AHCCCS Meeting to Discuss DRG Inpatient Methodology

Additional Background:

Rates were rebased in 1998 per legislation and, since then, the fee schedule has been inflated annually (except when otherwise permitted via legislation) using a nationally recognized hospital market basket inflation factor such as DRI. After nearly twenty years of using this payment methodology, AHCCCS is exploring the option to rebase the hospital payment system by switching to a DRG-based payment system. AHCCCS has been working to identify opportunities to improve patient safety and health outcomes amongst its members and thereby reduce costs. The Agency believes that the current tiered per diem methodology is inconsistent with this goal as it incentivizes quantity of care. A DRG-based payment methodology is aligned with the Agency’s focus on improving patient care and shifting the focus to the quality of the services provided.

Additionally, as increasing attention is placed on the quality and efficiency of hospital services, a DRG-based payment methodology will enhance AHCCCS’ ability to implement performance review and cost-saving measures. For example, Medicaid’s prohibition on reimbursement for hospital acquired conditions is much simpler to implement with DRGs than with tiered per diem rates. Likewise, measuring inpatient readmissions is more easily accomplished utilizing existing DRG tools. AHCCCS has contracted with Navigant Consulting http://www.navigant.com/ to provide assistance in analyzing the impact of, and potentially 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