10A NCAC 22G .0202. DRG RATE SETTING METHODOLOGY

(a)  Diagnosis Related Groups is a system of classification for hospital inpatient services.  For each hospital admission, a single DRG category shall be assigned based on the patient's diagnoses, age, procedures performed, length of stay, and discharge status.  For claims with dates of services prior to January 1, 1995 payments shall be based on the reimbursement per diem in effect prior to January 1, 1995.  However, for claims related to services where the admission was prior to January 1, 1995 and the discharge was after December 31, 1994, then the greater of the total per diem for services rendered prior to January 1, 1995, or the appropriate DRG payment shall be made.

(b)  The Division of Medical Assistance (Division) shall use the DRG assignment logic of the Medicare Grouper to assign individual claims to a DRG category.  Medicare revises the Grouper each year in October.  The Division shall install the most recent version of the Medicare Grouper implemented by Medicare.

The initial DRG in Version 12 of the Medicare Grouper, related to the care of premature neonates and other newborns numbered 385 through 391, shall be replaced with the following classifications:

385         Neonate, died or transferred, length of stay less than 3 days

801         Birthweight less than 1,000 grams

802         Birthweight 1,000 ‑ 1,499 grams

803         Birthweight 1,500 ‑ 1,999 grams

804         Birthweight >=2,000 grams, with Respiratory Distress Syndrome

805         Birthweight >= 2,000 grams, premature complications

810         Neonate with low birthweight diagnosis, age greater than 28 days at admission

389         Birthweight >= 2,000 grams, full term complications

390         Birthweight >= 2,000 grams, full term with other problems or premature without complications

391         Birthweight >= 2,000 grams, full term without complicating diagnoses

(c)  DRG relative weights are a measure of the relative resources required in the treatment of the average case falling within a particular DRG category.  The average DRG weight for a group of services, such as all discharges from a particular hospital or all North Carolina Medicaid discharges, is known as the Case Mix Index (CMI) for that group.

(1)           The Division shall establish relative weights for each utilized DRG based on the most recent data set of historical claims submitted for Medicaid recipients.  Charges on each historical claim shall be converted to estimated costs by applying the cost conversion factors from each hospital's submitted Medicare cost report to each billed line item.  Cost estimates shall be standardized by removing direct and indirect medical education costs at the appropriate rates for each hospital.

(2)           Relative weights shall be calculated as the ratio of the average cost in each DRG to the overall average cost for all DRGs combined.  Excluded from this calculation shall be all claims with costs below a fixed threshold of three hundred fifty dollars ($350.00) and a variable threshold of 10% of the raw average cost of the claims set.  Claims with costs exceeding the raw average cost plus two standard deviations (the high outlier threshold) of the claims shall have their cost replaced with the high outlier threshold for this calculation.

(3)           The Division of Medical Assistance shall determine whether there are a sufficient number of claims to establish a stable weight for each DRG weight based upon the following criteria:

(A)          The claims used must exceed the number of claims required that the cost of a new claim will be within 15% of the mean cost per claim; and

(B)          For a stable weight to be determined, the minimum number of claims meeting criteria in Part (A) of this Subparagraph must be five claims.

For DRGs lacking sufficient volume, the Division shall set relative weights using DRG weights generated from the North Carolina Medical Data Base Commission's discharge abstract file covering all inpatient services delivered in North Carolina hospitals.  For DRGs in which there are an insufficient number of discharges in the Medical Data Base Commission data set, the Division sets relative weights based upon the published DRG weights for the Medicare program.

(4)           Relative weights shall be recalculated whenever a new version of the DRG Grouper is installed by the Division of Medical Assistance.  When relative weights are recalculated, the overall average CMI shall be kept constant.

(d)  The Division of Medical Assistance shall establish a unit value for each hospital which represents the DRG payment rate for a DRG with a relative weight of one.  This rate is established as follows:

(1)           Using the methodology described in Paragraph (c) of this Rule, the Division shall estimate the cost less direct and indirect medical education expense on claims for discharges occurring during calendar year 1993, using cost reports for hospital fiscal years ending during that period or the most recent cost report available.  All cost estimates are adjusted to a common 1994 fiscal year and inflated to the 1995 rate year.  The average cost per discharge for each provider is calculated.

(2)           Using the DRG weights effective on January 1, 1995, a CMI is calculated for each hospital for the same population of claims used to develop the cost per discharge amount in Subparagraph (d)(1) of this Rule.  Each hospital's average cost per discharge is divided by its CMI to get the cost per discharge for a service with a DRG weight of one.

(3)           The amount calculated in Subparagraph (d)(2) of this Rule is reduced by 7.2% to account for outlier payments.

(4)           Hospitals are ranked in order of increasing CMI adjusted cost per discharge.  The DRG Unit Value for hospitals at or below the 45th percentile in this ranking is set using 75% of the hospital's own adjusted cost per discharge and 25% of the cost per discharge of the hospital at the 45th percentile.  The DRG Unit Value for hospitals ranked above the 45th percentile is set at the cost per discharge of the 45th percentile hospital.  The DRG unit value for new hospitals and hospitals that did not have a Medicaid discharge in the base year is set at the cost per discharge of the 45th percentile hospital.

(5)           The hospital unit values calculated in Subparagraph (d)(4) of this Rule shall be updated annually by the National Hospital Market Basket Index as published by Medicare and applied to the most recent actual and projected cost data available from the North Carolina Office of State Budget and Management.  This annual update shall not exceed the update amount approved by the North Carolina General Assembly.

(6)           Allowable and reasonable costs shall be reimbursed in accordance with the provisions of the Medicare Provider Reimbursement Manual referred to as HCFA Publication 15-1.

(e)  Reimbursement for capital expense is included in the DRG hospital rate described in Paragraph (d) of this Rule.

(f)  Hospitals operating Medicare approved graduate medical education programs shall receive a DRG payment rate adjustment which reflects the reasonable direct and indirect costs of operating those programs.

(1)           The Division defines reasonable direct medical education costs consistent with the base year cost per resident methodology described in 42 CFR 413.86.  The ratio of the aggregate approved amount for graduate medical education costs at 42 CFR 413.86 (d) (1) to total reimbursable costs (per Medicare principles) is the North Carolina Medicaid direct medical education factor.  The direct medical education factor is based on information supplied in the 1993 cost reports and the factor shall be updated annually as soon as practicable after July 1 based on the latest cost reports filed prior to July 1.

(2)           Effective October 1, 2001, and for each subsequent year, the North Carolina Medicaid indirect medical education factor is equal to the Medicare indirect medical education factor in effect on October 1 each year. 

(3)           Hospitals operating an approved graduate medical education program shall have their DRG unit values increased by the sum of the direct and indirect medical education factors.

(g)  Cost outlier payments are an additional payment made at the time a claim is processed for exceptionally costly services.  These payments shall be subject to retrospective review by the Division of Medical Assistance, on a case‑by‑case basis.  Cost Outlier payments may be reduced if and to the extent that the preponderance of evidence on review supports a determination that the associated cost either exceeded the costs which must be incurred by efficiently and economically operated hospitals or was for services that were not medically necessary or for services not covered by the North Carolina Medical Assistance program.

(1)           A cost outlier threshold shall be established for each DRG at the time DRG relative weights are calculated, using the same information used to establish those relative weights.  The cost threshold is the greater of twenty‑five thousand dollars ($25,000) or mean cost for the DRG plus 1.96 standard deviations.

(2)           Charges for non‑covered services and services not reimbursed under the inpatient DRG methodology (such as professional fees) shall be deducted from total billed charges.  The remaining billed charges are converted to cost using a hospital specific cost to charge ratio.  The cost to charge ratio excludes medical education costs.

(3)           If the net cost for the claim exceeds the cost outlier threshold, a cost outlier payment is made at 75% of the costs above the threshold.

(h)  Day outlier payments are an additional payment made for exceptionally long lengths of stay on services provided to children under six at disproportionate share hospitals and children under age one at non‑disproportionate share hospitals. These payments shall be subject to retrospective review by the Division of Medical Assistance, on a case‑by‑case basis.  Day outlier payments may be reduced if and to the extent that the preponderance of evidence on review supports a determination that the associated cost either exceeded the costs which must be incurred by efficiently and economically operated hospitals or was for services that were not medically necessary or for services not covered by the North Carolina Medical Assistance program.

(1)           A day outlier threshold shall be established for each DRG at the time DRG relative weights are calculated, using the same information used to establish the relative weights.  The day outlier threshold is the greater of 30 days or the arithmetical average length of stay for the DRG plus 1.50 standard deviations.

(2)           A day outlier per diem payment may be made for covered days in excess of the day outlier threshold at 75% of the hospital's payment rate for the DRG rate divided by the DRG average length stay.

(i)  Services which qualify for both cost outlier and day outlier payments under this Rule shall receive the greater of the cost outlier or day outlier payment.

 

History Note:        Authority G.S. 108A‑25(b); 108A‑54; 108A‑55; 42 C.F.R. 447, Subpart C;

Eff. March 1, 1995;

Temporary Amendment Eff. January 22, 1998;

Amended Eff. April 1, 1999;

Temporary Amendment Eff. November 9, 2001;

Temporary Amendment Expired August 30, 2002;

Amended Eff. August 1, 2004.