Essay: Policy Changes in Healthcare Finance

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[. . .] These findings suggest that ASCs will remain viable, thrive even, if they diversify and offer both rare and common procedures.

A more recent analysis predicting the winners and losers during the 2009 calendar year suggested that the losers will be gastrointestinal (-6%), neurological (-3%), and ophthalmology (-1%) (Editors, 2008). By contrast, the winners were expected to be integumentary (7%), genitourinary (11%), respiratory (14%), cardiovascular (16%), musculoskeletal (19%), and auditory (25%). Since eye procedures represent the highest volume surgeries performed by ASCs facilities this prediction tends to validate the claim by Strope and colleagues (2008) that common procedures will tend to experience declines in reimbursement rates over time.

Part III: MS-DRG System

The Deficit Reduction Act (DRA) of 2005 contained provisions mandating a shift of focus for Medicare and Medicaid reimbursement toward improving the quality of the healthcare services (McNutt et al., 2010). This was addressed in part by implementing Medicare severity diagnosis-related groups (MS-DRGs) and 'present on admission' (POA) codes. The POA codes are used to document any conditions a patient may have when admitted to inpatient care so that hospital acquired conditions (HACs) can be more readily identified. Should a HAC occur, then the CMS reimbursement level for HAC diagnosis and treatment is reduced compared to reimbursement levels for the same condition identified as POA. The intended effect is to penalize hospitals for providing substandard care. HAC metadata for any given hospital can then be used to assess institutional performance.

The MS-DRG classification system allows hospitals to document the severity of conditions a patient presents with in admissions (Editors, 2007). There are three levels of severity that can be assigned, from most to least severe. At the severe end of the scale a patient can be classified as having a major complication and/or comorbidity (MCC). The category for less severely ill patients with a complication and/or comorbidity is CC and finally the least ill patients have no MCC or CC. There are 750 MS-DRGs and most allow documentation of disease severity, but 40 do not. For example, MS-DRG 192 codes for chronic obstructive pulmonary disorder (COPD) without a CC or MCC and the reimbursement rate was $4,480 in 2008. The reimbursement rate for COPD with a CC (MS-DRG 191) was $5,173 and with MCC (MS-DRG 190) $6,127. These differences in reimbursement levels are intended to create an incentive to accurately document the severity of patient illness during the admissions process and reduce the practice of subsidizing treatment of severely ill patients with the profits made from treating less ill patients (Altman, 2012).

A natural result of implementing the PAO and MS-DRG coding systems is researchers becoming interested in whether this system is effective in achieving the intended goals. Brinjikji and colleagues (2012) examined the costs and reimbursement rates of 20% of all patients admitted with a subarachnoid hemorrhage (ICD-9 430) to non-federal hospitals in 2008. The procedures performed were aneurysm clipping (ECD-9-39.51) or coiling (ICD-9-39.52); along with repair and occlusion of head vessels (ICD-9-39.72) and other endovascular repair (ICD-9-39.79). Of the 10,422 discharges included in the study 56.3% underwent the coiling procedure and the rest clipping. The median costs for clipped and coiled patients were $69,353 and $66,290, respectively. The Medicare reimbursement schedule for endovascular intracranial procedures and craniotomy were $30,380, $36,543, and $41,748 for patients with no complications or comorbidities (MS-DRG 22), with CC (MS-DRG 21), or with MCC (MS-DRG 20), respectively. Given this data, it quickly becomes clear that even if all patients suffering from a subarachnoid hemorrhage were coded as MCC the hospitals would still be losing money.

The other problem with the MS-DRG system is that it is not responsive to other major determinants of cost. Brinjikji and colleagues (2012) discovered a large difference in costs for treating subarachnoid hemorrhages depending on whether the patient was younger or older than 65 years of age. The difference was $65,751 versus $90,745 for clipped patients and $64,252 versus $74,918 for coiled patients. In addition, between 2001 and 2008 the costs for these procedures increased at an annual rate of about 5-6%. Implementing the MS-DRG code system may represent a step in the right direction, but much more needs to be done, including adjusting for age and inflation. Only then will hospitals come closer to ending the practice of subsidizing the care provided to severely ill patients with profits made from treating everyone else.


ACRO (American College of Radiation Oncology). (n.d.). Introduction to Relative Value Units and how Medicare reimbursement is calculated. Retrieved 30 Oct. 2013 from

Altman, Stuart H. (2012). The lessons of Medicare's prospective payment system show that the bundled payment program faces challenges. Health Affairs, 9, 1923-1930.

American Medical Association. (2013). CPT process -- how a code becomes a code. Retrieved 30 Oct. 2013 from

Brinjikji, W., Kallmes, D.F., Lanzino, G., and Gloft, H.J. (2012). Hospitalization costs for endovascular and surgical treatment of ruptured aneurysms in the United States are substantially higher than Medicare payments. American Journal of Neuroradiology, 33, 1037-1040.

Editors. (2007). MS-DRG system offers opportunities, potential changes in the bottom line. Accurately documenting severity of illness is the key to success. Hospital Case Management, 15(12), 177-180.

Editors. (2008). ASC payment plan updated for 2009. OR Manager, 24(12), 25.

Health Capital Consultants. (2008). CMS issues 2009 Final Rule regarding HOPD/ASC payments. Health Capital Topics, Holiday, 1-3. Retrieved 30 Oct. 2013 from

Manchikanti, Laxmaiah and Boswell, Mark V. (2007). Interventional techniques in ambulatory surgical centers: A look at the new payment system. Pain Physician, 10(5), 627-650.

Manchikanti, Laxmaiah, Singh, Vijay, and Hirsch, Joshua A. (2012). Saga of payment systems of ambulatory surgery centers for interventional techniques: An update. Pain Physician, 15(2), 109-130.

McNutt, Robert, Johnson, Tricia J., Odwazny, Richard, Remmich, Zachary, Skarupski, Kimberly, Meurer, Steven et al.… [END OF PREVIEW]

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Policy Changes in Healthcare Finance.  (2013, November 1).  Retrieved August 22, 2019, from

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"Policy Changes in Healthcare Finance."  November 1, 2013.  Accessed August 22, 2019.