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Medicare sneezes

The adage goes something like – when the US sneezes, the world catches a cold, signifying just how much influence this country has on the rest of the world.
That’s analogous to Medicare’s impact on the health care sector. And Medicare is about to change the way it pays hospitals, a change that will have a dramatic effect on every private payer from HMO to individual carrier to workers comp insurer to self-insured employer.

You can read all about the impending changes here. The highlights are a bit esoteric, but the impact will be anything but. Here are the primary changes.
1. The number of DRGs jumps to 745 from the present 538, enabling payers and providers to assign specific cases to DRGs that more accurately reflect the treatment resources required.
2. Across-the-board reimbursement cuts totaling 4.8% over three years.
3. Significant alterations of the treatment of complicating conditions (CC) that will likely result in reduced reimbursement for cases with CCs.

4. A shift from charge-based to cost-based reimbursement. This could be the most significant change for some payers.
What does this mean for you?
Payers will have to significantly upgrade their hospital bill repricing capabilities to address the new DRG structure. This will include implementing new DRG groupers (HSS and 3M sell groupers).
At the very least, check with your bill repricing software supplier or inhouse IT folks to make sure they are fully up to speed. And don’t accept “yeah, we’re aware of it” – this is a LOT more complex than it appears at first blush. The more sophisticated the grouper, the lower your spend will be.

One thought on “Medicare sneezes”

  1. Not paying for hospital acquired conditions (e.g., preventable adverse events) will “likely” result in reduced reimbursements?
    Ha! This is a paradigm shifting change – all the other changes for 2008 are evolutionary.

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Joe Paduda is the principal of Health Strategy Associates



A national consulting firm specializing in managed care for workers’ compensation, group health and auto, and health care cost containment. We serve insurers, employers and health care providers.



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