Introduction to DRG Pricing
John Robertson is a 58 year-old-male with CareFirst BlueCross BlueShield insurance coverage. He was recently admitted to a Washington, D.C. hospital for surgery. When the hospital seeks reimbursement for his inpatient stay, CareFirst will pay the hospital using Medicare's Diagnosis Related Group (DRG) pricing.
DRG is a classification based on clinical factors and utilization of resources. DRG pricing is used only for inpatient admissions filed on a UB92 - the standard hospital claim form. Other hospital visits use different pricing methods.
What is DRG Pricing?
DRG pricing is a fixed payment methodology based on two primary factors.
- Negotiated rates with the facility (based on a patient's coverage)
Every hospital negotiates its own rates with a payer, known as Standard Base Rate (SBR). Each DRG hospital has a Standard Base Rate for participating, PPO (BluePreferred) and HMO (BlueChoice) networks from which payments are calculated. These rates are based on the hospital's patient mix, the size of the facility, and the hospital's average charges for treating specific conditions.
- Normal resource consumption for the patient's case
Normal resource consumption is the average amount of resources used to treat any given condition. Resources include anything that hospitals use to treat and care for a patient - food, band-aids, medication, x-rays, surgery, nurses time and anything else required.
Medicare assigns a numeric value-or weight-to each case, based on the normal amount of resources consumed, including the average expected length of the admission (Standard Average Length of Stay -SALOS). The DRG weight determines if a claim qualifies for standard DRG pricing.
The DRG weight, along with the hospital's base rate, is used to determine standard DRG pricing.