AHCCCS Transition to DRG-based Payment

Please scroll to the bottom of the page for up-to-date information.

October 08, 2014: Clarification on Outlier Billing

  • Claims paid at APR-DRG: no action is needed by providers to request outlier consideration. This is an automatic function of the payment methodology
  • Claims paid at per diem rates for rehab and LTAC hospitals: providers must include condition code 61 on the claim, requesting that the claim be considered for outlier
  • Claims paid under transplant contracts – all components from Prep & Transplant through day 10 (kidney) or day 60 (all other): providers must take action to request outlier consideration utilizing the form and instructions prescribed in Attachment B of the transplant contracts
  • Claims paid under transplant contracts – days 11+ (kidney) and 61+ (all other): providers must include condition code 61 on the claim, requesting that the claim be considered for outlier

September 30, 2014

  • As AHCCCS, its Contractors, and hospital partners have continued testing for the implementation of APR-DRGs for dates of discharge on and after October 1, 2014, needed corrections have been identified and policies have been tweaked as necessary. We anticipate these corrections will continue on and after October 1, and will respond as quickly as possible. To that point, AHCCCS learned this afternoon that the cost-to-charge ratios used to test each claim for outlier consideration were not updated in the DRG Calculator as prescribed by Rule. AHCCCS will post a revised Calculator on the AHCCCS DRG webpage as soon as it is corrected. This information is also being provided to 3M for necessary corrections.

    AHCCCS will also be updating the APR-DRG Payment System Design Payment Policies document posted on the web to provide clarification on a few payment policies. Additionally one new payment policy was added related to inpatient services preceding transplants paid under specialty contracts. Changes to the document will be tracked in the version that will be posted to the web so that users may quickly identify changes.

August 27, 2014

  • It has come to AHCCCS’ attention via recent discussions with interested parties that clarification regarding the development of the APR-DRG rates is appropriate. Historical paid claims data from AHCCCS fee-for-service and all AHCCCS Contractors were used to develop the budget-neutral reimbursement system, including base rates, all adjustors, and the outlier thresholds. This historical data is inclusive of all contracted and non-contracted payment rates, including discounts, in place during federal fiscal year 2011 (October 1, 2010 through September 30, 2011). For example, to the extent that plans and hospitals have contracted at less than the AHCCCS fee schedule (e.g., 95% of the AHCCCS fee schedule), that contracting experience has been used to develop the budget-neutral base DRG rates. AHCCCS Contractors and hospitals should consider this information when negotiating payment rates under the APR-DRG reimbursement system. Questions, may be directed to FFSRates@azahcccs.gov.
  • AHCCCS is committed to ensuring that hospitals not experience any cash flow disruptions due to any AHCCCS payer experiencing delays with APR-DRG claims processing implementation effective with dates of discharge on and after October 1, 2014. Systems’ testing is occurring at and between AHCCCS and its Contractors and with hospital partners. Additionally, mitigation strategies have been developed by all AHCCCS payers to ensure that claims are paid timely in the event of any delays or errors in APR-DRG claims processing. These strategies vary by payer; please discuss the specifics with AHCCCS and its Contractors directly.

    The change to APR-DRG reimbursement of inpatient claims is the most significant change in AHCCCS hospital reimbursement in over 20 years. AHCCCS expects a smooth transition but understands that this type of change can be accompanied by challenges and unforeseen circumstances. Please send any concerns to AHCCCS at FFSRates@azahcccs.gov if assistance is needed.

AHCCCS and its Contractors understand the critical partnership with our hospital providers, in service to AHCCCS members, and appreciate working together to make this transition to APR-DRG payments as smooth and quiet as possible.

Since 1993, AHCCCS has paid hospital inpatient claims using a tiered per diem fee schedule that was developed internally. Rates were rebased in 1998 and subsequently inflated annually (except when otherwise permitted by legislation) using a nationally recognized inflation factor. Effective 10/01/2014, AHCCCS will begin reimbursing inpatient hospital services using a DRG-based payment system.

Compared with a tiered per diem system, which incentivizes quantity over quality, AHCCCS believes the DRG-based payment methodology is better aligned with the agency’s focus on improved patient safety and health outcomes for its members, and will result in reduced costs. It will enhance AHCCCS’ ability to implement performance review and cost-saving measures by facilitating measurement of inpatient readmissions and implementation of Medicaid’s prohibition on reimbursement for hospital acquired conditions. AHCCCS has contracted with Navigant Consulting http://www.navigant.com/ to provide assistance in analyzing , acquiring and implementing, a DRG-based inpatient hospital payment system. Some tasks associated with this project include:

  • Research and determine options for optimum DRG-based system for AHCCCS
  • Identify software integration issues to function within current IT structure
  • Assist with determining rates, weights, and outlier rules for DRG-based reimbursement
  • Perform hospital-specific modeling
  • Develop macro for out-of-state hospitals to estimate payments
  • Identify opportunities to maximize federal funding
  • Integrate payment methodology with ICD-10 implementation

On November 14, 2013, AHCCCS distributed a letter to hospital stakeholders with a reminder about the upcoming change to the APR-DRG payment methodology effective October 1, 2014. Read that communication here:

Communication Letter

On Thursday, June 14, AHCCCS hosted an open meeting to discuss the efforts in exploring an option to the current inpatient hospital per diem payment methodology.

Meeting Presentation

Information related to the Contractor Workgroup, including meeting notes and the Arizona DRG Payment Policies document, can be found here:

EDI Technical Workgroups

AHCCCS appreciates the interest that the hospital community has expressed in participating in our DRG Workgroup. The below list includes the names of the hospital representatives that have been selected to work on this project. Hospital providers who are not on this team may contact one of the members below to ensure that their issues and concerns are raised to the workgroup.

  • Jeff Jackson, Dignity
  • Neal Jensen, Cobre Valley Hospital
  • Greg Kuzma, Northern Arizona Health
  • Dave Godeman, Iasis
  • Carol Bailey, Abrazo
  • John Neuner, Banner
  • Joan Goda, Carondelet
  • Craig McKnight, Phoenix Children’s
  • Bret Hicks, Tucson Medical Center
  • Vickie Clark, La Paz Hospital
  • Jim Dickson, Copper Queen Hospital
  • Scott Steiner, University Hospitals
  • Peter Finelli, CHS
  • Jim Haynes, AzHHA

Questions and comments to be considered in the workgroup may be addressed to

Additional documents concerning DRG methodology will be published below:

Selection of a DRG Grouper for the Medicaid Population

Presentation for September 6, 2012 Workgroup Meeting

Presentation for December 6, 2012 Workgroup Meeting

Presentation for January 18, 2013 Workgroup Meeting

Presentation for April 25, 2013 Workgroup Meeting

Handouts for April 25, 2013 Workgroup Meeting

APR-DRG Version 30 National Weights