MS-DRG: What is a Medicare Severity-Diagnosis Related Group?

Medicare severity-diagnosis-related groups, abbreviated as MS-DRGs, are categories of inpatient hospital stays. The Medicare system uses them to determine reimbursements for hospitals, skilled nursing facilities, and hospices.

A hospital stay can range from one day to 100 days. The most expensive MS-DRGs have the longest average stays.

These expensive hospital services may include open-heart surgery or lung cancer surgeries. They could also include major joint replacements and organ transplants. The MS-DRG system provides a structure for classifying and collecting reimbursement for these services.

Here, we’ll discuss how Medicaid classifies these groups. We’ll also touch on what that means for you.

To learn more about MS-DRGs, keep reading.

What Is MS-DRG?

MS-DRG means Medicare severity-diagnosis-related group. It’s a system of classifying patient hospital stays. Within the system, Medicare classifies groups to facilitate service payments.

The system originated from the collaboration of two groups. The first group included Yale University’s Schools of Management.

The second was the University’s Schools of Public Health. Together, the two groups created the classification system now used by many health care organizations.

The classification system separates potential diseases into diagnoses. These diagnoses align with more than 20 body systems. The system further divides those systems into 450 groups.

Using the system, Medicare assesses fees. It factors the body systems and groups affected by a potential illness.

An MS-DRG compares that effect with the hospital resources needed to treat the condition. In the end, the system results in a fixed rate for patient services. These services are called diagnosis-related groups (DRGs).

In 1987, Medicare split the DRG system into two parts. The first part was the all-patient DRG (AP-DRG) system. The system covers billing for non-Medicare patients.

The second part of the system is the MS-DRG. Now, the number of Medicare patients is growing. As a result, the MS-DRG is the most widely used DRG system.

The MS-DRG system calculates provider payments using wage variations. It also considers geographic location. In addition, it takes into account the percentage of Medicare patients that a care provider treats.

Getting Diagnoses Right

Since then, the MS-DRG has expanded. There are now about 750 DRG groups.

These groups facilitate an increase and diagnosable conditions. They also enable Medicare to offer better recognition of the severity of some illnesses. The system is an improvement over the original Centers for Medicare and Medicaid Services (CMS) DRG system.

For example, the original DRG for congestive heart failure is DRG 127. Now, however, care providers can choose from three new related DRGs. The DRGs vary depending on the diagnosis of physicians.

Originally, Medicare used a two-tiered system. The system enabled care providers to provide a secondary diagnosis.

Now, however, Medicare uses a three-tiered system. As a result, a secondary diagnosis could expand to two other structures.

These expanded structures include CC (complication/co-morbidity) or non-CC (no complication/comorbidity). This increased structure enables Medicare to increase reimbursements to care providers who serve more severely ill patients.

In some instances, a hospital must transfer a patient to another facility. In that case, the hospital will pay the transferring hospital a per diem rate. Meanwhile, the receiving facility will receive a full MS-DRG payment.

The MS-DRG Payment Classification System

The MS-DRG enables the Medicare system to determine hospital payments. This payment system falls under the inpatient prospective payment system (IPPS).

Let’s take a closer look at the MS-DRG payment system. Imagine that you’ve been admitted as an inpatient to a care facility.

The facility will assign a DRG on your discharge. They’ll base the DRG on the care provided during your stay.

The hospital will receive a fixed payment from Medicare for that DRG. They’ll receive this amount regardless of how much they spent treating you.

In some cases, a care provider may provide effective service, and it will cost less. Remember, Medicare will pay the same amount no matter what. In this case, the hospital makes a profit.

In other instances, however, the hospital might spend more money providing services for your DRG. In that case, they’ll lose money for providing those services.

Ultimately, the goal of the MS-DRG is for Medicare to ensure that reimbursements properly reflect a care provider’s caseload. For example, the MS-DRG formula takes into account the types of patients and the severity of their conditions.

These factors play a role in determining costs. Medicare can use this information to assess the resources that a care provider should have used to treat patients and provides reimbursements accordingly.

How to Categorize Hospitalization Costs

You may want to figure out how much your care provider gets paid for a given hospitalization. If so, you’ll need to know the DRG that was assigned to your care provider.

You’ll also need to know your care provider’s base payment rate. This rate is also called the “payment rate per case.”

You can get this information from hospital billing or accounting. Alternatively, you may need to call the case management department. Once you find the appropriate department, you can ask for the Medicare base payment rate.

Also, Medicare assigns a relative rate to each DRG. This rate is based on the average amount of resources required to provide patient care.

You can look up the relative weight for your DRG. You’ll need to download a CMS chart to do so. The general process might go as follows.

You can begin by navigating to the CMS website. There, you’ll look for No. 3 of “Tables.” Next, you’ll click “Download Table 5.”

The information will download as an Excel spreadsheet. Now, you can open the file.

Here, you want to look for the column labeled “Weights.” This column will show the relative weight of your DRG.

MS-DRG Codes/MS-DRG Lists

Under the DRG system, the CMS pinpoints secondary diagnoses that result in considerably increased hospital resource consumption. The CMS will then categorize this list into two different levels of severity.

The first level of severity is major complications or comorbidities (MCCs). The second level, CCs, is the next level of severity.

In some cases, however, the CMS will exclude some MCCs and CCs because they’re too closely related to the principal diagnoses. These DRGs are on the CC exclusion list. This list identifies conditions that Medicare will not consider as a CC or MCC for principal diagnoses.

Elsewhere, some patient groups are extremely resource-intensive. The CMS will put them into a separate group called pre-MCD MS-DRG for this reason.

If a treatment doesn’t go into this group, however, then Medicare will classify a patient by whether or not they had an operating room (OR) procedure within a major diagnostic category (MDC). Sometimes, however, a non-OR procedure can also affect MS-DRG assignment.

Medicare also uses “proxies” for MS-DRGs. A proxy is another way to measure patient severity based on the presence or absence of CCs, non-CCs or CCs.

The CMS also identifies codes that result in an increase in complexity. These codes could be considered a proxy for the presence of a CC or MCC secondary diagnosis.

When a care provider performs an OR procedure unrelated to the principal diagnoses, the CMS will assign an “unrelated-” or “procedure MS-DRG.” Finally, if a care provider does not perform an OR procedure, the CMS will classify care by the principal diagnosis.

How MS-DRGs Affect Your Care

In some cases, private insurers also use DRGs. However, they might use different calculations for their classification system.

In either case, DRGs get updated every year. At that time, the CMS will associate specified amounts with each procedure. In 2021, care providers used Medicare DRG version 38.1.

As with medical treatments, MS-DRGs are complex. However, your care provider’s billing department should have the ability to answer any questions that you may have regarding what you may need to pay out-of-pocket.

You may have a Medicare Advantage plan. These kinds of plans include out-of-pocket spending limits.

If you’re eligible for Medicare, you have the option of enrolling in a Medicare Advantage plan. This plan is also called Medicare Part C.

It covers all the benefits offered by Original Medicare. This kind of coverage is called Medicare Parts A and B.

However, Medicare Part C is private insurance. It can provide you with benefits that aren’t available under Original Medicare.

For example, all Medicare Advantage plans have a yearly out-of-pocket spending limit. However, Original Medicare doesn’t offer this benefit.

Still, you’ll need to find the best insurance for your needs. The question here is, “How do you find the right insurance provider? Fortunately, we’re here to help.

It’s Easy Getting Help Understanding Your Medicare Expenses

Now you know a bit more about the complex world of the MS-DRG system. If you’re like many people, you may need help making the right choices when it comes to your health insurance and other important medical decisions. Amazing Healthcare Consultants is here to help.

Let us take some of the burden of navigating the health care maze off of your shoulders. We’ll provide you with expert advice, guidance, and support. At Amazing Healthcare Consultants, we want nothing more than for you to be able to focus on maintaining your health and not have to worry about anything else.

Please feel free to contact Amazing Healthcare Consultants today or connect with us online to schedule an informative consultation.