Medicaid Hospital Reimbursement - Reimbursement Modernization


The Department of Social Services is committed to modernization of the hospital reimbursement system. 

The first step of the process was to implement an inpatient system based on an All Patient Refined-Diagnosis Related Group (APR-DRG) payment methodology. The system was successfully launched on January 1, 2015 when DSS moved from an interim per diem rate system and case rate settlements to an APR-DRG system where hospital payments are established prospectively. Each inpatient claim is assigned an APR-DRG by utilizing claim data submitted such as diagnoses, procedures, member age, and gender. This method will aid DSS in its goals of moving toward a system that encourages access to care, reward efficiency, improves transparency, and improves equity by paying similarly across hospitals for similar care.

The second step was to implement an outpatient system based on an Ambulatory Payment Classification (APC) methodology. This system was implemented on July 1, 2016. This system is a change from the previous method based on Revenue Center Codes (RCC) using a combination of fixed fees and hospital-specific, code-specific cost to charge ratios to a system based on the complexity of services performed. The goals of this project are similar to the inpatient modernization goals. Evaluation of the new methodology will be ongoing as DSS is statutorily required to complete a fiscal analysis of the impact of the new methodology within six months of implementation.

Goals of the APR-DRG System:

1. Greater administrative simplification for hospital providers and the Department by following the established Medicare reimbursement policies and procedures.

2. Greater accuracy in matching reimbursement amounts to relative cost and complexity.

3. Greater ability to partner with Medicare and other private sector payers in developing innovative payment strategies that reward improved quality as opposed to greater quantity of care.

4. Greater transparency in the payment methodology.