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DRG Validation – Pre-Bill, Post-Bill, 100% Review: Are you doing it right?

This article details the importance of DRG validation for hospitals and evaluates the different approaches that hospitals can use for improving compliance and optimizing revenue.

By George Kelley, Chief Operating Officer

DRG validation has been a tool used by healthcare organizations almost since the beginning of DRG reimbursement, primarily to ensure optimal revenue.  When the concept of DRG validation is raised, many people think about Medicare fee-for-service volumes.  Although Medicare encompasses a significant portion of revenue for many hospitals, it is not the only payer to utilize DRG-based payments.  Many contracted payers have or are moving a good portion of their business to a prospective DRG-based payment model and these cases must be included in any DRG validation program.

DRG validation can assist providers in many ways:

  • Ensure the accuracy of claims and that all entitled revenue is achieved,
  • Validate, monitor and improve documentation processes,
  • Monitor the performance of coding staff,
  • Monitor payer reimbursement practices,
  • Supplement internal CDI programs,
  • Defend billed claims and ensure compliance.

Historically, DRG validation programs were performed either with random samples to evaluate quality, or as a reaction to audits from outside entities.  In some instances, providers employed targeted reviews that were specific to problem areas or areas where improvement opportunities existed.  In recent years, there has been a movement to review 100% of cases – whether across the board, or for specific services.  Each of these approaches has merit and providers must consider all of their options to meet their organization’s goals.  This article will address the relative merits of these approaches a little later on.

So, we have a few items to discuss – first, the many ways in which DRG validation can assist providers, and second, the strategy of how to employ the process (targeted reviews, 100% review, random reviews).

First, let’s establish the case for why providers should be conducting regular, ongoing DRG validation:

Ensure the accuracy of claims and that all entitled revenue is achieved

First and foremost, providers want to ensure that claims, especially inpatient claims which tend to be higher dollar, are being coded and billed correctly the first time.  The claims need to be billed compliantly and must capture all appropriate information regarding the patient’s care to ensure appropriate levels of care, timely billing and payment, and payment at the correct level of reimbursement.

Regulations, practice patterns and providers change regularly; ongoing review and education are the first line of defense to ensure good practices are in place and being employed.

Additionally, with more payers (in addition to Medicare and Medicaid) using DRGs for payment, hospitals must maintain multiple grouper versions in their systems and their coders must be well versed in them.  Reviewing DRG assignment under this scenario becomes all the more important.

Validate, monitor and improve documentation processes

Documentation is a challenge that hospitals are constantly addressing.  Physician documentation is key to the assignment of accurate coding for DRG assignment.  Documentation that is complete and clear to coders is necessary.  DRG validation is that “second sweep” to review the documentation that the coder had available at the time of coding or, in addition to the documentation at time of coding, the late results that often impact DRG assignment.

Monitor the performance of coding staff

Coding staffs ultimately drive the assignment of the DRG.  DRG validation reviews provide invaluable feedback to coders and management.  Whether it be targeted reviews based on data analysis that focus on “issues” or 100% reviews of all new coders, DRG validation will provide long-term return on investment.

Supplement internal CDI programs

DRG validation programs can supplement internal CDI programs in a number of ways.  When data analytics are employed to select cases for review post-bill, they can highlight those areas, services and providers that may be generating outcomes below the norm, or that have not been targeted for CDI intervention.

Defend billed claims and ensure compliance

Payers are regularly reviewing claims to recapture revenue they feel has been improperly paid. DRG validation programs significantly reduce the number of claims payers can identify that were improperly paid.  This can save valuable time and resources.  Ultimately, getting it right is also improving compliance for the provider.

Based on the items noted above, it would be clear to any provider that a regular ongoing DRG validation program would provide significant value in regard to compliance, operations and reimbursement.  So the next item to consider is the strategy the provider should employ to institute DRG validation.

As we mentioned earlier, there are a number of ways to go about the process; in many cases, a provider may want to utilize a combination of approaches.

A recap of the various methodologies:

  • Pre-bill data analysis to select cases for review with a focus on

- Coders
- Services
- Payers

  • Pre-bill 100% review
  • Post-bill targeted claims
  • Random audits

Each methodology has its particular pros and cons, but the more important element is to ensure that goals are outlined and the approach works toward providing feedback to achieve the organization’s goals.

In CBIZ’s many years of conducting DRG validation reviews, our preference has leaned toward targeted reviews conducted post-bill.  This approach enables the client to minimize cost and disruption to the daily coding process while achieving a particular goal.  As clients have moved to pre-bill reviews, our suggestion continues to be maintaining focus on an area of concern, so goals can be stated and achieved.  Reviews without corresponding follow-up and education do not achieve the level of success expected.  In our experience, the use of random validation reviews is the least effective DRG validation method – a random review cannot provide specific feedback to identify issues, opportunities or actionable results by their nature.

Pre-bill reviews should focus on new coders, or outsourced coders, to improve skills, evaluate quality and provide guidance as to documentation process and data flow.  These reviews often encompass 100% of cases for a specific coder.

We have also seen providers perform full 100% pre-bill reviews and perform small, random post-bill reviews.  In both cases, we think it is imperative to identify the goal – if these methodologies help achieve the goal, then it is a good approach.  The cost of full 100% reviews needs to be weighed against the outcome, not to mention a potential impact to timeliness of the billing process.  As mentioned above, in our opinion random reviews cannot generate actionable results.

CBIZ KA Consulting Services has been assisting our clients with DRG reviews for more than 30 years.  Our team can assist in evaluating your goals and working toward a program that will best achieve the results and outcomes you are looking for.  If you would like to discuss your goals, your current program or how we can help, please contact me at gkelley@cbiz.com or Adam Abramowitz at aabramowitz@cbiz.com or call him at 609.220.5627.

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