As we reported in our Managed Care Newsletter in April 2020, the CARES Act passed by Congress last year provides for a 20% increase to the DRG weights in the Medicare Inpatient Prospective Payment system (“IPPS”) for patients diagnosed with COVID-19. Congress’ decision to increase the relative weight for patients who are diagnosed with COVID-19 is consistent with the fact that the average resources needed to provide services to a COVID-19 patient can and have been higher relative to the resources needed to provide services to other patients who have the same DRG without COVID-19. The DRG weighting system accounts for cost variations between different types of treatments, with more costly conditions being assigned higher DRG weights, as directed by Congress and implemented by CMS.
The federal government promptly implemented this change at the time for Medicare patients. Likewise, most health plans did so last year for their Medicare Advantage contracts that provide for payment using DRGs, sometimes expressed as payment based on IPPS or Medicare Allowable. Some health plans also recognized that the change required them to implement the 20% increase for Commercial contracts that are paid based on a Medicare methodology. However, not all health plans have recognized this obligation. Therefore, providers who have any Commercial contracts that pay based on these Medicare systems may benefit from reviewing how they are being paid for services provided to patients with COVID-19 diagnosis to ensure that they are receiving the 20% increase.
When payers and providers negotiate to use a specific Medicare payment methodology for Commercial products, that reflects a choice by both sides to adjust the payments when the methodology is changed. The government typically make changes to various Medicare methodologies each year, which health plans implement in contracts that incorporate those methodologies. Sometimes the government decreases what is paid under a particular Medicare methodology, which typically the plans are happy to accept. Other times there are increases, which plans usually implement without question, since they recognize that the bargain struck between the payer and provider is that the payment methodology will “float” with changes to the methodology imposed by the government. There is nothing different about the 20% increase for COVID-19 that would exempt it from use by non-Medicare payers that use the Medicare DRG payment methodology in their contracts with providers.
The Medicare DRG weight assigned to each DRG is an integral component of the IPPS system. The way Congress implemented the 20% increase was to adjust the DRG weighting for patients with a COVID-19 diagnosis. Specifically, Section 3710 of the CARES Act increased the IPPS weight for patients diagnosed with COVID-19. The statute states:
For discharges occurring during the emergency period described in section 1135(g)(1)(B), in the case of a discharge of an individual diagnosed with COVID–19, the Secretary shall increase the weighting factor that would otherwise apply to the diagnosis-related group to which the discharge is assigned by 20 percent. The Secretary shall identify a discharge of such an individual through the use of diagnosis codes, condition codes, or other such means as may be necessary.
The DRG methodology’s origin being in the Medicare program does not mean that it only applies to Medicare Advantage products. To the contrary, parties are permitted to agree to use the DRG methodology for non-Medicare products, just as they are permitted to negotiate not to use the DRG methodology for Medicare Advantage products. Indeed, many Medicare Advantage contracts have non-DRG components, such as case rates, per diems, capitation, carve-outs, etc. In these cases, the health plans might not pay the 20% increase for COVID-19 patients since the contracts did not incorporate the DRG methodology. Conversely, when Commercial contracts do use a DRG methodology, the plans have contractually agreed to pay what that methodology requires. Congress decreed that the DRG methodology requires a 20% increase for patients diagnosed with COVID-19.
The same 20% increase should apply to other products as well that use the DRG methodology, whether those are Managed Medicaid, and whether or not they are contracted. For example, if a health plan’s payment methodology for non-contracted Commercial services uses the DRG methodology, whether that is part of a patient’s evidence of coverage, the plan’s internal policy, or otherwise, then the plan needs to include the 20% increase for patients diagnosed with COVID-19.
The actions by health plans that implemented 2% sequestration reductions in April 2013 also undercuts any arguments by them now against paying the 20% increase for COVID-19 patients. The 2% sequestration reductions were passed through by health plans even though sequestration actually occurred separate from and outside of the Medicare DRG methodology contained within the IPPS system. At the time, however, health plans that passed the sequestration reductions through to providers asserted that contracts using words like DRG, IPPS, or Medicare Allowable, meant that rates to be paid were whatever Original Medicare would pay. By equating the DRG methodology with whatever Original Medicare paid for purposes of sequestration reductions, these health plans are in no position to argue now against paying that the 20% increase for COVID-19 diagnosis patients. This 20% is both within the DRG methodology and something Original Medicare pays.
Finally, it bears considering for this issue that most payers, including virtually all of the larger ones, use automated computer systems that are designed to track the Medicare DRG formulas for calculating what is owed under the DRG methodology. Therefore, health plans who try to avoid paying the 20% increase for COVID-19 patients have to take extra steps to turn off the weighting changes that Congress dictated for the DRG calculations when patients are diagnosed with COVID-19.
