DRG 89: SIMPLE PNEUMONIA AND

PLEURISY

RICHARD P. KUSSEROW 
INSPECTOR GENERAL 
OAI.12-801140  JUNE 1989
 Contract Information

Contractor  Proiect Offcer 
BOTEC Analysis Corporation  David Hsia

36 JFK Street  Health Care Branch 
Cambridge, MA 02138  Offce of Inspector General 
330 Independence Ave., SW 
Washington, D.C. 20201 
Contract 
HHS-lOO-88-0019  EXECUTIVE SUMMARY

BACKGROUND 
Diagnosis related group (DRG) 89 occurred fourh most commonly in Fiscal Year (FY) 1987. 
The 327,645 DRG 89 bils represented 3.7 percent of al Medicare discharges. The National 
DRG Validation Study suggested DRG 89 accounted for a substatial porton of the annual 
overpayment to hospitals due to erroneous codg of Medicare bils. 
FINDINGS 
The DRG 89 had a 16.5 percent error rate, lower than the 18.6 percent for all DRGs. 
However, 84.5 percent of these errors resulted in overpayments to the hospitals. This 
proponion significantly exceeded the 59.7 percent for all DRGs. 
The large number of discharges assigned to DRG 89 and the high proponion of 
overpayments resulted in hospitals receiving a projected $20.8 milion in PPS 
overpayments in FY 1987.

In the majority of errors, the discharge grouped to another DRG pertaining to the 
respiratory system. The DRG 96 (bronchitis and asthma) should have substituted for 
DRG 89 in 40.3 percent of errors. 
The DRG 89 had double the general rate of poor quality care. Of poor qualty 
discharges, a disproponionate 57. 1 percent came from the non-specific ICD-
codes 485 or 486. 
RECOMMENDATIONS 
The Health Care Financing Admiistration (HCFA) should diect the peer review 
organizations to educate hospitals and physicians about distinguishing between (1) 
pneumonia and (2) bronchitis-asthma as principal diagnoses. 
The HCFA should review the non-specific ICD- CM codes 485 and 486 in DRG 89 
bils for quality of care.

The HCFA concurs with these recommendations.  ..  ..  ..  ..  ..  ..  ..  ..  .. ..  ..  ..  ..  ..  ... . .. . ...  . .  ... . ...   ...  ..  .. ..  .. .. . ..  ..  ..  .. ..  ..  ..  ..  .. ..  .  . .. .
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TABLE OF CONTENTS 
EXECUTIVE SUMMARY 
INTRODUCTION 
Background 
PPS vulnerabilties. . . 
PPS clais processing. 

DRG 89 ............................................................

Methodology 
FINDINGS. 
Sample characteristics 
DRG assignment errors 
Dirction of errors 
Source of errors 
Reasons for assignment errors. . . 
Financial effects. . . . . . 
Correct DRG assignments. . . . . . . 
Clinical review results. . . . 
RECOMMENDATIONS.. 
APPENDICES 
Appendix A-I: DRG 89 discharges from PPS hospitals. . . . . . . . . . . . . . . . . . . . . . . . . .
Appendix A-2: DRG 89 sampling frame 
Appendix A-3: DRG 89 hospital demography. . . . . . . . . . . . 
Appendix A-4: DRG 89 hospita demography comparson 
Appendix A-5: DRG 89 patient demography . 
Appendix A-6: DRG 89 patient demography comparson. . . 
Appendi B-1: DRG 89 errors. . . 
Appendix B-2: DRG 89 error rate comparson. . . . 
Appendi B-3: DRG 89 errors by patient demography 
Appendix C-l: DRG 89 diection of error. . . . 
Appendix C-2: DRG 89 diection of error comparson 
Appendix C-3: DRG 89 direction of error by patient demography 
Appendix D-l: DRG 89 hospital deparment making error. . 
Appendix D-2: DRG 89 hospital deparment makng error comparson  '." '" .
. ..  ...   ....    .....     ......      ......      ........        ........        ........        .........         .........         .........         .........         .........         .........         .........         ..........          ..........          ..........          ...........           ...........           ...........           ...........           ...........           ...........          ......'....           ...........           ...........           ...........           ...........           ...........           ...........
Appendix D-3: DRG 89 hospital deparment makng error by patient 
demography. . . . . . . . . . . . . . . . 
Appendix E-l: DRG 89 reasons for errors. . . 
Appendix E-2: DRG 89 reasons for errors by hospita demography 
Appendix E-3: DRG 89 reasons for errors comparson 
Appendix E-4: DRG 89 reasons for errors by patient demography. . . . 
Appendix F-l: DRG 89 corrected relative weights 
AppendixF-2: DRG 89 corrected reimbursement ..'." 
Appendi F-3: DRG 89 projected cost of errors 
Appendix G-l: Correct MDCs for DRG 89 errors. . 
Appendix G-2: Correct DRGs for DRG 89 errors 
Appendix G-3: ICD- CM codes from correct DRG 89 bils 
. . . . . . . . . . . . . . I . . . . . .
Appendix H-l: DRG 89 clinical review. . . . . . 
Appendix H-2: DRG 89 clinical review comparson. .  INTRODUCTION 
BACKGROUND 
On October 1, 1983, the Health Care Financing Admistration (HCFA) began implementing a 
new system of payment for inpatient hospital services under the Medicare program. The pro
spective payment system (PPS) replaced the cost-based reimbursement system. Congress 
mandated this change because of rapid growth in health care costs, 
paricularly the increase in 
payments for inpatient expenses 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. The PPS classifed dis
charges into clinically coherent groups which used simiar amounts of hospital resources, 
based on varables such as diagnosis; evaluation and treatment procedures; and patient age 
sex, and discharge status. Each of the 473 DRGs had an associated relative weight, which rep
resented the average cost for its hospitaizations as compared to the average cost for all hospi
talizations. The hospita received this payment, independent of the actual length of 
hospitalization or cost of treatment for the individual patient. The hospita retained any sur
plus from patients consuming less than the expected amount of resources and suffered losses 
on those patients consuming more. 
The shift from cost-based, retrospective reimbursement to prospective payment constituted 
one of the most dramatic changes in health care reimbursement since the creation of Medicare. 
A fixed payment per discharge induced hospitals to implement economies and reduce unneces
sar services. The total PPS payments to the hospitals provided the same resources for patient 
care as cost reimbursement. In effect, PPS reversed the financial incentives for hospitals. 
Where the cost-reimbursement system rewarded longer hospital stays and more costly treat
ments for Medicare patients, PPS rewarded earlier discharges and less costly procedures. One 
of the first consequences of the new payment system came as a drop in average length of hos
pital stay for Medicare patients. 
PPS Vulnerabilties 
The Of.ce of Inspector General (OIG) conducted the National DRG Validation Study to sur
vey the genera accuracy of DRG assignment and quality of care performed by hospitals under 
PPS. It examned assignment accuracy in over 700 medical records and established that PPS 
assignment errors resulted in $300 millon in overpayments to hospitas. The majority of over
payments derive from assignment errors affecting a small number of DRGs. 
This inspection 
examnes assignment accuracy in one of the DRGs identified as having the greatest impact on 
overpayments.  The PPS may create financial incentives for hospitas to manipulate or "game" the payment 
system in order to receive maximum Medicare reimbursement. The PPS gamng takes two 
codg 
pricipal forms: optimization and creep. "Optimization" strategies adhere to  rules, but 
maximize hospita reimbursements by selecting the most expensive among viable alternative 
pricipal diagnoses or adding more secondar diagnoses. The PPS permts optimization. 
codg 
Creep" results from  practices which do not conform to coding rules. Sources of DRG 
creep include:

Mis-specification of the narative diagnoses and procedures. 
Miscodng when assigning ICD- CM codes to the narative diseases or procedures. 
Resequencing of the order of the narative diagnoses to substitute a secondar diagnosis 
for the correct principal diagnosis. 
Auditing and review practices which identify cases in which coding rules are misapplied or ig
nored address the problem of ilegal DRG creep. Optimization, on the other hand, flows from 
the basic incentive strcture of the PPS system. To protect the integrty of PPS and maintain 
quality of care, Congress established peer review organizations (PROs) to monitor hospital ac
tivities. 
PPS Claims Processing 
Under PPS, the hospita files a claim for Medicare reimbursement upon discharge of a covered 
patient. At the time of discharge, the attending physician attests to the principal diagnosis (de
fined by the Uniform Hospital Discharge Data Set as "that condition established after study to 
be chiefly responsible for occasioning the admission of the patient to the hospital for care 
secondar diagnoses, and procedures (diagnostic and therapeutic) provided. The hospital 
translates the narative diagnoses of the physician s attestation statement into numeric codes 
based on the International Classification of Diseases, Ninth Revision, Clinical Modfication 
(ICD- CM), and prepares a claim. Fiscal intermediar (PI) organizations, workig under 
contrct with HCFA, enter the hospital' s codes into the GROUPER computer program which 
assigns the appropriate DRG for reimbursement. 
Hospital reimbursement is calculated by multiplying the "relative weight" of each DRG cate
gory by a standardized amount, as modified by certain hospital-specific factors. The relative 
weight for al DRGs theoretically averages 1.000. In Fiscal Year (FY) 1985, the standardized 
00 
amount for a relative weight of 1. was $2985 for urban hospitals and $2381 for rural hos
00 
pitals. The relative weight of each DRG vares above or below 1. according to the aver
age amount of hospita resources used by patients in that diagnostic group. The higher the 
relative weight, the greater the reimbursement. Mis-assignment of the ICD- CM categories 
or erroneous assignment or sequencing of patient diagnoses, can have significant financial im
plications.  --- 
. . ----"-""------
DRG 89 
This study examnes erroneous assignment in DRG 89: Simple Pneumonia and Pleursy. 
DRG 89 appears paricularly vulnerable to mis-assignment due to superfcial symptomatologi
cal simlarties with other pulmonar disorders and its high number of yearly discharges. In 
FY 1985, DRG 89 had a relative weight of 1.0914, compared to the average for all medical 
(non-surgical) DRGs of 0.9404. Discharges, mean payment, and reimbursement have all in
creased over time. 
DRG 089: ALL PPS discharges 
3 f- .  Relative Weight 
2 / A -
--*-- Discharges (100 K)

-;7
Charges ($106 M) 
--0- Payment ($100 M)

Mean payment ($1 K) 
(J 
1984  1985  1986  1987 
Fisca I Year 
Except for one case of pleurisy, all sample discharges listed an ICD- CM code for pneumo
nia as the principal diagnosis. Medical textbooks describe pneumonia as an inflammation 
deep in the lungs (i.e., in the bronchioles and alveoli), almost always due to an acute infection. 
The pathogen usualy causes the patient to have a fever. Gram stan of sputum, white blood 
cell count, and chest X-ray should identify pneumonias suspected from medical history or 
physical examnation. Treatment vares considerably dependig upon the causal organism. 
In some ways, DRG 89 is symptomaticaly similar to DRG 96 (bronchitis and asthma), which 
had a relatively low relative weight (0.7913). Bronchitis describes excessive mucus produc
tion, usually secondary to cigarette smokig; while asthma describes narowing of the upper 
aiays due to increased sensitivity to allergens. In either case, the patient need not have an 
infection and therefore no fever, although infection may co-exist with bronchitis or asthma. 
The fmdings from physical examination and chest X-ray differ from those of pneumonia. 
Treatment of these conditions differs from pneumonia therapy. A physician should have no 
difficulty distiguishing pneumonia from other diseases and instituting an appropriate remedy.  METHODOLOGY 
This inspection examned DRG 89 discharges drawn from the National DRG Valdation 
Study. It used a stratified two-stage sampling design based on hospitals to select medical re
cords for review. The first stage used simple random sampling without replacement to select 
up to 80 hospitals in each of three stratum based on bed size: less than 100 beds (small), 100 
to 299 beds (medum) and 300 or more beds (large). The second stage of the design employed 
systematic random sampling to select up to 30 Medicare cases from each of the hospitals for 
Medicare discharges between October 1, 1984 and March 31 , 1985. 
The OIG contracted with the Health Data Institute (HDI) of Lexington, Massachusetts to 
reabstract the entie sample of records. Upon receipt, HDI "blinded" the ICD- CM codes by 
assigned an identification number to each record. An Accredited Record 
coverig them, and 
Technician or Registered Record Administrator proficient in ICD- CM coding reviewed the 
entie record to identify the principal diagnosis, other diagnoses, and procedures indicated by 
the attending physician in the narative attestation form. 
Any records which did not suppon the assigned DRG classification were referred to physician 
the correct Uniform Hospital Discharge Data 
reviewers. The physician reviewers designated 
Set (UDS) principal diagnosis, and additional diagnoses and/or procedures as substantiated 
by the patient records. The GROUPER computer program processed the reabstracted ICD
CM codes to determne correct DRGs. A full discussion of the methodology and findings of 
the record review appears in the final repon on the National DRG Valdation Study. 
The OIG contracted with BOTEC Analysis of Cambridge, Massachusetts to examne data for 
DRG 89 in greater detail, to identify sources of assignment errors, and to make recommenda
tions for recovery of overpayments. On November 7, 1988, the OIG transmitted a draft ver
sion of this inspection to HCFA. The HCFA returned comments about it on December 15, 
1988. The OIG has modified this final report to take the HCFA suggestions into account.  FINDINGS 
SAMPLE CHARACTERISTICS

In FY 1985, 288,067 of the 8.3 milion prospective payment discharges (3.4 percent) grouped 
to DRG 89. According to estimates from the National DRG Validation Study, they came 
equally from all bed size strata, with the large hospitals ' greater frequency of tota discharges 
balancing the higher rate of DRG 89 discharges in small hospitals. In the first half of FY 
1985, the 239 hospitals selected in stage one of the sample design (the sampling frame) biled 
for 222 396 discharges of which 8,250 came from DRG 89 (3.7 percent). The stratification 
into bed size classes reflected the larger discharge volume of large hospitals. Of the 7,050 
medical records selected in stage two of the sample design, 351 came from DRG 89 (5.0 per
cent). 
Discharges by hospital size 
.( 100 
. 100-
299 
!2 
300+ 
ORG 089  All ORGs 
Additionally, the two-stage sample design permts calculation of separate results for Medicare 
beneficiares (the probabilty of something happening to a person) and hospitals (the odds of 
an eveRt at a parcular hospital). The appendices, tables, and chars therefore report individ
ual totals weighted by both discharges and hospitals. 
Smal hospitas have a significantly higher rate of DRG 89 bils (Chi-square 54.
9, 1 df, 
pc:O.OOl). They contrbute just over one-hal of the DRG 89 discharges in this sample, while 
medium and large hospitals each contrbute approximately one-quarer of the discharges. 
Weighted to reflect the underlying Medicare population, however, DRG 89 discharges come 
in approximately equal proporton from small, medium, and large hospitals. Comparson of 
DRG 89 discharges with all projected PPS discharges for FY 1985 reveals that small hospitals 
submitted an unusualy high prop onion of cases paid as DRG 89 (Chi square 43. 5, 2 df, 
pc:O.OOl).  Hospital demography 
Yes 
DRG 089: Urban 
All DRGs: Urban 
DRG 089: Teaching 
All DRGs: Teaching 
DRG 089: Profit 
All DRGs: Profit 
100 
Percent of discharges

The majority of DRG 89 discharges, weighted to correspond to the Medicare population 
come from rual (Mantel-Haenszel Chi-square 10.75, 1 df, p-:0.005), nonteaching (Mantel-
Haenszel Chi-square 3.6, 1 df, p=0.06) and nonprofit (Mantel-Haenszel Chi-square 0.  , 1 df 
p=OA) hospitas. However, only rual location attained significance when controllng for hos
pital size. DRG 89 discharges paraleled the general trends of the National DRG Validation 
Study. Rural and nonteaching hospitals accounted for a greater but non-significant share of 
discharges assigned to DRG 89. 
Discharges in DRG 89 (discharge-weighted) averaged slightly older in age (T-test 7.50, 350 
df, p-:0.001) and had a higher proportion of males (Mantel-Haenszel Chi-square 4.  , 1 df, 
p-:0.05) than discharges in the National DRG Validation Study. Discharges assigned to DRG 
89 had a longer average length of hospital stay, but were paid less (T-test - 350 df, 
pO.001) than the average reimbursement for all discharges included in the National DRG Vali
dation Study. DRG 89 patients exhibited approximately the same rate of mortlity. When ad
justed by hospital weights, the relationships remain the same. 
DRG ASSIGNMENT ERRORS 
Overal, 16.5 percent of discharges paid as DRG 89 changed to a different DRG after 
reabstraction. Assignment errors occured less frequently in discharges paid as DRG 89 than 
the average for all DRGs in the National DRG Validation Study. However, this difference did 
not attain significance (Mantel-Haenszel Chi-square 2. 3, 1 df, p-:0.25). This fmding applied 
across al hospita bed sizes. Within the DRG 89 sample, however, discharges from smal hos
pitals made assignment errors most frequently, but not at a significantly higher rate (Chi-
square 2.68, 2 df, p-:0.5). This trend paralels the National DRG Validation Study, which 
found that small hospitals made more assignment errors and at a significant rate.  Coding error rate 
Percent of discharges

DRG 89 
IZ 
All DRGs 
0( 100  100-299  300+ 
Bed size 
Appendix B-2 reveals no significant differences in hospital location (Chi-square 0.  , 1 df 
pc:0.9), teaching status (Chi-square 0.  , 1 df, pc:0.75), or profit status (Chi-square 0.  , 1 df 
pc:0.75) associated with assignment accuracy for DRG 89 when controlling for bed size. The 
National DRG Validation Study also finds that for al DRGs, assignment accuracy has no sig
nificant association with hospita characteristics. 
Patient demographics indicate that bils erroneously paid as DRG 89 covered a subsample of 
patients having a higher age, more males, and a substantially lower monalty rate than for 
those correctly assigned. Discharges assigned correctly and incorrectly had approximately the 
same length of hospital stay, but the incorrectly-assigned discharges were reimbursed at a 
higher average rate of payment. 
DIRECTION OF ERRORS 
Weighted by discharges, fully 86.0 percent of errors in the DRG 89 sample resulted in over
payments to hospitas. This proponion significantly exceeds the 59.7 percent of National 
DRG Validation Study (Mantel-Haenszel Chi-square 18.  , 1 df, pc:0.005). The majority of 
errors in al sampling strata resulted in overpayments to hospitals. Small hospitals had the 
highest proporton of overpayments for DRG 89, while mid-sized hospitals had the lowest 
(Chi-square 3.70, 2 df, pc:0.25).  Direction of coding errors 
Rate and direction 
DRG 89 
DRG 89 
LZ 
All DRGs 
fZ 
All DRGs 
0( 100  100-299  300+ 
Bed size 
Examned by hospital location and type: rural , teaching, and for-profit hospitals all displayed 
rates of overpayment consistent with those in the National DRG Validation Study. Urban, non
teaching and nonprofit hospitas, however, each measured overpayment rates above 84.0 per
cent, approximately 30 percentage points higher than in the National DRG Validation Study. 
The proporton of overpayments (84.5 percent) combined with the 16.5 percent rate of error 
gives DRG 89 had an effective overpayment rate of 13.9 percent as compared to 11.1 percent 
in the National DRG Validation Study. 
Patient characteristics difered substantially between discharges for which hospitals overpaid 
and underpaid themselves. As shown , discharges assigned to a higher relative weight (over
paid) by hospitals had a higher average age, proportion of males, and rate of monaity. Over
paid discharges from large hospitals had a lower average length of stay and payment. Among 
discharges from small and mid-sized hospitals, the reverse pattern prevailed: higher lengths of 
stays and payments. 
SOURCE OF ERRORS 
The majority of errors in DRG 89 discharges occured when hospitals incorrectly coded the 
discharge as DRG 89 and biled it accordingly. Only three out of 62 errors resulted when the 
medical records deparment correctly indicated a different diagnosis, but the hospital biled it 
as DRG 89 anyway.  REASONS FOR ASSIGNMENT ERRORS 
Mis-specification errors by the attending physician (i.  , wrting down the wrongmagnosis or 
procedure) caused the majority of errors in assignment to DRG 89. When examned using an 
exclusive analysis (identifying the fIrst error to occur chronologically), physicians mis-speci-
fIed the pricipal diagnoses or secondar diagnoses in 70.9 percent of discharges. Mis-specifi-
cation also constituted the single largest source of error in the National DRG Validation Study. 
Reasons for coding errors 
Miss  ecificatio 
Miscoding 
Resequencing 
Other 
ORG 89  Nationa I ORG Study 
Resequencing of the pricipal and secondar diagnoses by the hospital accounted for nearly 
one-quarer of the errors in the DRG 89 sample, the second largest category of errors. In 
deparent 
cases did the medical records  enter the incorrect numeric code for a correct nara
tive diagnosis. Also, a small number of "other" errors occurred. 
Appendix E-2 compares reasons for coding errors by hospital characteristics. Narative errors 
by physicians caused the majority of errors in al strata. Resequencing errors occured paricu
larly frequently in small hospitals, and "other" errors occured with 
grater frequency at mid
exhibited simiar reasons for errors by location and type, with a few 
size hospitas. Hospitals 
exceptions. Resequencing errors happened paricularly frequently in discharges from for-
profit hospitals and "other" errors occurred with greater frequency in discharges from urban 
hospitals and teaching facilities. 
As shown in appendix E- , the age and gender of the patients did not differ by tye of error. 
Both the length of hospital stay and rate of monalty, however, increased in discharges incor
rectly resequenced by the hospital.  FINANCIAL EFFECTS 
After reabstraction, the average relative weight for DRG 89 discharges in this sample dropped 
from 1.0914 to 1.0627. For the 351 discharges in this sample, this equalled an aggrgate drop 
in relative weight of 10.0737. Based on standardized amounts for reimbursement in 1985 
($2985 urban and $2381 rual), the average change in relative weight for discharges assigned 
to DRG 89 resulted in average overpayments to hospitals of $113 (small hospitals), $26 (mid
sized) and $31 (large) on each discharge paid as DRG 89. 
Overpayment trends 
$ million 
Total overpayment 
1984  1985  1986  1987  1988  1989  198 
Fisl Year

When extrapolated to the entire Medicare population, assuming a constant rate of errors, 
miscodng of DRG 89 resulted in $16.5 millon of overpayments in FY 1985. Most of the 
overpayments went to small hospitals, which had both a higher rate of discharges to DRG 89 
and a higher rate of codg errors. Estimates indicate that, without corrective action, overpay
ments wil rise to $35.6 millon by FY 1990. 
CORRECT DRG ASSIGNMENTS 
Of the discharges incorrectly assigned to DRG 89, 59.7 percent came from the same Major Di
agnostic Category (MDC): 04  diseases and disorders of the circulatory system. Indeed 
41.3 percent of the errors grouped to a single DRG: 96  bronchitis and asthma. DRG 96 
has a substatially lower relative weight for puroses ofreimbursement (0. 7913). As noted, 
simple diagnostic measures readily distinguish patients with pneumonia from cases of bronchi
tis, asthma, or combinations of these conditions. The remainder of correct DRG assignments 
spread among 21 alternative DRGs grouped in nine MDCs.  It appears that a substantial portion of the errors in assignment for "pneumonia and pleurisy 
resulted when physicians identified a simlar but incorrect respiratory or infectious disease 
the principal diagnosis on the attestation sheet. Discharges from small hospita, and from 
rual and nonteaching facilities, which may lack the knowledge or resources to perform com
plete diagnostic workups accounted for most of these errors and overpayments. In addition 
physicians, as well as medical records personnel, in these smaller and less well-equipped hos
pitals may be less well-trained in the correct procedures for identifying the principal diagno
sis. 
Only one-quarer of discharges correctly assigned to DRG 89 exhibited ICD- CM codes that 
specified the pathogen responsible for the infection (e.  , 481: pneumococcal pneumonia, 
482.2: H. influenza pneumonia, streptococcal pneumonia). Two-thirds of discharges failed to 
specify the organism causing the pneumonia (e. g., 486: Pneumonia not otherwiSe specified 
54.9 percent. 485: Bronchopneumonia not otherwise specified, 11.6 percent) suggesting that 
the attending physician either did not wrte down adequate information or did not order tests 
which would identify the responsible organism. 
tu 
This inadequate diagnosis of pneumonia implies in  that the attending physician treated 
the patient with no notion of the causal organism. Different bacteria require contrasting ther
apy. The higher mortality rate among discharges correctly assigned to DRG 89 may reflect 
this diagnostic inadequacy. Both accurate payment and adequate clinical care therefore mili
tate against accepting the non-specific diagnosis of pneumonia. Possibly, ICD- CM code 
468: Pneumonia, organism not otherwise specified, should be removed from DRG 89 and 
placed in a DRG with a lower relative weight. For such a highly weighted DRG, hospitals 
should have to expend the resources necessar for proper diagnosis and treatment. 
CLINICAL REVIEW RESULTS 
Only 4.0 percent of discharge weighted cases did not require hospital admission upon review 
by physicians ("an admssion in which the care received by the patient was either not needed 
or did not require the use of the inpatient setting ). This rate of unnecessar admssions signif
icantly improves upon the 10.0 percent for the National DRG Validation Study controlling for 
bed sire (Mantel-HaenszeI17.5, 1 df, po:O.0001). Appendix H-l shows the rate ofinappropri
ate admssions to be similar across hospital bed size. Physician reviewers found 1.5 percent of 
discharges to be premature; more than twice the rate of the National DRG Validation Study, 
but nonsignificant (Mantel-Haenszel1.07, 1 df, p=0.30).  Clinical review 
Rate (percent) 
DRG 89 
(Z 
All DRGs 
Unneeded admissions Poor quality care Premalure discharges 
Physician reviewers judged 9.6 percent of DRG 89 discharges to evidence "quality of care not 
meetig professionally recognized stadards. " Although almost twice the rate of poor quality 
care concerns identified in the entie National DRG Validation Study sample, this difference 
proved nonsignificant when controlling for bed size (Mantel-Haenszel1.88, 1 df, p=0. 17). In 
both samples, quality of care problems occured paricularly often in discharges from smal 
hospitals and the frequency of problems was approximately the same. The samples diered, 
however, in the extent of problems at mid-sized and large hospitals. Among these hospitals, 
poor quality of care occured much more frequently in discharges assigned to DRG 89.  RECOMMENDATIONS 
The Health Care Financing Admnistration should diect the PROs to educate hospitals 
and physicians about distinguishing between (1) pneumonia and (2) bronchitis-asthma 
as principal diagnoses. 
The HCFA should review the high rate of non-specific ICD- CM codes 485 and 486 in 
DRG 89 bils. 
The HCFA concurs with these recommendations.  Appendix A-1: DRG 89 discharges from PPS hospitals 
Fiscal Year  1984  1985  1986  1987 
Relative weight  1 .1 029  0914  1 .1194  1 . 1657 
Number of discharges  148,485  288 067  341 622  327 645 
Total charges ($ milion)  643.  412.4  922.  047. 
Total reimbursement ($ million)  388.  807.  005.4  017.4 
Average reimbursement ($)  617  805  929  105 
Appendix A-2: DRG 89 sampling frame 
ed s 
Number of discharges 
oe 100  100-299  300+  Total 
Medicare population  173  95,085  95,808  288 067 
Sampling frame  176  2,481  593  250 
Sample  182  351
Sampling fraction (%)  (15.  (3.  (1.  (4. 
Appendix A-3: DRG 89 hospital demography 
Bed size  Wei  hted  ortion 
oe 100  100-299  300+  Total  Sample  Discharge  Hospital 
Number of discharges 
Urban  150  (55.  (55.  (41. 
Rural  163  201  (44.  (44.4)  (58. 
Teaching  (21.  (21.  (13. 
Nonteaching  181  298  (78.4)  (78.  (87. 
Profit  (9.  (9.  (9. 
Nonprofit  171  321  (91.  (91.  (90. 
Total  182  351  (100.  (100.  (100.  Appendix A-4: DRG 89 hospital demography comparison 
Percent  ted Drooort 
distribution  c:100  100-299  300+  Sample  Discharge  Hospital 
Urban  DRG 89  10.4  64.  92.  55.  55.  41. 
NDRGVS  19.  70.  94.  62.  71.  48. 
Rural  DRG 89  89.  35.  44.  44.4  58. 
NDRGVS  80.  29.  38.  28.  52. 
Teaching  DRG 89  15.4  48.  21.  21.  13. 
NDRGVS  18.  55.  25.  31.  16. 
Nonteaching  DRG 89  99.  84.  51.  78.4  78.  87. 
NDRGVS  97.4  81.  44.  74.  68:2  83. 
Profit  DRG 89  19. 
NDRGVS  17.  9.4  10. 
Nonprofit  DRG 89  94.  80.  98.  91.  91.  90. 
NDRGVS  90.  82.  97.  90.  90.  89. 
Appendix A-5: DRG 89 patient demography 
Bed size  hted a 
c:100  100-299  300+  Sample  Discharge  Hospital 
Age (years)  79.  75.  75.  76.  76.  77.4 
Sex (% male)  50.  51.  50.  50.  50.  50. 
LOS (days) 
Payment ($)  1908  2828  3201  2646  2642  2412 
Mortality (%)  7.4  Appendix A-6: DRG 89 patient demography comparison 
Bed size  ave 
100  100-299  300+  Sample  Discharge  Hospital
0: 
Age (years)  DRG 89  79.  75.  75.  76.  76.  77.4
NDRGVS  76.  74.  72.  74.  73.  74.
Sex (% male)  DRG 89  50.  51.  50.  50.  50.  50.
NDRGVS  43.  45.4  48.  45.  46.  44.
LOS (days)  DRG 89 
NDRGVS  7.4 
Payment ($)  DRG 89  1908  2828  3201  2646  2642  2412
NDRGVS  1849  2923  3807  2860  3115  2508 
7.4 
Mortality (%)  DRG 89 
NDRGVS  6.4 
Appendix B-1: DRG 89 errors 
Bed size  hted avera 
0:100  100-299  300+  Total  Sample  Discharge  Hospital 
Number of errors (Percent of discharges) 
Urban  5 (26.  10 (16.  11 (15.  (19.  (19.  (21. 
Rural  33 (20.  (9.4)  (0.  (9.  (9.  (13.
Teaching  (0.  2 (14.  9 (23.  (12.  (12.  (8.4) 
Nonteaching  38 (21.  11 (14.  (5.  (13.  (13.  (16.
Profit  4 (36.  2 (11.  (0.  (15.  (15.  (22. 
Nonprofit  34 (19.  11 (15.  11 (14.  (16.4)  (16.  (17. 
Total  38 (20.  13 (14.  11 (14.  (16.4)  (16.  (17.  (($%)) 
Appendix B-2: DRG 89 error rate comparison 
Error rate  ed ave aae 
c:1 00 100-299  300+  Sample  Discharge  Hospital 
Urban  DRG 89  26.  16.  15.  19.  19.  21. 
NDRGVS  22.  19.  16.  18.  17.  20.4 
Rural  DRG 89  20.  9.4  13. 
NDRGVS  23.  16.  22.  21.  20.  21. 
Teaching  DRG 89  14.  23.  12.  12.  8.4 
NDRGVS  20.  20.  15.  17.4  17.  19. 
Nonteaching  DRG 89  21.  14.  13.  13..  16. 
NDRGVS  23.  17.  17.  20.  19.  20. 
Profit  DRG 89  36.  11.  15.  15.  22. 
NDRGVS  23.  18.  18.  20.  19.  21.3 
Nonprofit  DRG 89  19.  15.  14.  16.4  16.  17. 
NDRGVS  23.  18.4  16.  19.4  18.  20. 
Total  DRG 89  20.  14.  14.  16.4  16.  17. 
NDRGVS  23.  18.  16.  19.  18.  20. 
Appendix B-3: DRG 89 errors by patient demography 
ize  Wei  hte  avera
Bed 
c:1 00 100-299  300+  Sample  Discharge  Hospital 
Age  Correct  79.  74.  75.  76.  76.  77. 
(years)  Incorrect  78.  81.  75.  78.4  78.4  78. 
Sex  Correct  50.  55.  53.  53.  53.  52. 
(% male)  Incorrect  47.4  38.  27.  37.  37.  41. 
LOS  Correct 
(days)  Incorrect  9.4  10. 
Payment  Correct  1831  2791  3096  2573  2568  2344 
Incorrect  2200  3054  3838  3031  3027  2737 
Mortality  Correct  10.4 
Incorrect  Appendix C-1: DRG 89 direction of error 
Bed size  Wei  hted o ooortion 
c100  100-299  300+  Total  Sample  Discharge  Hospital 
Number of overpayments (Proportion of errors) 
Urban  5 (100.  7 (70.  9 (81.  (83.  (84.  (87. 
Rural  (93.  3 (100.  (0.  (64.  (64.  (81. 
Teaching  (0.  2 (100.  7 (77.  (59.  (58.  (44. 
Nonteaching  36 (94.  8 (72.  2 (100.  (89.  (89.  (88. 
Profit  4 (100.  (50.  (0.  (50.  (50.  (67. 
Nonprofit  32 (94.  9 (81.  9 (81.  (85.  (85.  (88. 
Total  36 (94.  10 (76.  9 (81.  (84.  (84.  (86. 
Appendix C-2: DRG 89 direction of error comparison 
Bed size  Wei  ortion 
hted 
c100  100-299  300+  Sample  Discharge  Hospital 
Overpayments as a proportion of all errors 
Urban  DRG 89  100.  70.  81.  83.  84.  87. 
NDRGVS  53.  60.4  57.  58.  57.  56. 
Rural  DRG 89  93.  100.  64.  64.  81. 
NDRGVS  66.  57.  65.  64.  62.  63.4 
Teaching  DRG 89  100.  77.  59.  58.  44. 
NDRGVS  66.  59.  56.  57.  59.  62. 
Nonteaching  DRG 89  94.  72.  100.  89.  89.  88.4 
NDRGVS  64.  59.  59.  61.  60.  61. 
Profit  DRG 89  100.  50.  50.  50.  67. 
NDRGVS  68.  55.  63.  60.  61.  63. 
Nonprofit  DRG 89  94.  81.  81.  85.  85.  88. 
NDRGVS  63.  60.  57.  60.  59.  61. 
Total  DRG 89  94.  76.  81.  84.  84.  86. 
NDRGVS  64.  59.  57.  60.  59.  61.  (($%)) 
Appendix C-3: DRG 89 direction of error by patient demography 
ed size  Wei  hte  avera 
0:100  100-299  30+  Sample  Discharge  Hospital 
Age  Overpaid  77.  81.  78.  79.  79.  79. 
(years)  Underpaid  82.  79.  65.  75.  75.  78. 
Sex  Overpaid  47.  40.  33.  40.  40.  42. 
(% male)  Underpaid  50.  33.  27.  27.  36. 
LOS  Overpaid  10.4 
(days)  Underpaid  27.  13.  13.  10. 
Payment  Overpaid  2232  3178  3709  3040  3036  2774 
Underpaid  1629  2640  4418  2896  289.  2399 
Mortality  Overpaid  10. 
Underpaid 
Appendix D-1: DRG 89 hospital department making error 
Bed size  Wei  ortion 
hted
0:100  100-299  300+  Total  Sample  Discharge  Hospital 
Number of coding department errors* (Proportion of errors) 
Urban  5 (100.  8 (80.  10 (90.  (90.  (90.4)  (92. 
Rural  33 (100.  3 (100.  (0.  (66.  (66.  (84. 
Teaching  (0.  (50.  8 (88.  (46.  (46.  (30. 
Nonteaching  38 (100.  10 (90.  2 (100.  (97.  (97.  (97. 
Profit  4 (100.  2 (100.  (0.  (66.  (66.  (84. 
Nonprofit  34 (100.  9 (81.8) 10 (90.  (90.  (91.  (92. 
Total  38 (100.  (84.  10 (90.  (91.  (91.  (93. 
* Balance of errors made by biling department (($%)) 
Appendix D-2: DRG 89 hospital department making error comparison 
ed size  Wei  ed crooort ion 
c:100  100-299  300+  Sample  Discharge  Hospital 
Coding department errors as proportion of all errors 
Urban  DRG 89  100.  80.  90.  90.  90.4  92. 
NDRGVS  89.  88.  90.  89.  89.  89. 
Rural  DRG 89  100.  100.  66.  66.  84. 
NDRGVS  94.  95.  90.  94.  93.  94. 
Teaching  DRG 89  50.  88.  46.  46.  30. 
NDRGVS  91.  92.  89.  90.  91. 
Nonteaching  DRG 89  100.  90.  100.  97.  97.  97. 
NDRGVS  93.  90.  92.  92.  91.  92. 
Profit  DRG 89  100.  100.  66.  66.  84. 
NDRGVS  86.  92.4  81.  89.  86.  87.4 
Nonprofit  DRG 89  100.  81.  90.  90.  91.  92. 
NDRGVS  94.  90.  90.  92.  91.4  92. 
Total  DRG 89  100.  84.  90.  91.  91.  93. 
NDRGVS  93.  90.  90.  91.  91.  92. 
Appendix D-3: DRG 89 hospital department making error by patient 
demography 
Bed size  Wei  hted avera 
100  100-299  300+  Sample  Discharge  Hospital 
c: 
Age  Coding  78.  80.  76.  75.  78.  78. 
(years)  Billng  84.  69.  51.  50.  38. 
Sex  Coding  47.4  36.4  30.  37.  38.  41. 
(% male)  Billng  50.  16.  16.  16. 
LOS  Coding  10. 
(days)  Billng  13. 
Payment  Coding  2200  2867  3993  3020  3017  2701 
Biling  4080  2284  2121  2106  1691 
Mortality  Coding 
Billng  Appendix E-1: DRG 89 reasons for errors 
ize 
Bed 
c: 100  100-299  300+  Total  (Percent) 
Mis-specification 
Principal diagnosis  (66. 
Secondary diagnosis  (4. 
Miscoding  (0. 
Resequencing  (22. 
Other  (6. 
Total  (100. 
Appendix E-2: DRG 89 reasons for errors by hospital demography 
Mis-specification  Miscoding  Resequencing  Other 
Number (Proportion of errors) 
c: 100 beds (73.  (0.  (26.  (0. 
100-299 beds  (61.  (0.  (15.4)  3 (23. 
300+ beds  (72.  (0.  (18.  (9. 
Urban  (65.4)  (0.  (19.  4 (15.4) 
Rural  (75.  (0.  (25.  (0. 
Teaching  (63.  (0.  (18.  2 (18. 
Nonteaching  (72.  (0.  (23.  (3. 
Profit  (66.  (0.  (33.  (0. 
Nonprofit  (71.4)  (0.  (21.4)  (7. 
Total  (71.  (0.  (22.  (6.  Appendix E-3: DRG 89 reasons for errors comparison 
Bed size  hted DroDortion 
0(100  100-299  300+  Sample  Discharge  Hospital 
M isspeci- DRG 89  73.  61.  72.  69.  69.  69. 
fication  NDRGVS  49.  44.  49.4  48.  47.  48. 
Miscoding  DRG 89 
NDRGVS  10.4  14.  11.4  12.  12.  11. 
Resequencing  DRG 89  26.  15.4  18.  20.  20.  21. 
NDRGVS  31.  24.  24.  26.  25.  28. 
Other  DRG 89  23.  10.  10. 
NDRGVS  15.  14.  12.  13.  11. 
Appendix E-4: DRG 89 reasons for errors by patient demography 
Narrative  Miscoding  Resequencing  Other 
Age (years)  79.  76.4  76. 
Sex (% male)  40.  42.  50. 
LOS (days)  6.4  11. 
Payment ($)  2602  2745  3152 
Mortality (%)  14. 
Appendix F-1: DRG 89 corrected relative weights 
Average relative  Bed s 
weight  0(100  100-299  300+  Average 
Paid  0914  0914  0914  0914 
Correct  1 . 0452  0819  0810  0627 
Difference  0462  0095  0104  0287 
Total relative weight  Total 
Paid  198.6348  99.3174  85.1292  383.0814 
Correct  190.2264  98.4529  84.3180  373.0077 
Difference  8.4084  8645  8112  10.0737  .. 
Appendix F-2: DRG 89 corrected reimbursement 
Bed s 
Average 
c:1 00 100-299  300+  Average 
Paid  667  026  207  881 
Correc  554  999  177  805 
Diference  113 
Total $  Total 
Paid  485,427  275,347  250,151  011 317 
Correct  464,878  272 950  247 768  984 723 
Difference  20,549  397  384  26,594 
Overpayment rate (%) 
Appendix F-3: DRG 89 projected cost of errors 
Fiscal Year  Reimbursement  Overpayment 
($ milion)  ($ milion) 
1984  388. 
1985  807.  16. 
1986  000.  20. 
1987  017.4  20. 
1988 est.  323.  27. 
1989 est.  531.  31. 
1990 est.  739.  35. 
0 percent of reimbursement. 
Overpayment is calculated  as 
linear regression. 
Estimates are based  on  Appendix G- Correct MDCs for DRG 89 errors 
1 : 
d size

0:100  100-299  300+  Total  (Percent) 
Ear, Nose & Throat  (6. 
Respiratory  (59. 
Circulatory  (6. 
Digestive  (1. 
Musculoskeletal  (4. 
Skin and Breast  (1. 
Endocrine and Metabolic  (4. 
Kidney and Urinary Tract  (1. 
Infectious Diseases  (11. 
Injury, Poisoning & Drugs  (1. 
Total  (100. 
Appendix G-2: Correct DRGs for DRG 89 errors 
0: 1 00  100-299  300+  Total  (Percent) 
Bronchitis & asthma  (40. 
Otitis media & upper  (6. 
respiratory infections 
127  Heart failure & shock  (6. 
421  Viral ilness  (6. 
Respiratory infections &  (4. 
inflammations 
Chronic obstructive  (4. 
pulmonary disease 
Subtotal  (69.4) 
Other  (30. 
Total  (100.  bils 
Appendix G-3: ICD- CM codes from correct DRG 89 
ICD- Disease  Number  Percent 
480.  Unspecified viral pneumonia  1.4 
481  Pneumococcal pneumonia 
482.  Hemophilus influenza pneumonia 
482.  Streptococcal pneumonia 
482.  Other specified pneumonia 
482.  Unspecified bacterial pneumonia 
483  Other specific pneumonia 
485  Unspecified bronchopneumonia  11. 
486  Unspecified pneumonia  160  55.4 
487.  Influenza with pneumonia 
511.  Pleurisy 
Appendix H-1: DRG 89 clinical review 
Bed size  Wei  hted avera 
c:1 00 100-299  300+  Total  Sample  Discharge  Hospital 
Number (Rate) 
Unnecessary  7 (3.  (4.4)  3 (3.  (4.  (4.  (4. 
admissions 
Poor quality  20(11.  8 (8.  7 (9.  (9.  (9.  (10. 
of care 
Premature  4 (2.  2 (1.  1 (1.  (1.  (1.  (1. 
discharge 
Appendix H-2: DRG 89 clinical review comparison 
Rate  ize  vera
Bed  hted 
c: 100 100-299  300+  Sample  Discharge  Hospital 
Unnecessary  DRG 89  4.4 
admissions  NDRGVS  12.  10.  10.  10.  11. 
Poor quality  DRG 89  11.  10. 
of care  NDRGVS  11.4 
Premature  DRG 89 
discharge  NDRGVS  0.4  1.4