DRG 87: PULMONARY EDEMA AND

RESPIRATORY FAILURE 
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OFFICE OF INSPECTOR GENERAL 
OFFICE OF ANALYSIS AND INSPECTIONS 
AUGUST 1989  DRG 87: PULMONARY EDEMA AND

RESPIRATORY FAILURE

RICHARD P. KUSSEROW 
INSPECTOR GENERAL 
OAI.12-88-01200  AUGUST 1989
 Contract Information

Contractor  Project Officer

BOTEC Analysis Corporation  David Hsia, J.D., M.D., M. 
36 JF Street  Health Car Brach 
Cambridge, MA 02138  Offce of Inspector General 
330 Independence Ave., SW 
Washington, D. C. 20201 
Contract 
HHS-l00-88-0019  EXECUTIVE SUMMARY 
BACKGROUND 
Diagnosis related group (DRG) 87 pays for pulmonar edema and respiratory failure. Only 
five, very specifc, ICD- CM codes group to DRG 87 as principal diagnoses. Disorders such 
as cQngestive hear failur, chronic obstrctive pulmonar disease, asthma, bronchitis, and 
pneumonia also involve lung pathology, but should group to other DRGs with lower relative 
weights. 
FINDINGS 
Overall, 56.0 percent of the discharges biled as DRG 87 should have been 
assigned to a different DRG. . This error rate significantly exceeds the 18. 
percent for all DRGs from the National DRG Valdation Study. 
Hospitals overpaid themselves in 96.4 percent of the incorrect DRG 
assignments. This ratio significantly exceeds the National DRG Validation 
Study s 59.7 percent of overpayments. 
The codng errors principally derived from physician mis-specification of the 
pricipal diagnosis or hospital resequencing of the diagnoses to substitute 
respiratory failur for the corrct principal diagnosis. 
RECOMMENDATIONS 
The Health Care Financing Admnistrtion (HCFA) should 
diect the peer 
review organizations (PROs) to review prospectively DRG 87 bils for codng 
accurcy. 
The HCFA should  PROs to educate physicians and hospitals about the 
diect the 
proper codng ofDRG 87. 
The HCFA disagrees with the fist recommendation and believes that it has implemented the 
second recommendation. The Offce of Inspector Genera has altered this report to accom
modte HCFA's comments and continues to believe that adopting these recommendations 
could recover a projected $35.5 milion annually. The HCFA has alady implemented a third 
recommendation made in the drt of this inspection.  . . . . . . . .. .  ..  .. . .  ....    .....  .   .... .    . ..... ..     .  ..... . .   . .  ... .   . .. .....   .     .........          .......... .         . .........      .   . ..... ...    .    ..... . ...      . .  ....... . ..        .  ...........         .... .  ..  .  ..  ......    ..      ....  .... ..       .... .. ....     ........ .      .....     
. . . . . ...   ...   ....    .....     .....     .........        . ....... .      ...... ..         ...........           ...........           ............            ............            ............            .............             ..............              ..............             . ............ ..           .  ........ ... ..           ..............                .................                 .................                 .................                 .................                 ................ .               . ............. .. .            .  . ............  ...            ..   ............  ...            ..  . ...........  .. .           ...  ........ ...    ..          ...............                 .................                 .................                 .................                 ................             .   ........... ....          .     ......... .... .        .    . ........ ... ..        .   .  ....... ... ..       .   . . ..... ... .      .   .. ..... ...   .    .   ....... .       .  ....... ..      .  . ..... ..  .    . . . ... . . . .   . . . ...  ..  .  ..  .. .  .  ... . ..   . .  ....  ..    . . .... ..     .  .... ..   .   ... .. .  . .  . . .. . .  .  ... . .   . ...   ...   ...   
TABLE OF CONTENTS 
EXECUTIVE SUMMARY 
INTRODUCTION 
Background 
PPS vulnerabilities 
Claims processing. . . . . . . . . 
DRG 87 .. . . . . 
Methodology. . . . . . . . 
FINDINGS 
Sample charcteristics. . . 
Assignment errrs. 

Dirction of errrs. . 
Soure of errors. . . 
Reasons for assignment errors 
Financial effects 
Corrct DRG assignments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Clinical review results. . . . . . . . . . . . . . . . . . 
RECOMMENDATIONS 
Appendix A-I: DRG 87 discharges from all PPS hospitals. . . . . . . . . . . . . . . . . . . . . . . . . A-
fre 
Appendix A-2: DRG 87 sampling  . . . . A-
Appendix A-3: DRG 87 hospital demography. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-
Appendix A-4: DRG 87 hospital demography comparson. . . . . . . . . . . . . . . . . . . . . . . . . A
Appendix A-S: DRG 87 patient demogrphy
-
 A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Appendix A-6: DRG 87 patient demogrphy comparson. . . . . . . . . . . . . . . . . . . . . . . . . . A-
Appendix B-1: DRG 87 assignment errors  . . B-
Appendix B-2: DRG 87 assignment errors comparson  . . . . . . . . . . . . . . . . . . . . . . . . . . . B-
Appendix B-3: DRG 87 assignment errors by patient demography  . . . . . . . . . . . . . . . . . . B-
Appendix C-l: DRG 87 diection of errr. .  . C-
Appendix C-2: DRG 87 diction of error comparson. . . . . . . . . . . . . . . . . . . . . . . . . . . . C . .. . . . . .. . .. ..  . . 
. ..  ..  ..  ..  ..  ..  ...  ..  ..  .. .  ..  ..  ..  ...  ..  ..  .. . ..... .. .... ...... ....  . . . . . . . . . . . . 
Appendix C-3: DRG 87 diction of error by patient demography. . . . . . . . . . . . . . . . . . . C-
Appendix D-l: DRG 87 hospital deparent makng error. . . . . . . . . . . . . . . . . . . . . . . . . D-
Appendix D-2: DRG 87 hospital deparent makng error comparson. . . . . . . . . . . . . . . D-
Appendix D-3: DRG 87 hospita deparent makng error by patient demography. . . . . . D-
Appendix E-l: DRG 87 reasons for errors  . . E-
Appendix E-2: DRG 87 reasons for errrs by hospital demography. . . . . . . . . . . . . . . . . . E-
comparson......... 
Appendix E-3: DRG 87 reasons for errors  .... .. ... .. ... .. E-

Appendix E-4: DRG 87 reasons for errors by patient demogrphy. . . . . . . . . . . . . . . . . . . E-
Appendix F -1: DRG 87 corrected relative weights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-
Appendix F -2: DRG 87 corrected reimbursement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-
Appendix F-3: DRG 87 projected cost of errors
-F . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Appendix G- MDC for discharges miscoded to DRG 87 
l: Correct 
Appendix G-2: Correct DRG for discharges miscoded to DRG 87 . . . . . . . . . . . . . . . . . . . G-
Appendix G-3: Correct ICD- CM principal diagnoses for discharges 
miscoded to DRG 87 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . G-
Appendix G-4: Orginal ICD- CM principal diagnosis for discharges 
incorrectly coded to DRG 87 
................................................ G-

Appendix G-S: ICD- CM codes for discharges corrctly coded to DRG 87 . . . . . . . . . . . G-
l: 
Appendix H- DRG 87 clinical review. . . 
. . . . . . . . . . . . . . . . H-
Appendix H-2: DRG 87 clinical review comparson.. . .  . . . . . . . . . .. . . H INTRODUCTION

Background 
On October 1, 1983, the Health Car Financing Admistration (HCFA) began implementing a 
new system of payment for inpatient hospital services under the Medicar program. The new 
prospective payment system (PPS) replaced the cost-based reimbursement system. Congrss 
mandated this change because of rapid growth in health care costs, parcularly inpatient ex
penses under Medicare. 
Under PPS, hospitals received a pre-established payment for each discharge, based upon the 
diagnosis related group (DRG) to which the discharge is assigned. PPS classifed discharges 
into clinicaly coherent groups which used simlar amounts of hospital resources, based on 
varables such as diagnosis; evaluation and tratment procedures; and patient age, sex, and dis
charge status. Each of the 473 DRGs had an associated relative. weight, which represented the 
average cost for hospital care provided to patients with diagnoses gruping to that DRG as a 
proporton of the cost of the average patient The hospita received this payment, independent 
of the actual lengt of hospitalzation or cost of treatment for the individual patient The 
hospital retaned any surlus from patients consumig less than the expected amount of resour
ces, and suffered losses on those patients consuming more. 
The shift from cost-based, retrospective reimbursement to prospective payment constituted 
one of the most dramtic changes in health care reimbursement since the creation of Medicare. 
A fixed payment per discharge induced hospitals to implement economies and reduce unneces
sar servces. The total payments to the hospitas provided the same financial resources for 
patient car. In effect, PPS reversed the financial incentives for hospitals. Where the cost-
reimbursement system rewarded longer hospita stays and more costly tratments, PPS 
rewarded earlier discharges and less costly procedures. One of the first consequences of the 
new payment system was a drop in average length of hospita stay for Medicare patients. 
PPS vulnerabilties 
The advent of PPS created new opportnities for manipulation or "gamng" to increase hospi
tal revenues from Medicar patients. To protect the integrty of PPS and maitain quality of 
care Congress established the peer review organizations (PROs) to monitor hospital activities. 
The Office of the Inspector General (OIG) conducted The National DRG Validation Study 
(NDRGVS) to surey the general accuracy of DRG assignment and qualty of care performed 
by hospitas under PPS. Its examnation of 700 medical records established that assignment 
errors resulted in $300 milion in overpayments to hospitals, and that the majority of overpay
ments could be trced to assignment errors afecting a small number of DRGs. This report is 
one in a series examning assignment accuracy of one of the DRGs identied as having the 
highest impact on overpayments under PPS and the gratest potential for cost recovery.  PPS gamg takes two principal forms: optimization and creep. "Optimzation" strategies ad
here to codng rules, but maximi hospital reimburements by selecting the most expensive 
among viable alternative principal diagnoses or adding more secondar diagnoses. PPS per
strctu of 
mits optization, which flows from the basic incentive  the PPS system. 
DRG creep " results from codg practices which do not conform to codng rules. Sources of 
DRG crp include: 
The attending physician wrtes an incorrct principal diagnosis 
Misspecijcation: 
(defied by the Uniform Hospital Discharge Data Set (UDS) as "that condition 
established after study to be chiefly responsible for occasioning the admssion of the 
patient to the hospital for care ), seconda diagnoses, or procedurs on the attestation 
sheet. 
The hospita assigns incorrct numeric codes to diseases or procedures 
Miscoding: 
corrctly attested to by the attending physician. 
Resequencing:  The hospital substitutes a seconda diagnosis for the corrct principal 
diagnosis. 
Auditig and review practices seek to curail ilegal creep by identiying discharges in which 
codng rules are misapplied or ignored. 
Claims processing 
clai 
Under PPS, the hospita  for Medicare reimbursement upon discharging the 
fies a 
beneficiar. At the time of discharge, the attending physician attests to the principal diagnosis 
which caused the patient s adssion to the hospita, seconda diagnoses, and procedures 
(diagnostic and therapeutic) provided. The hospita translates 
the narative diagnoses of the 
physician s attestation statement into numeric codes based on the International Classification 
of Diseases, Ninth Revision, Clinical Modcation (lCD- CM), and prepars a claim. Fiscal 
intermediar (P organizations, working under contract with HCFA, enter the hospital' s codes 
progr 
into the GROUPER computer  which assigns the appropriate DRG for reimbursement. 
Hospita reimbursement is calculated by multiplying the "relative weight" of each DRG 
category by a standadized amount, as moded by certn hospital-specific factors. The rela
00 
tive weight of each DRG vares above or below 1. accordig to the average amount of 
hospital resoures used by patients in that diagnostic group. The higher the relative weight, 
the greater the reimburement. Mis-assignment of the ICD- CM categories, or erroneous as
signment or sequencing of patient diagnoses, can thus have significant financial implications. 
DRG 87 
This study examnes erroneous assignment in a single DRG: 87, pulmonar edema and 
respirtory failur. At the time covered by this inspection, only five ICD- CM codes group 
to DRG 87: thee types of pulmonar edema and two forms of pulmonar insufficiency.  .. 
;' ", 
---.
- - - ---- --  -- , --- --- : --: --  :--  !--  ,-" --   --, --  -" - -- ---'- --  --
----- - --,- -- - ------ ---  ----  -- -- --  -- --  --  --  --  --  -- --:  --  :-- --:  --~  -- -~-  --~  -- -~--- ~--  ~--  ---- --  --  ----  -- --  -- - - - -  --  --  --  --  -- --  --  --  --  --  ---- .-.-..-.....-.._.... g.,
Physiologically, the former condition consists of fluid fillng the lungs, usually secondar to 
mitr 
cardiac (e.g., advanced left hear faiure,  stenosis) or occasionally to non-cardiac (e. 
arerial 
narcotic overdose, high altitude sickness, neurogenic) causes. The latter adds severe 
hypoxemia to the liquid in the lungs and has equaly diverse causes (e. g., infection, aspirtion 
toxin inhalation, imunological response, truma). 
Relative Weight 
Discharges (10 K)
8 -- ---
Charges ($100 M) 
Payment ($100 M)
:2:: 
;:;L 
Mean_ pUay_m"e_nUt .( $1 K)
2 -- -

1984  1985  1986  1987  198 
Fiscl Year

Figure 1: DRG 87 
Each of these conditions represents an end stage (and often termal) complication of diseases 
grouping to other DRGs. Disorders such as congestive hear faiure, chronic obstrctive pul
monar disease, asthma, bronchitis, and pneumonia also involve lung pathology, but should 
group to other DRGs with lower relative weights. A chest X-ray should distinguish between 
the mid stage of the underlying cause and the fluid buildup required for DRG 87. Arerial 
bloo gases and invasive procedurs may serve to furer define the pulmonar edema and its 
etiologies. (Appendix A Methodology 
sampling design based on hospitals to select medical 
This study used a strtified two-stage 
records for review. The  used simple random sampling without replacement to 
fist stage 
select up to 80 hospitas in each of thee bed size strata: Less than 100 beds (small), 100 to 
299 beds (medium), and 300 or more beds (large)  The second stage of the design employed 
systematic random sampling to select at least 25 DRG 87 bils from each strata for Medicar 
discharges between October 1, 1984 and March 31 , 1985. 
100 beds 
10029 beds 
1:.:.:.:.:.:.:.:. 
30+ beds

DRG 87  All DRGs 
Figure 2: Samplil)g frame 
The OIG contrcted with the Health Data Institute (HI) of Lexington, Massachusetts to 
reabstrct the medical records. Upon receipt, the contrctor "blinded" the ICD- CM codes 
by covering them, and assigned an identification number to each record. An Accredited 
Record Technician or Registered Record Admnistrator proficient in ICD- CM codng 
enti 
reviewed the  record to substantiate the principal diagnosis, other diagnoses, and proce
dures indicated by the attending physician in the narative attestation form. Any records 
which did not support the assigned DRG classification were referred to physician reviewers. 
The physician reviewers designated the corrct Uniform Hospita Discharge Data Set pricipal 
diagnosis, and additional diagnoses and/or proedures which were substantiated by the patient 
records. The GROUPER computer program processed the reabstracted ICD- CM codes to 
determne corrct DRGs. A full discussion of the methodology and fmdings of the contractor 
record review is available in the fmal report of the National DRG Validation Study (available 
from OIG Public Affais). 
DRG 87 was chosen for this inspection because of its high relative weight (1.
5368) and its 
high rate of errors. The OIG contrcted with BOTEC Analysis of Cambridge, MA to examne 
data for DRG 87 in greater detal, to identiy sources of assignment errors, and to make recom
mendations for recovery of overpayments.  .. 
.. 
.-.  -- 
..  .- 
...--  --- - -.-  -.- .-.--.  
::_::.'...-. -.:.;._" .-'-:=-.--"--.'.' , - -..---.-
FINDINGS 
Sample characteristics 
In FY 1985, 90,917 of the 8.3 milion PPS discharges (1.1 percent) grouped to DRG 87. The 
National DRG Validation Study estiated that approximately equal proportons came from 
each bed size  therefore biled for DRG 87 at a higher rate than large 
strta. Small hospitals 
and medium sized institutions as a proportion of all PPS bills (Chi-square 4.09, df 2 
25). In the fist half of FY 1985, the 239 hospitals selected in stage-one of the sample 
fre) 
design (the sampling  biled for 222 396 discharges of which 2,417 came from DRG 87 
(1. 1 percent). The sampling frame reflects their higher frequency of discharges from larger 
hospitals, while the sampling frction capturs the significantly higher rate in smaller hospitas 
(Chi-square 3.  1). (Appendix A
, df 1, P 

Additionally, the two-stage sample design permts calculation of separate results for Medicar 
beneficiares (the probabilty of something happening to a person) and hospitals (the odds' of 
an event at a parcular hospita). The appendices, tables, and char therefore report in
dividual totas weighted by both 
discharges and hospitas. 
Yes 
DRG 87: Urban 
All DRGs: Urban 
DRG 87: Teaching 
All DRGs: Teaching 
DRG 87: Profi 
All DRGs: Profi 
rt "" - .. 
100 
Percent of discharges 
Figure 3: Hospital demography 
Like all Medicar discharges as measured by the National DRG Validation Study, the majority 
ofDRG 87 discharges came from urban (Mantel-Haenszel chi-square 0. 16, df 1, P  75), 
nonteaching (Mantel-Haenszel chi-squar 0.59, df I  5), and nonprofit (Mantel-Haenszel 
, P 
chi-squar 0.05, df I  9) hospitas; but not a signifcant rates when controllng for hospi
, P 
tal size. (Appendi A-3J In comparson to all PPS discharges, a slightly larger proportion of 
ru 
DRG 87 discharges came from  and nonteaching hospitals. (Appendix A = -
DRG 87 National DRG Medicar Validation Study 
Age (year)  71.5  73.  not available 
Sex (% mae)  57.  46.  42. 
LOS (days)  8.3 
Payment ($)  41.87  3150  2985 urban 
2381 
Mortity (%)  20.3  6.3  not available 
Table I: Patient demography 
Comparng personal characteristics, DRG 87 patients proved to be slightly younger (t-est 
30, df91 , P -c 0.(05), to be more male (Mantel-Haenszel chi-square 7.37, df 1 , P -c 0. 01), 
and to have over thee ties the mortity of all Medicare beneficiares. (Appendix A-5). The 
average hospital stay ra a day longer, and the average reimbursement went over $100 higher 
for discharges paid as DRG 87. (Appendi A-
Assignment errors 
Weighted to represent discharges, 56.0 percent of this sample s bils should have grouped to 
another DRG. This error rate significantly exceeded the 18. 6 percent for all DRGs (Mantel-
Haenszel chi-square 84.29, df 1, P -c 0.(01). Assignment errors occured most frequently in 
discharges from smal hospitals (Chi-square 3.60, df 2, P -c 0.25). (Appendix B
DRG 87  All DRGs 
..100  10029  30+ 
Be size 
Figure 4: Coding errors 
Rural and for-profit facilties had the highest rate of codng errors, with over three-quarers of
discharges grouping to other DRGs. Teaching and urban hospitals had the lowest frequency 
of errors, mis-assigning 36.6 and 45.6 percent of their discharges respectively. (Appendix B ....  .... 
..  .'".,  
. ... 
----- ---------------- ------ ----- .----.  ---.-     . ----- ----- -------- ----- ----- ---------- ------- ----- ----- ----- ----- ------ ------- ---------- - - --.--.---. -- -- -.-    ------- ------ ----- ----- - --- ----- ----- --- ----- ------------ ----- ---------- ----- ----- -------  -.---...   --..--..  ..-.---... . - .    ---------- ----- ---------- ----- ----- --------------- ----- ----------
Patient demographics differ between the correct and incorrct subsamples of discharges. In 
discharges assigned incorrctly, patients were on average slightly older, more frequently 
femae, and had higher mortality. The length of hospital stay averaged slightly longer, but 
reimbursements lower, in discharges incorrectly assigned to DRG 87. (Appendix B-
Direction of errors 
The overwhelmng majority of errors in assignment for DRG 87 resulted in overpayments to 
hospitals. Weighted by discharges, hospitals overpaid themselves in 96.4 percent of codng 
mis-assignments. In other words, hospitals biled discharges with lower weighted diagnoses 
as DRG 87 which, in 1985, had a relative weight of 1.5368. This rate signifcantly exceeds 
the 59. 6 percent overpayments rate for all discharges (Mantel-Haenszel chi-square 1.05, df I 
P c: 0. 5). Combining the 56.0 percent error rate with this 96.4 percent overpayment rate gives 
an effective overpayment rate of 54.0 percent. This rate is nearly five times the 11. 1 percent 
for the National DRG Validation Study. (Appendix C-
Percent 
DRG 87: Overpaid 
All DRGs: Overpaid 
CI 
DRG 87: Underpaid 
EJ 
All DRGs: Underpaid 
..100  10029  30+ 
Bed size 
Figure 5: Direction of errors 
Hospitals of al tyes overpaid themselves on DRG 87 errors. However, except for nonteach
ing status (Mantel-Haenszel chi-squar 3.  , df 1 , P c: 0. 05), these demographic trnds did not 
signficantly exceeded those in the National DRG Validation Study when controllng for hospi
tal size. (Appendi C-2) While there were some differences in patient demographics among 
over- and under-paid discharges, the number of underpayments was too small to allow mean
ingful analysis of these 
dierences. (Appendix C-
Source of errors 
Almost all the errors in this sample can be traced to the hospitas 
' medical records practices. 
Fifty-thee cases were miscoded as DRG 87 and biled accordingly. Only one case was coded 
corrctly to a DRG other than 87 but biled incorrectly as DRG 87 by the hospita. (Appendi  !:::::::::::::::::::::::::::::::
Reasons for assignment errors 
Physicians made the majority of errors by incorrctly specifying the diagnoses or procedures 
on patient attestation sheets. This mis-specification caused 48.2 percent of the mis-assign-
ments. Most of these errors concerned the nartive pricipal diagnosis. In one case, the 
physician mis-specified a procedure. 29. 6 percent of errors occurd when the hospita rese
quenced the narative to substitute a seconda diagnosis for the corrct principal diagnosis. A 
smaller number of errors resulted when the medical records deparent selected incorrect 
numeric codes for correct nartive diagnoses. The distrbution of errors in this sample be
tween physicians and other hospital deparents approximated the trnds in the entie Nation
al DRG Valdation Study. (Appendix E-
t.:.:.:.:.:.:.:.:1 
Misspeclfcation 
Miscing 
Resuenclng 
DRG 87  All DRGs 
Oter 
Figure 6: Reasons for errors 
The reasons for errrs in biling discharges to DRG 87 vared slightly by hospital 
demogrphics. (Appendix E-2) Narative (physician) errors occured parcularly frequent 
discharges from small hospitals and mid-sized facilties. Large hospitals, in contrst, had 
higher rates of miscodg and resequencing errors. Teaching hospitals miscoded records at 
over twice the rate of non-teaching hospitas, but non-teaching facilties resequenced diag
noses nearly twice as often as their non-teaching counterpars. In discharges from for-profit
hospitals, narative errors appeared frequently, but no resequencing errors. Patient age, sex, 
length of stay, and mortity were roughly similar across error 
tyes. (Appendix E-
Financial effects

After reabstrction, the average relative weight for DRG 87 discharges in this sample dropped 
from 1.5368 to 1.2277. Discharge weighted, the decrease amounted to a net overpayment of 
19. 3 percent and applies to FY 1984-87 without modfication. (Appendix F - - - -- ------- - - - --- ---- ---- --- - - - - - -- - - - - - - --- - -- - - --- - - -- - - --  --  -- -- --- -  --- --  ----  --  ---  -- ----  ---  ---  --  --  -- -- --  --  --- --  -- --  --  --  -- - - -  --  -- --  ------
Smlllon 
1984  198  198  1987  198  198  1990 
Fiscal Year 
Figure 7: Overpayments 
Effective October 1987 and subsequent to the period sampled for this inspection, the HCFA al
tered the grouper to drop one ofDRG 87's more common principal diagnoses: 799. 1 -
respirtory faiur). This change would afect 61.1 percent of the discharges erroneously 
biled as DRG 87. Accordigly, this inspection decreases its estimated overpayment rate to 
11.8 percent for FY 1988 and ensuing year. At this time, the HCFA also added DRGs for ven
tilator patients, a much rarr occurnce. (Appendix F
DRG 87 tota reimbursement peaked in FY 1985 and has subsequently averaged around $300 
millon annually. Despite the grouper changes and a decrease in the relative weight, the total 
number of discharges and dollar reimbursement incrased in FY 1988. Simple regression 
from the 1984-88 data projects that tota reimbursement wil contiue to increase. 
assignments 
Correct  DRG 
Following reabstraction, the incorrctly biled discharges in this sample pricipally clustered 
in Major Diagnostic Categories (MDCs) 04 (respiratory system) -- 53.
7 percent and 05 (cir
culatory system) -- 40.7 percent. (Appendix G-l) Within these two MDCs, five specifc 
DRGs had 3 or more discharges and accounted for 81.5 percent of the erroneously biled 
cases: DRG 88 (chronic obstrctive pulmonar disease), DRG 89 (pneumonia and pleursy),
DRG 96 (bronchitis and asthma), DRG 99 (respiratory signs and symptoms), and DRG 127 
(hear failure and shock). Each of these DRGs has a lower relative weight than DRG 87. (Ap
pendi G-

Analyzed at the level of ICD- CM codes, a varety of erroneous principal diagnoses appear, 
includig congestive hear failure, acute bronchitis, nonspecific pneumonia, and chronic ai-
way obstrction. (Appendix G-3J Examing the codes on erroneous DRG 87 bils 
respirtory failur (no longer an acceptable pricipal diagnosis) constitutes 61.1 percent of this
subsample. As noted above, this grouping change reduced the rate of overpayments. (Appen
dix G  --- - - - - - - - - - - - - - - - - - - - - - --  --  --  --  --  --  --  --  --  --  --  --  --  --  --  --  --  --  ---  --  --  --  --
---------------- - - --- - --- - - - - - - - - - .-_ .-- - - - --  --  --- --  --  --  ---  ---  -- -  ----
The majority of cases corrctly assigned to DRG 87 also involved patients with respiratory 
faiure. The balance of corrctly biled discharges have acute lung edema -- not otherwise 
specified, as their principal diagnosis. (Appendix G-
Percent 
DRG 87 
All DRGs 
Unneeed admissions  Poor quality care  Premature discharges 
Figure 8: Clinical incidents 
Clinical review results 
Reviewers concluded that only 1.3 percent of discharges in this sample constituted unneces
sar admssions ("an admssion in which the care received by the patient was either not 
needed or did not require the use of the inpatient setting. ") (Appendix H-l) However, this rate 
dier 
did not  signifcantly from the 10.0 percent for all DRGs (Chi-squar 3.2, df 2, P .. 0.25). 
Two discharges were judged to have been prematur, a rate also not significantly different
frm the National DRG Valdation Study (Chi-square 1.66, df 2, P.. 0.50). (Appendix H-
Overal, 8.8 percent of discharges in this sample (discharge-weighted) evidenced "quality of 
. care not meetig professionally recognized standards." Qualty of care problems concentrted 
in discharges from small hospitals, which had over twice the rate of poor 
qualty compared to 
other hospitals in this sample, and substantialy more problems than discharges from small 
hospitals in the full National DRG Validation Study.  RECOMMENDATIONS 
dict 
The Health Care Financing Admnistration should  the peer review organizations 
to review prospectively DRG 87 bils for codng accurcy. 
The HCF A should diect the PROs to educate physicians and hospitals about the proper 
codng of DRG 87. 
The HCFA disagrees with the fist recommendation and believes that it has implemented the 
second recommendation. The OIG has considered the HCFA' s comments on the drt of this 
report and contiues to believe that adopting these recommendations could recover a projected 
$35.5 millon annually. The HCFA has alady implemented a third recommendation made in 
the draft of this inspection.  Appendix A-1: DRG 87 discharges from all PPS hospitals 
Fiscal Year  1984  1985  1986  1987  1988 
Relative weight  1 .5529  5368  6316  1 .8076  5691 
Number of discharges  46,832  90,917  64,498  224  65, 053 
Total charges ($ millon)  332.4  737.  555.  424.  544. 
Total reimbursement ($ milion)  193.  397.  304.  248.  286. 
Average reimbursement ($)  126  372  723  251  402 
Appendix A-2: DRG 87 sampling frame 
Number  Bed size  Total 
..100  100-299  300+ 
Medicare population  23,911  33,367  33,639  90,917 
Sample hospitals  214  742  1461  2417 
Sampling frame 
Sampling fraction (%)  18. 
Appendix A-3: DRG 87 hospital demography 
Number  Bed size  Weighted percentage 
(Percent  .. 1 00  100-299  300+  Total  Sample  Discharge  Hospital 
distribution) 
Urban  4 (10.  20 (71.4)  25 (100)  (53.  (65.  (44.4) 
Rural  35 (89.  8 (28.  0 (0.  (46.  (34.  (55. 
Teaching  0 (0.  4 (14.  13 (52.  (18.  (24.  (12. 
Nonteaching  39 (100)  24 (85.  12 (48.  (81.  (75.  (87. 
Profit  4 (10.  4 (14.  0 (0.  (8.  (7.  (10. 
Nonprofit  35 (89.  24 (85.  25 (100)  (91.  (92.  (90. 
Total  39 (100)  28 (100)  25 (100)  (100)  (100)  (100)  Appendix A-4: DRG 87 hospital demography comparison 
Percent  Bed size  Weighted percentage 
distribution  c:100  100-299  300+  Sample  Discharge  Hospital 
Urban  DRG 87  10.  71.4  100  53.  65.  44.4 
NDRGVS  19.  70.  94.  62.  71.  48. 
Rural  DRG 87  89.  28.  46.  34.  55. 
NDRGVS  80.  29.  38.  28.  52. 
Teaching  DRG 87  14.  52.  18.  24.  12. 
NDRGVS  18.  55.  25.  31.  16. 
Non- DRG 87  100  85.  48.  81.  75.  87. 
teaching  NDRGVS  97.4  81.  44.  74.  68.  83. 
Profit  DRG 87  10.  14.  10. 
NDRGVS  17.  10. 
Non- DRG 87  89.  85.  100  91.  92.  90. 
profit  NDRGVS  90.  82.  97.  90.  90.  89
Appendix A-5: DRG 87 patient demography 
Bed size  Weighted average 
c:100  100-299  300+  Sample  Discharge  Hospital 
Age (years)  74.  72.4  67.  72.  71.  72. 
Sex (% male)  69.  50.  52.  58.  55.  60. 
LOS (days)  11. 
Payment ($)  2868  4217  5476  3987  4328  3720 
Mortality (%)  12.  32.  16.  19.  21.  19.  ((%$)) 
Appendix A-6: DRG 87 patient demography comparison 
Bed size  Weighted average 
c:100  100-299  300+  Sample  Discharge  Hospital 
Age  DRG 87  74.  72.  67.  72.  71.  72. 
(years)  NDRGVS  76.  74.  72.  74.  73.  74. 
Sex  DRG 87  69.  50.  52.  58.  55.  60. 
(% male)  NDRGVS  43.  45.  48.  45.  46.  44. 
LOS  DRG 87  11. 
(days)  NDRGVS 
Payment  DRG 87  2868  4217  5476  3987  4328  3720 
NDRGVS  1849  2923  3807  2860  3074  2508 
Mortality  DRG 87  12.  32.  16.  19.  21.  19. 
NDRGVS  Appendix B-1: DRG 87 assignment errors 
Number  Bed size  Weighted percentage 
(Percent)  c:100  100-299  300+  Total  Sample  Discharge  Hospital 
Urban  2 (50.  6 (30.  14 (50.  (44.  (42.  (43. 
Rural  25 (71.4)  7 (87.  (74.4)  (50.  (65. 
Teaching  0 (0.  6 (46.  (35.  (17.  (7. 
Nonteaching  27 (9.  13 (54.  8 (66.  (64.  (62.  (63. 
Profit  3 (75.  3 (75.  (75.  (47.  (63. 
Nonprofit  24 (68.  10 (41.  14 (56.  (57.  (54.  (57. 
Total  27 (69.  13 (46.4)  14 (56.  (58.  (56.  (59. 
Appendix B-2: DRG 87 assignment errors comparison 
Percent  Bed size  Weighted percentage 
c:100  100-299  300+  Sample  Discharge  Hospital 
Urban  DRG 87  50.  30.  50.  44.  42.  43. 
NDRGVS  22.  19.  16.  18.  17.  20.4 
Rural  DRG 87  71.4  87.  35.  50.  65.4 
NDRGVS  23.  16.  22.  21.  20.  21. 
Teaching  DRG 87  46.  35.  17. 
NDRGVS  20.  20.  15.  17.4  17.  19. 
Non- DRG 87  69.  54.  66.  64.  62.  63. 
teaching  NDRGVS  23.  17.  17.  20.  19.  20. 
Profit  DRG 87  75.  75.  75.  47.  63. 
NDRGVS  23.  18.  18.  20.  19.  21. 
Non- DRG 87  68.  41.  56.  57.  54.  57. 
profit  NDRGVS  23.  18.4  16.  19.4  18.  20. 
Total  DRG 87  69.  46.4  56.  58.  56.  59. 
NDRGVS  23.  18.  16.  19.  18.  20.  ((%$)) 
Appendix B-3: DRG 87 assignment errors by patient demography 
Bed size  Weighted average 
c:100  100-299  300+  Sample  Discharge  Hospital 
Age  Correct  68.  70.  68.  69.  69.  68. 
(years)  Incorrect  76.  74.  67.  74.  72.  74. 
Sex  Correct  75.  46.  63.  60.  60.  64. 
(% male)  Incorrect  66.  53.  42.  57.4  53.  58. 
LOS  Correct  8.4 
(days)  Incorrect  13. 
Payment  Correct  2959  4658  5278  4301  441  3879 
Incorrect  2829  3708  5632  3767  4189  3558 
Mortality  Correct  18.4  17.  16. 
Incorrect  14.  30.  21.4  22.  23.  21.  Appendix C-1: DRG 87 direction of error 
Number  Bed size  Weighted percentage 
(Percent of  c:100  100-299  300+  Total  Sample  Discharge  Hospital 
errors) 
Urban  2 (100)  6 (100)  13 (92.  (95.  (97.4)  (98. 
Rural  24 (96.  7 (100)  (96.  (61.  (82. 1 ) 
Teaching  5 (83.  (83.  (30.  (13. 
Nonteaching  26 (96.  13 (100)  8 (100)  (98.  (99.  (98. 
Profit  3 (100)  0 (0.  (50.  (54.  (67. 
Nonprofit  24 (100)  10 (100)  13 (92.  (98.  (97.4)  (98. 
Total  26 (96.  13 (100)  13 (92.  (96.  (96.4)  (97. 
Appendix C-2: DRG 87 direction of error comparison 
Percent  Bed size  Weighted percentage 
overpayments  c:100  100-299  300+  Sample  Discharge  Hospital 
Urban  DRG 87  100.  100.  92.  95.  97.4  98. 
NDRGVS  53.  60.4  57.  58.  57.  56. 
Rural  DRG 87  96.  100.  96.  62.  82. 
NDRGVS  66.  57.  65.  64.  62.  63.4 
Teaching  DRG 87  83.  83.  30.  13. 
NDRGVS  66.  59.  56.  57.  59.  62. 
Non- DRG 87  96.  100.  100.  98.  99.  98. 
teaching  NDRGVS  64.  59.  59.  61.  60.  61. 
Profit  DRG 87  100.  50.  54.  67. 
NDRGVS  68.  55.  63.  60.  61.  63. 
Non- DRG 87  100.  100.  92.  98.  97.4  98. 
profit  NDRGVS  63.  60.  57.  60.  59.  61. 
Total  DRG 87  96.  100.  92.  96.  96.4  97. 
NDRGVS  64.  59.  57.  60.  59.  61.  ((%$)) 
Appendix C-3: DRG 87 direction of error by patient demography 
Bed size  Weighted average 
c:100  100-299  300+  Sample  Discharge  Hospital 
Age  Overpaid  77.  74.  67.  74.  72.  74. 
(years)  Underpaid  69.  67.  68.  42.  46. 
Sex  Overpaid  69.  53.  38.  57.  52.  59. 
(% male)  Underpaid  100.  50.  37.  15. 
LOS  Overpaid  79.  41.  30.  14. 
(days)  Underpaid 
Payment.  Overpaid  3000  1449  8725  6135  3831 
Underpaid  2822  3708  4954  3576  3936  344 
Mortality  Overpaid 
Underpaid  15.4  30.  23.  22.  23.  21.  Appendix D-1 : DRG 87 hospital department making error 
Number by  Bed size  Weighted percentage 
coding depart- 100  100-299  300+  Total  Sample  Discharge  Hospital 
ment (Percent) 
Urban  2 (100)  6 (100)  14 (100)  (100)  (100)  (100) 
Rural  25 (100)  6 (85.  (96.  (57.  (79. 
Teaching  6 (100)  (100)  (62.  (40. 
Nonteaching  27 (100)  12 (92.  8 (100)  (97.  (97.  (97. 
Profit  3 (100)  3 (100)  (100)  (63.  (84. 
Nonprofit  24 (100)  9 (90.  14(100)  (97.  (96.  (96. 
Total  27 (100)  12 (92.  14 (100)  (98.  (97.  (97. 
* Balance of errors by biling department.
Appendix D-2: DRG 87 hospital department making error comparison 
Percent by coding  Bed size  Weighted percentage 
department  -:100  100-299  300+  Sample  Discharge  Hospital 
Urban  DRG 87  100.  100.  100.  100  100  100 
NDRGVS  89.  88.  90.  89.  89.  89. 
Rural  DRG 87  100.  85.  96.  57.  79. 
NDRGVS  94.  95.  90.  94.  93.  94. 
Teaching  DRG 87  100.  100  62.  40. 
NDRGVS  91.  92.  89.  90.  91.  91. 
Non- DRG 87  92.  100.  97.  97.  97. 
teaching  NDRGVS  93.  90.  92.  92.  91.  92. 
Profit  DRG 87  100.  100.  100  63.  84. 
NDRGVS  86.  92.4  81.  89.  86.  87.4 
Non- DRG 87  100.  90.  100.  97.  96.  96. 
profit  NDRGVS  94.  90.  90.  92.  91.  92. 
Total  DRG 87  100.  92.  100.  93.  97.  97. 
NDRGVS  93.  90.  90.  91.  91.  92.  ((%$)) 
Appendix D-3: DRG 87 hospital department making error by patient 
demography 
Bed size  Weighted average 
oe100  100-299  300+  Sample  Discharge  Hospital 
Age  Billng  74.  74.  27.  24. 
(years)  Coding  77.  74.  67.  74.  72.  74. 
Sex  Billing 
(% male)  Coding  66.  58.  42.  58.  54.  60. 
LOS  Billing 
(days)  Coding  13. 
Payment  Billng  3986  3986  1463  1299 
Coding  2828  3685  5632  3763  4180  3550 
Mortality  Billng 
Coding  14.  33.  21.4  20.  24.  21.  Appendix E-1: DRG 87 reasons for errors 
Bed size 
oe100  100-299  300+  Total  (Percent) 
Narrative change  (48. 
Miscoding  (16. 
Resequencing  (29. 
Other  (5. 
Total  (100. 
Appendix E-2:DRG 87 reasons for errors by hospital demography 
Number  Narrative  Miscoding  Resequencing  Other 
(Percent) 
oe100 beds  14 (51.  5 (18.  7 (26.  1 (3. 
100-299 beds  7 (53.  1 (7.  3 (23.  2 (15.4) 
300+ beds 
5 (35.  3 (21.4)  6 (42.  0 (0. 
Urban  10 (45.4)  3 (13.  8 (36.4)  1 (4. 
Rural  16 (50.  6 (18.  8 (25.  2 (6. 
Teaching 
3 (50.  2 (33.3)'  1 (16.  0 (0. 
Nonteaching  23 (47.  7 (14.  15 (31.  3 (6. 
Profit 
5 (83.  1 (16.  0 (0.  0 (0. 
Nonprofit  21 (43.  8 (16.  16 (33.  3 (6. 
Total  26 (48.  9 (16.  16 (29.  3 (5.  Appendix E-3: DRG 87 reasons for errors comparison 
Percent  Bed size  Weighted percentage 
c:100  100-299  300+  Sample  Discharge  Hospital 
Narrative  DRG 87  51.  53.  35.  48.  45. 
NDRGVS  49.  44.  49.  48.  47.  48. 
Miscoding  DRG 87  18.  21.4  16.  15.  15. 
NDRGVS  10.4  14.  11.4  11.  12.  11. 
Resequencing  DRG 87  26.  23.  42.  32.  27. 
NDRGVS  31.  24.  24.  27.  25.  28. 
Other  DRG 87  15.4  6.4 
NDRGVS  15.  14.  12.  13.  11. 
Appendix E-4: DRG 87 reasons for errors by patient demography 
Narrative  Miscoding  Resequencing  Other 
Age (years)  75.  70.  73.  76. 
Sex (% male)  50.  66.  68.  33. 
LOS (days)  13.  8.4 
Payment ($)  3387  4735  3934  3261 
Mortality (%)  19.  22.  25.  Appendix F-1: DRG 87 corrected relative weights 
Relative weight  Bed size  Average-
-:100  100-299  300+  Total 
Avera 
Paid  5368  5368  5368  5368 
Correct  1830  2619  2589  2277 
Diference  3538  2749  2779  3091 
Total 
Paid  59.9352  43.0304  38.4200  141.3856 
Correct  46.1370  35.3332  31.4725  112.9427 
Diference  13.7982  6972  9475  28.4429 
Overpayment rate (%)  (23.  (17.  (18.  (19. 
* Discharge weighted
Appendix F-2: DRG 87 corrected reimbursement 
Bed size  Average-
-:100  100-299  300+  Total
Avera 
Paid  3755  4322  4587  4154
Correct  2890  3549  3758  3318
Diference  864  773  830  835 
Total 
Paid  146,419  121 020  114 684  '"0"' , /22
Correct  110 525  83,737  625  271 961
Difference  35,893  283  40,059  110,162  Appendix F-3: DRG 87 projected cost of errors 
Fiscal Year  Reimbursement  Overpayment 
($ milion)  ($ milion) 
1984  193.  37. 
1985  397.  76. 
1986  304.  58. 
1987  248.  47. 
1988  286.4  58. 
1989 est.  297.  60. 
1990 est.  300.  61. 
Reimbursement estimates based on linear regression. 
Overpayment calculated as 19.3 percent of reimbursement for 1984-87 and 11.8 percent for 1988-90.  Appendix G-1 : Correct MDC for discharges miscoded to DRG 87

Bed size 
MDC  -:100  100-299  300+  Total  (Percent) 
Respiratory 
(53. 
Circulatory 
(40. 
Kidney & urinary tract 
(1. 
Infectious diseases 
(1. 
Addiction 
(1. 
Total 
(100. 
Appendix G-2: Correct DRG for discharges miscoded to DRG 87 
DRG  Bed size 
-:100  100-299  300+  Total  (Percent) 
Chronic obstructive pulmonary disease 
(9.
Pneumonia & pleurisy 
(13.
Bronchitis & asthma 
(20.4) 
Respiratory signs 
(5. 
127  Heart failure & shock 
(33. 
Subtotal 
(81. 
Other 
(18. 
Total 
(100.  Appendix G-3: Correct ICD- CM principal diagnoses for discharges 
miscoded to DRG 87 
Code  Diagnosis  Number  (Percent) 
038.  Septicemia, unspecified  (1. 
197.  Lung metastases  (1. 
303.  Alcohol dependence  (1. 
427.  Atrial fibrilation  (1. 
428.  Congestive heart failure  (29. 
428.  Left heart failure  (5. 
466.  Acute bronchitis  (16. 
482.  Hemophilus influenzae pneumonia  (1. 
482.  Streptococcus pneumonia  (1. 
486  Pneumonia, unspecified  (9. 
493.  Asthma, unspecified  (3. 
496  Chronic airway obstruction  (9. 
584.  Acute renal insufficiency, unspecified  (1. 
785.  Shock  (1. 
786.  Respiratory symptoms  (5. 
786.  Chest pain , unspecified  (1. 
799.  Respiratory failure  (1. 
934.  Foreign body in main stem bronchus  (1. 
Total  (100. 
Appendix G-4: OriginaIICD-9-CM principal diagnosis for discharges

incorrectly coded to DRG 87 
Code  Diagnosis  Number  (Percent)
514  Pulmonary congestion  (13. 
518.4  Acute lung edema, unspecified 
(20.4) 
518.  Pulmonary insufficiency 
(5. 
799.  Respiratory failure  (61. 
Appendix  5:  ICD- CM codes for discharges correctly coded to DRG 
Code  Diagnosis  Number  (Percent) 
518.4  Acute lung edema, unspecified 
(21. 
1 )
799.  Respiratory failure 
(78.  Appendix H-1: DRG 87 clinical review 
Number  Bed size  Weighted percentage 
(Percent)  .: 1 00  100-299  300+  Total  Sample  Discharge  Hospital 
Unnecessary  2 (5.  0 (0.  0 (0.  (2.  (1.  (2. 
admissions 
Poor quality  7 (17.  2 (7.  1 (4.  (10.  (8.  (12. 
of care 
Premature  2 (5.  0 (0.  0 (0.  (2.  (1.  (2. 
discharges 
Appendix H-2: DRG 87 clinical review comparison 
Percent  Bed size  Weighted percentage 
.:100  100-299  300+  Sample  Discharge  Hospital 
Unnecessary  DRG 87 
admissions  NDRGVS  12.  10.  10.  10.  11. 
Poor quality  DRG 87  17.  10.  12. 
of care  NDRGVS  11. 
Premature  DRG 87 
discharge  NDRGVS  1.4