Purpose

To determine whether the Department of Health (Department) appropriately and effectively implemented and applied the new APR DRG-based hospital inpatient payment system for Medicaid services when patient deaths occur within one day of admission. The audit covers the period December 1, 2009 through September 30, 2012.

Background

Effective December 1, 2009, responding to statutory changes enacted by the Legislature, the Department implemented a change to the Medicaid reimbursement methodology used to compensate hospitals for inpatient medical care. The new methodology, based on All Patient Refined Diagnosis Related Groups (APR DRG), was implemented to provide a more equitable payment method for hospital inpatient services and to better reflect the variable costs associated with individual patient treatment.

Key Findings

• Since the implementation of the APR DRG-based methodology, Medicaid has paid significantly more for certain claims when patient deaths occur within the first day of admission. For instance, Medicaid paid $153,329 on a claim with hospital charges totaling $9,685 for a patient who died within the first day of admission. The APR DRG-based methodology assigns additional importance to the reason for admission and severity of illness in calculating reimbursements. Usually, the more severe the illness, the higher the reimbursement factor. Because patient deaths can result from more severe medical conditions, Medicaid payments for death-related one-day admissions can be substantially higher than the hospital's charges for treating the patient.
• For the 1,833 claims we reviewed, Medicaid payments averaged 225 percent of the hospitals' submitted charges (more than 5 times the rate for other inpatient claims). Under the APR DRGbased methodology, there is no adjustment for a 'short stay' except for certain patient transfers and specialty hospitals. By modifying the APR DRG-based reimbursement methodology to reflect the lower charges associated with one-day death-related inpatient admissions, we estimate that Medicaid could have saved as much as $31.1 million.

Key Recommendations

• Formally assess the Department's implementation and application of the APR DRG-based system, including the inpatient reimbursement methodology, that compensates hospitals for the cost of care when death occurs within one day of admission.
• Use the results of the formal assessment to revise the APR DRG-based reimbursement methodology, as warranted.

Other Related Audits/Reports of Interest

Department of Health: Medicaid Claims Processing Activity April 1, 2011 Through September 30, 2011 (2011-S-9)
Department of Health: Improper Medicaid Payments For Misclassified Patient Discharges (2009-S-26)