Changes for hospitals in implementing the new Medicare Severity

This term paper reviews the most significant changes for hospitals in the implementation of the new Medicare Severity Adjusted DRGs. It also examines the general trend in medical care payment systems.

The introduction section introduces the general principles and concepts of medical care payment system. It highlights the weaknesses of the previous payment system and the strengths of the new payment system, MS-DRGs.

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The main body further examines the new payment system and the changes hospitals have had to make in the course of its implementation. It presents the rationale behind the introduction of this new system and its potential benefits to all the stakeholders.

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The conclusion section summarizes the main ideas of the topic and recommends a number of measures for the success of the system. It recommends proper training of staff on the operation of the new system to ensure its effective running. Secondly, it recommends incorporation of information and communications technology into the new system to enhance its modernization.

Introduction

Any healthcare policy is aimed at delivering good value to the beneficiaries for what is spent. To achieve this goal, these beneficiaries have to access high quality services, while the program ensures that the program resources are spent wisely. One way of increasing value in medical care is by improving the accuracy of prices that individuals pay for services. Medical care has for a long time used hospital administered prices, which have often been inaccurate, with some being extremely overpriced while others under priced.

These two extremities present a number of challenges for any medical care program. Under-pricing of services means that the beneficiaries could find it difficult to access medical care. On the other hand, over-pricing of services will lead to providers furnishing more services than the beneficiaries really need. This leads to wasteful spending due to overuse of services and also has a great potential to cause harm through iatrogenic diseases and medical errors.

Inaccuracy in medical care prices presents immense potential consequences that run beyond the program, such as workforce decisions and capital investment.

For example, physicians may choose to specialize basing on the underpayment for certain services in comparison with the others. If private medical care providers base their payment systems on those of Medicare pricing, it could easily lead to a lot of errors in their pricing (Wynn et al, 2007).

Changes in Medicare payment system

CMS has taken decisive steps aimed at improving the accuracy of payment for medical care services under the IPPS. At the same time, CMS has provided additional incentives to enable hospitals improve their quality. These reforms are aimed at restructuring the inpatient diagnosis-related groups in order to be fully accountable to the severity of every patient’s health condition (CMS, 2007).

Additionally, this move will shield Medicare from paying additional costs incurred from some preventable conditions such as infections acquired while in hospital. The new regulations expand the publicly reported quality measures list hence reducing Medicare’s payment for hospitals that replace any device supplied to it at a reduced or no cost.

The new regulations will result in increased payments to hospitals by approximately four per cent when all its provisions are considered, mainly due to the three per cent market basket increase. Similarly, specific hospital payments may also experience a similar increase although this depends on the kind of patients they serve. For example, urban hospitals are known to treat more severely sick patients and their estimated increase in payments is four per cent.

Previously, Medicare only made vital, incremental changes while studying an all-inclusive reform of the IPPS. Currently, 745 new MS-DRGs have been created to replace the 538 DRGs currently available. These changes will however not result in any changes in aggregate spending.

However, hospitals that serve more severely ill patients will experience an increase in payments while those that serve less severely ill patients will see a decrease in their payments. The new changes being adopted are a response to public comments that suggested on how to undertake the reforms (CMS, 2007).