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To take the definition a step further, “The phrase after study in the definition for principal diagnosis means the condition established after evaluation of findings that was chiefly responsible for occasioning the admission. Findings result from history of illness, any mental status evaluation, physical exam, diagnostic tests or procedures, any surgical procedures, and any pathological examination. The condition established after study may or may not confirm the admitting diagnosis.” (Coding Clinic, May-June 1984)


From an inpatient prospective, the principal diagnosis is one of the main drivers to determine payment.  For admissions without surgical care involved, it primarily sets the base reimbursement a facility will receive.


If the principal diagnosis is wrong, the facility could be paid incorrectly and therefore, open the door for RACS recoupment.


MS-DRGs:  Things get Interesting!


As you may know, the CMS DRG payment methodology changed in FY 2008 to Medicare Severity or MS-DRGs. This date is also significant in that it is the base year for the RACs, meaning claims paid from 10/1/07 forward are open to RACs scrutiny.


MS-DRGs are based on severity of illness (with or without Complications or Co-morbid conditions or Major Complications or Co-morbid conditions) and resource consumption. The list of CCs was changed dramatically in FY2008 and MCCs were added into the mix.


The example below shows the impact of the MS-DRG payment for UTI with and without an MCC. Notice how much lower the reimbursement is for DRG 696 than DRG 695. Now more than ever, the documentation in the medical record is crucial to appropriate code assignment…especially for the principal diagnosis.


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RACs Focus on Principal Diagnosis

The purpose of the RAC program is to reduce improper Medicare payments by identifying overpayments and underpayments.  In the RAC Statement of Work from 2007, these over and underpayments were typically a result of various issues:


  • Incorrect payment amounts
  • Non-covered services
  • Services not medically necessary
  • Incorrectly coded services
  • Duplicate services
  • Unnecessary E/M Services
  • E/M & global surgery payment rules
  • Bundled services Complex payment calculations

Of the $980 million in overpayments identified in the June 2008 CMS RAC Demonstration Evaluation Report as recouped by the RACs, $331 million was the result of incorrect coding. In other words, 35 percent of the improper overpayments identified were a result of incorrect coding.

From the hospital inpatient prospective, incorrect coding of principal diagnosis has the definite potential to cause substantial inappropriate reimbursement.  It is important to note that incorrect coding that does not affect reimbursement will NOT be considered as improper payments by the RACs.  There is simply no payment adjustment, positive or negative; therefore, if reimbursement is not impacted, the RACs won’t pursue recoupment.


RACs Process

In its review process, the RAC uses a proprietary data scrubber to gather data and analyze for targeting claims.  The scrubber identifies instances with the greatest probability of DRG change based on coding rules and edits.  Look at this as the reverse of what an encoder does. 
An encoder is software tool that assists with the selection of diagnosis and procedure codes based on rules and edits.  When cases are coded, the final code assignment can be reviewed electronically by the encoder to see if there is optimization potential. The software analyzes the case and prompts the user to consider different MS-DRG options. The RAC proprietary tool will do the reverse; it looks to see if the case may have been maximized (incorrectly coded) which caused an improper payment.

The example below shows the impact of inaccurate coding of the principal diagnosis.  Let’s say the patient was admitted with acute respiratory failure due to an overdose of anti-depressants and it was coded with a principal diagnosis of acute respiratory failure rather than poisoning by psychotropic agents.  The facility would have received an overpayment of approximately $3,300 and would be subject to a RAC recoupment if the claim were reviewed.



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Judge for Yourself


Looking at the following example, imagine you are the RAC:

A patient is admitted with low grade fever, nausea and generalized weakness. Urinalysis is positive for WBC and subsequent urine culture is positive for E coli, while a blood culture was negative. The physician documents “urosepsis” and puts the patient on IV antibiotics.


The facility coder assigned 038.9 Septicemia as the patient’s principal diagnosis which grouped to MS-DRG 872, Septicemia or Severe Sepsis without Mechanical Ventilation 96+ Hours without MCC. The national average payment for this MS-DRG is about $6,700.


You are the RAC – what would you do in this case? Would you allow the septicemia as the principal?  If you do not have a coding background, you may not realize that according to Coding Clinic, urosepsis does not have an ICD-9-CM diagnosis code; rather it is coded as urinary tract infection (599.0) as referenced in ICD-9-CM. Unless the physician states in his documentation that the condition is sepsis or septicemia, urosepsis would be coded as a UTI.Given the documentation and based on the clinical findings documented, code 038.9 would be inappropriate as the principal diagnosis.  Urinary tract infection, 599.0 which groups to MS-DRG 690, Kidney and Urinary Tract Infections without MCC, was the more appropriate selection.  The national average payment for this MS-DRG is approximately $3900.  The following graphic shows a picture of this example:


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As you can see, code 599.0 (UTI) groups to a lower MS-DRG than code 038.9 (Septicemia). Therefore, an overpayment would have been made with septicemia billed as the principal diagnosis. In this case, if you as the RAC said you would recoup money, you would be correct.


So does principal diagnosis really matter?  Is it a focus area for the RACs? Based on the improper payment potential that exists when the principal diagnosis is assigned incorrectly, I say absolutely!


The Bottom, Bottom Line:


In order to protect your organization, it is important to educate all clinical and physician staff as well as Health Information coding staff on the appropriate definition of what constitutes a principal diagnosis; how to appropriately document it in the medical record; and just how real its impact is on a hospital’s bottom line.


Stephanie Albright is a subject matter expert and author for Edutrax®

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