AHCCCS Transition to DRG-based Payment

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Since 1993, AHCCCS has paid hospital inpatient claims using a tiered per diem fee schedule that was developed internally. Rates were rebased in 1998 and subsequently inflated annually (except when otherwise permitted by legislation) using a nationally recognized inflation factor. Effective 10/01/2014, AHCCCS will begin reimbursing inpatient hospital services using a DRG-based payment system.

Compared with a tiered per diem system, which incentivizes quantity over quality, AHCCCS believes the DRG-based payment methodology is better aligned with the agency’s focus on improved patient safety and health outcomes for its members, and will result in reduced costs. It will enhance AHCCCS’ ability to implement performance review and cost-saving measures by facilitating measurement of inpatient readmissions and implementation of Medicaid’s prohibition on reimbursement for hospital acquired conditions. AHCCCS has contracted with Navigant Consulting http://www.navigant.com/ to provide assistance in analyzing , acquiring and implementing, a DRG-based inpatient hospital payment system. Some tasks associated with this project include:

  • Research and determine options for optimum DRG-based system for AHCCCS
  • Identify software integration issues to function within current IT structure
  • Assist with determining rates, weights, and outlier rules for DRG-based reimbursement
  • Perform hospital-specific modeling
  • Develop macro for out-of-state hospitals to estimate payments
  • Identify opportunities to maximize federal funding
  • Integrate payment methodology with ICD-10 implementation

Public Presentations

April 10, 2014 Presentation to the Healthcare Financial Management Association

Updated Provider Communication

On November 14, 2013, AHCCCS distributed a letter to hospital stakeholders with a reminder about the upcoming change to the APR-DRG payment methodology effective October 1, 2014. Read that communication here:

Communication Letter

AHCCCS Meeting to Discuss DRG Inpatient Methodology

On Thursday, June 14, AHCCCS hosted an open meeting to discuss the efforts in exploring an option to the current inpatient hospital per diem payment methodology.

Meeting Presentation

DRG Workgroup

AHCCCS appreciates the interest that the hospital community has expressed in participating in our DRG Workgroup. The below list includes the names of the hospital representatives that have been selected to work on this project. Hospital providers who are not on this team may contact one of the members below to ensure that their issues and concerns are raised to the workgroup.

  • Jeff Jackson, Dignity
  • Neal Jensen, Cobre Valley Hospital
  • Greg Kuzma, Northern Arizona Health
  • Dave Godeman, Iasis
  • Carol Bailey, Abrazo
  • John Neuner, Banner
  • Joan Goda, Carondelet
  • Craig McKnight, Phoenix Children’s
  • Bret Hicks, Tucson Medical Center
  • Vickie Clark, La Paz Hospital
  • Jim Dickson, Copper Queen Hospital
  • Scott Steiner, University Hospitals
  • Peter Finelli, CHS
  • Jim Haynes, AzHHA

Questions and comments to be considered in the workgroup may be addressed to

Additional documents concerning DRG methodology will be published below:

Selection of a DRG Grouper for the Medicaid Population

Presentation for September 6, 2012 Workgroup Meeting

Presentation for December 6, 2012 Workgroup Meeting

Presentation for January 18, 2013 Workgroup Meeting

Presentation for April 25, 2013 Workgroup Meeting

Handouts for April 25, 2013 Workgroup Meeting

APR-DRG Version 30 National Weights

November 18, 2013 Workgroup Meeting



Data Components and Summaries (For Discussion Purposes Only)

Payment Policy Issues

December 17, 2013 Workgroup Meeting



Preliminary Model Version 12/17/2013

Payment Policy Issues

January 2014 Updates

APR-DRG Version 31 National Weights

March 2014 Updates

Final Model Version March 2014

Proposed Rule (Amended)