirectly impact a hospital’s financial health in many other ways, such as:

The population for quality projects such as core measures is determined based on code assignment. Accurately identifying which hospital encounters require abstracting and reporting is vital to this process, which results in publicly reported data collected on site, such as with Hospital Compare ( Additionally, hospital-acquired conditions (HACs) are solely driven by code and POA (present on admission) indicator assignments. This quality data is tied into the calculations for the value-based purchasing adjustments in Centers for Medicare & Medicaid (CMS) efforts to link Medicare’s payment system to a value-based system to improve healthcare quality.

Severity of illness (SOI) and risk of mortality (ROM) scores are used for comparative data for hospitals and individual physicians; these are calculated during APR-DRG grouping. Clear, concise, and complete physician documentation and accurate code assignment are vital to determining these scores, supporting the need for collaboration between clinical documentation and coding.

The codes that are submitted to CMS in the form of US-04 claims are stored in a database (MEDPAR) that is analyzed to make annual updates to the Inpatient Prospective Payment System (IPPS).

Medicare cases that fall into certain MS-DRGs are used in the calculation for CMS’s Readmission Reduction Program, which provides financial penalties in the form of rate adjustment for an excess number of hospital readmissions.

Starting in the 2008 fiscal year, the IPPS started including an annual coding and documentation adjustment in an attempt to keep the MS-DRG reimbursement system budget-neutral with the assumption that coding quality and clinical documentation will continue to improve. Hospitals must be actively working to improve in these areas to avoid this hit to inpatient reimbursement.

While the discharge disposition rarely impacts the MS-DRG assignment, it often impacts whether reimbursement is adjusted per the post-acute care transfer policy for qualifying MS-DRGs. Inpatient coders typically validate the discharge disposition prior to claim submission.

For hospitals electing to participate in bundled payments, accurate MS-DRG assignment is critical to determining which inpatient encounters are included or excluded in the bundle.

In addition to MS-DRG reimbursement, some Medicare inpatient cases are eligible for add-on payments for the use of new technology, devices, and medications. These are approved each year in the IPPS. Specific codes must be assigned for the add-on payments to be processed.

There is a multitude of other uses for coded data, such as clinical research, population health, disease maintenance, registries (i.e. tumor, trauma, birth defects, etc.), physician credentialing and privileging, as well as volume statistics for activities such as payor contract negotiations, market share analysis, and transparent pricing.

The complexity, need for accuracy, and the potential for coding to affect hospitals’ overall financial health have never been more important. So, what I suspected early in my career has been confirmed: coding professionals have a direct and indirect impact on what the bank deposits look like for their hospital’s inpatient service line. This responsibility should not be taken lightly and the importance of this function should not be overlooked.

About the Author
Sandy has 30 years of experience in health information management, revenue cycle, coding, clinical documentation improvement, project management and information systems. In her role as a independent HIM and Coding Consultant, Sandy performs inpatient MS-DRG validation and coding audits verifying the quality of coded data and supporting clinical documentation and making recommendations for improvements. Sandy provides education to coding professionals, CDI staff and physicians. Additional responsibilities include assisting hospitals with operational improvements, ICD-10 training and preparations, and appeals to third-party payer denials including those from recovery auditors.

Contact Sandy at

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Appendix D MS-DRG Surgical Hierarchy by MDC and MS-DRG

Since patients can have multiple procedures related to their principal diagnosis during a particular hospital stay, and a patient can be assigned to only one surgical class, the surgical classes in each MDC are defined in a hierarchical order. Patients with multiple procedures are assigned to the highest surgical class in the hierarchy to which one of the procedures is assigned. Thus, if a patient receives both a D&C and a hysterectomy, the patient is assigned to the hysterectomy surgical class because a hysterectomy is higher in the hierarchy than a D&C. Because of the surgical hierarchy, ordering of the surgical procedures on the patient abstract or claim has no influence on the assignment of the surgical class and the MS-DRG.

The surgical hierarchy for each MDC reflects the relative resource requirements of various surgical procedures. In some cases a surgical class in the hierarchy is actually an MS-DRG. For example, Arthroscopy is both a surgical class in the hierarchy and MS-DRG 509 in MDC 8, Diseases and Disorders of the Musculoskeletal System and Connective Tissue. In other cases the surgical class in the hierarchy is further partitioned based on other variables such as complications and comorbidities, or principal diagnosis to form multiple MS-DRGs. As an example, in MDC 5, Diseases and Disorders of the Circulatory System, the surgical class for permanent pacemaker implantation is divided into three MS-DRGs (242-244) based on whether or not the patient had no CCs, a CC or an MCC.

Appendix D presents the surgical hierarchy for each MDC. Appendix D is organized by MDC with a list of the surgical classes associated with that MDC listed in hierarchical order as well as the MS-DRGs that are included in each surgical class. The names given to the surgical classes in the hierarchy correspond to the names used in the MS-DRG logic tables and in the body of the Definitions Manual.


MS-DRG Surgical Hierarchy by MDC and MS-DRG
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