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Before December, there were not many posted on the RAC websites. Now, however, as of December 31, 2009, Connolly Healthcare has posted a total of 75 new issues. The issues focus mainly on MS-DRG coding and DRG validation, and not medical necessity.  The list of MS-DRG’s included in the issues represent both medical and surgical cases.

Hospitals in Region C have begun receiving records requests for complex reviews. Those are reviews of Medicare claims where a human must read the documentation, as differentiated from a so-called automated review, where no human interaction is required. Hospital RAC teams are responding to these records requests as quickly as they can. We know of one hospital that received just one letter, requesting 24 medical records, one for each of 24 different MS-DRGs. The MS-DRGs were simply listed by number, with no descriptions. We were also told of another facility that received over 40 letters requesting records – each letter requesting records for a single MS-DRG.

Activity by the other RACs has been minimal and all their posted issues appear to be only for Automated Review.  Connolly Healthcare is the only RAC to date to post any issues for Complex Review.

DCS Healthcare, the Region A RAC (northeastern states), posted six new issues for DME Suppliers on December 22, and on December 11, they posted one issue for Clinical Social Worker Service Providers.  CGI Federal, the Region B RAC (north central states), posted no new issues in December, but did change the description of one issue. Health Data Insights, the Region D RAC (western states), only posted four new issues for Automated Review during December.  You can easily access all four RAC New Issues pages and download a RAC Jurisdiction map, here.

Meanwhile, Connolly Healthcare, the RAC for Region C (south & southeast states), has been busy posting a slew of approved issues. During the closing week of 2009, they posted about 40, raising the total number of issues approved for Region C to 75.

Connolly also made some changes to a few issues already posted, sometimes adding more states affected by the issue, and sometimes making changes to the issue descriptions. How can you tell what they changed?  It’s not easy, and we’ll have more to say about that, below.

Currently, for every DRG Validation issue posted by Connolly the following phrase is included in the issue title: “(At this time, Medical Necessity excluded from review).” So for now, Medical Necessity is off the table. However, since the RAC will have these records anyway, we can assume that the RAC will gather information for later audits awaiting CMS approval for Medical Necessity review issues.

Also, each of these issues has an almost identical description:  “DRG Validation requires that diagnostic and procedural information and the discharge status of the beneficiary, as coded and reported by the hospital on its claim, matches both the attending physician description and the information contained in the beneficiary’s medical record.  Reviewers will validate for MS-DRG [XXX], previously DRG [XXX], principal diagnosis, secondary diagnosis, and procedures affecting or potentially affecting the DRG.”

Notice that the physician documentation is specifically mentioned and that it must support the facility’s claim. While this is not new news, it certainly shows their intent.

We watch this activity with growing concern. The pages posted by each RAC are simply lists of the issues. The issues are not posted in any particular logical, and it is not possible to sort them or display them in different ways. For example, we thought it would be convenient to see all the issues for a single state. To do this, however, we had to make our own list!

For providers then, the burden just became a little more difficult, as it is rather complicated for a provider to track all of the issues and remain current without also making a list. When a RAC posts a new issue, or updates an older one, it’s difficult to know what has been added or changed! That is, the RAC simply makes the post or changes it and it’s up to you, the provider to figure out what was amended.

To help with that situation, eduTrax developed a database of the issues, and keeps it updated daily. The list can be seen for a single RAC Region, or for a single State, can be sorted, and can be easily searched by DRG number. You can click here to see the lists.

Having the list of issues is one thing, knowing what to do with the list is quite another so we did some analysis.

Earlier in December we analyzed the first 24 new issues posted December 3rd on Connolly’s New Issues page. Surprisingly (or not-so-surprisingly), we found that 20 of the DRGs were Transfer DRGs and/or higher weighted DRGS.  That is, they represent significant dollar volumes, even for single claims. Further, looking at the 20 Transfer DRGs, 16 of them are Operating Room (OR) procedures and some of those have whole pages of procedures associated with them.

Why would these be among the first to show up as approved issues for the RAC? Remember that the RACs are essentially “bounty hunters” and as such are motivated by profits. They are reimbursed from 9 and 12 percent of the claims they can deny, so they will no doubt be looking for the highest dollar volume they can generate. Also remember that the Transfer DRG list has continued to grow, from 10 to now almost 300 DRGs (not to mention that CMS has not ruled out making ALL of them Transfer DRGs) and the review of a medical record to determine the discharge disposition can be performed rather quickly for a swift determination and fast recoupment. We can easily name three issues for these DRGs that we think will be commonly found.

First, and perhaps the most common issue will likely be the correct disposition of the discharge.  Was the proper discharge code used; and was the appropriate formula used to adjust the DRG weight for reimbursement? Remember also, the RAC is only concerned with what is found documented in the medical record regardless of what actually happened.


The second most common issue will likely be the issue of proper reporting and coding of the OR procedure(s). According to PIM Ch. 6.5.3, Section A-C, referenced by Connolly, to do DRG Validation Review the RACs will be looking to see if all procedures performed that affect the DRG assignment have been listed on the claim and coded accurately. Of course physicians know little or nothing about DRG assignments, and anyone who does know about it knows that leaving out a single item in the documentation or sometimes just a single word, can wreak havoc on the DRG.

Since CMS moved to MS-DRGs in October 2007, the patient’s severity of illness became a much larger focus especially for facilities being reimbursed under the Inpatient Prospective Payment System (IPPS). A more “sick” patient is recognized as being more costly to treat – therefore the reimbursement should be higher. And so it is, as long as the severity is properly assigned, via the MS-DRG on the claim. To determine severity of illness and assign an MS-DRG, CMS uses lists of CCs (Complications and Comorbidities) and MCCs (Major Complications and Comorbidities). Still, the presence of a CC or MCC does not necessarily mean an increase in reimbursement. A piece of computer software called a “Grouper” does all the calculations using the CC/MCC lists (created by CMS), plus the diagnosis codes on the claim (supplied by the provider).

Nevertheless, under a complex review by a RAC a human will review the medical record, and it must support the DRG assignment on the claim. Not having sufficient or appropriate documentation to support the “higher” MS-DRG negates what may be the true severity of the patient’s situation and removes any possibility of getting appropriate reimbursement. The consequent reduction in payment may be as much as 60 percent.

Consider some rough numbers using one of the DRGs on the approved issues list:  DRG 329 Major Bowel Procedures with MCC has an average reimbursement of (roughly) $22,000. However, without documentation to support an MCC or even a CC, that figure drops to $9,000.

Forget “one picture is worth a thousand words.” In this case one sentence could be worth $13,000.

A third issue is just the sheer number of opportunities for errors in DRG assignment. Looking at the list of DRGs and considering all the OR procedures that are related to the DRG presents a daunting picture – especially when you consider that these procedures could affect the DRG assignment as well as the Principal Diagnosis. In some cases the DRGs in the approved issues list have literally HUGE numbers of procedures associated with them.

In the table below, we chose 15 of the surgical DRGs from Connolly’s list and show the number of procedures associated with them plus the Relative weights for each MS-DRG. (Under IPPS each case is categorized into an MS-DRG and each MS-DRG has a payment weight assigned by CMS. That number, the Relative weight, is used to calculate reimbursement. Each facility also has a “base payment rate” assigned by CMS. Reimbursement for any MS-DRG can be approximated by multiplying a facility’s base payment rate by the Relative weight for the MS-DRG.)







Major small and Large Bowel Procedures with MCC, with CC, without MCC/CC






40 different procedures







Major Chest Procedures with MCC,

with CC and without MCC/CC







58 different procedures






Other Respiratory System Operating Room(OR) Procedures with MCC,

with CC, without MCC/CC






73 different procedures






Non-extensive OR Procedure Unrelated to Principal Diagnosis with MCC, with CC, without MCC/CC






Over 300 procedures






Extensive OR Procedure Unrelated to Principal diagnosis with MCC,

with CC, without MCC/CC





All Operating Room procedures not already listed for DRGs 987, 988, 989





Any MS-DRG with a large number of procedures and diagnoses involved provides a similarly large potential margin of error in documentation and/or coding and therefore DRG assignment. How large is the margin for error when over 300 procedures are listed?  Never mind! Trust me – no provider will like the number. RACs, however, will no doubt love it.

The issue is perhaps more clear if you consider some of the other DRGs in the Connolly list:


  • MS-DRG 386, Inflammatory Bowel disease with CC,
  • MS-DRG 394, Other Digestive System Diagnosis with CC,
  • MS-DRG 432, Cirrhosis and Alcoholic Hepatitis with MCC,
  • MS-DRG 813, Coagulation Disorders.


In these DRGs there are often problems in documentation because the patients are “train wrecks” when they present at the ER and some diagnoses may get “lost” in all the others. Or the reason they need to be admitted may be completely different from what was initially recorded as the reason they came to the ER in the first place. So the appropriate Principal Diagnosis may or may not be appropriately documented as “the diagnosis which, after study, is determined to have occasioned the beneficiary’s admission to the hospital,…” and “…as evidenced by the physician’s entries in the beneficiary’s medical record.” (PIM Ch. 6.5.3, Section B; and 42 CFR 412.46)


Let’s consider one of those DRGs:  MS-DRG 386 – Inflammatory Bowel disease with CC. This DRG carries a Relative weight of 1.0423, and has an average reimbursement of about $5,200.

The two diagnoses that fall under this DRG are Regional enteritis (or Crohn’s Disease) and Ulcerative colitis.  The common signs and symptoms of these two conditions are fatigue, fever, abdominal pain and diarrhea. However, these are very common GI symptoms, plus there are 61 MS-DRGs listed under the Major Diagnostic Category (MDC) – Diseases and Disorders of the Digestive System, more than in any other MDC group. (The MDCs are 25 mutually exclusive groups of ICD-9-CM diagnosis codes which correspond to a single organ system or “cause” and are in general associated with a particular medical specialty.) The point is there are many different possibilities for DRG assignment here!  In these cases then, without complete and accurate documentation the Principal Diagnosis could easily be “incorrect.”

Consider a patient who presents with all of the above signs and symptoms and even has a history of Crohn’s. If the physician’s documentation fails to specifically mention it as a diagnosis or if a RAC decides that the documentation fails to pass the test of being the Principal Diagnosis then the RAC might decide that the correct Principal Diagnosis should instead have been MS-DRG 392, Esophagitis, Gastroenteritis and Miscellaneous Digestive Disorders without MCC, with a whopping Relative weight of 0.6921, and average reimbursement of about $3400. The facility gets a Demand Letter for about $1800.

Now, everything discussed so far has not even considered Medical Necessity since it is not yet being reviewed, as mentioned above. Nevertheless, we all know that it will be reviewed and sooner rather than later. When they do start evaluating medical necessity we can expect them to have plenty of ammunition. Why? Because they’ve already got the records, AND for the surgical DRGs, (the ones with all the OR procedures attached to them) they will have TWO chances to evaluate medical necessity for a claim.

Why two chances? Connolly’s postings for the surgical DRGs all mention the CMS Program Integrity Manual, Chapter 6.5.3, which gives instructions for contractors (RACs) to conduct DRG Validation Reviews. What it does not mention is Chapter 6.5.4, which covers Review of Procedures Affecting the DRG and specifically requires the contractor to “…determine whether the performance of any procedure that affects, or has the potential to affect the DRG was reasonable and medically necessary.

We expect to produce a Webinar on that subject alone, in the near future.

New Webinar for RAC University LIVE

For now, given the list of approved issues, there is one issue that is ubiquitous at facilities and proves to be an excellent example to discuss these new issues:  Septicemia, MS-DRG 871/872.  We will present this webinar in late January so watch for the email notices.

The Webinar will describe how the RACs will be operating, describe how a DRG Validation Audit is performed from an external perspective and then present several case studies as examples, thereby providing a template for facilities to use for internal audits of these DRGs. This will be an intermediate level look at how to validate a DRG using real claims, and will be appropriate for members of your RAC Team, CFO, HIT or HIM Directors, Coding Managers and Coders.

About the Author

Patricia Dear, RN, has more than 30 years of experience in the healthcare industry, working within corporate healthcare entities, for-profit and non-profit hospital systems, legal defense and plaintiff counsel. She is a recognized national speaker on reimbursement and compliance. She is the president and CEO of eduTrax®

Contact the Author



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