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Case Mix Basics
By Judith Sturgeon, CCS, CCDS

How many times are coders involved in discussions about their facility’s case mix index? And how many times do they actually understand how the index relates to coding? Most coding professionals in the diagnosis-related group (DRG) arena know their codes will somehow determine the hospital’s case mix index and their administrators consider case mix when they worry about the annual budget. Unfortunately, that often is the extent of coders’ knowledge regarding this calculated concept.

To understand the case mix index, HIM professionals need to know the following:

• Medicare pays hospital inpatient stays with a DRG.

• A DRG is a lump-sum payment method to average the cost of and payment for taking care of similar types of patients.

• Each DRG is assigned a numerical weight that reflects the current national average resource consumption for that patient population.

• Each facility has a standardized dollar amount assigned by Medicare, determined by factors such as the case mix index, local wage index, number of low-income patients, and type of institution (eg, teaching).

• The basic hospital payment for any admission is the DRG weight multiplied by the dollar amount.

• The case mix index is determined by adding the weights of the facility’s DRGs for the period of time to be reviewed and then dividing the sum by the number of admissions that generated those DRGs.

If you have even the most basic math skills, you now have figured out that case mix simply is an average of all the DRG weights.

But what does that have to do with coding? Codes determine the DRG, and the average DRG weight determines the case mix. So now you also know why, when hospital administrators think their case mix isn’t what they expect, coders are the first group to feel the pressure. If the number is perceived as too low, everyone will want to make sure the coders aren’t missing anything in the documentation. Certainly, the medical record is the first place to look. However, if the documentation and coding are found to be accurate and complete, there are several other factors—none of which has anything to do with the coding department—that significantly affect case mix.

Think of case mix as hospital stew. Surgical DRGs, with their respectively higher weights, are the potatoes, while medical DRGs are the peas, carrots, and onions. Mother and baby DRGs are the broth.

Where’s the meat, you may wonder? Tracheostomies, transplants, and ventilators. With their elevated weights, these DRGs can make lovely peaks in anyone’s case mix graph. Remove this patient population from the case mix index, and there will be deeper valleys on the same graph. Any time there’s a change in the patient population, the case mix index is the barometer that warns of the impending dip in hospital income.

When a hospital’s case mix trends depressingly downward—or worse yet, imitates a dropped rock—rest assured the facility’s money moguls will be looking everywhere for both a cause and a cure. Why? If the coding is correct and the DRG is correct, then the payment is correct and nobody needs to worry, right?

Wrong. Budgets are planned, and money is allocated based on expected income for the year. If the money isn’t coming in as expected—but the money is being spent as expected—something must be done, and it had better be as soon as possible to prevent a fiscal fiasco.

Not only does a lower case mix indicate that individual DRGs are averaging lower payments, but the overall case mix for the year helps the Centers for Medicare & Medicaid Services determine how much to pay the hospital for each DRG next year. Administrators will have ulcers and migraines inversely proportional to the change in case mix, while coders will have ulcers and migraines directly proportional to those of the administration.

Once again, you may ask why. It’s basic math. The case mix index is used to adjust the hospital’s average cost per patient (or per day). Reported charges for the annual admissions generate a calculated average cost per patient. That number is divided by the hospital’s case mix index to determine its adjusted cost per patient.

For example, consider Hospital ABC with an average cost per patient of $2,000 and a case mix index of 0.8500, for an adjusted cost per patient of $2,353. If Hospital XYZ has an average cost per patient of $2,000 but a case mix index of 1.2500, its adjusted cost per patient is only $1,600. What is payment minus cost? Profit. If the case mix index is high, DRG payments are larger. It indicates a lower average cost per patient. So, in theory, you get more money to spend. The inverse, however, is not good.

Another consideration is that a low case mix doesn’t necessarily mean the facility is losing money. Conversely, an ear-popping high case mix is no guarantee the facility is swimming in dough. Remember that stew analogy? You can feed a lot of people if you have enough vegetables and broth. Meat is nice, but it’s not critical to survival if there are enough other ingredients to feed all the hungry mouths.

A provider specializing in uncomplicated obstetrics may have a pitiful case mix index at first glance. If it can streamline processes, manage expenses efficiently while providing good care, and—this is the important part—attract a significant proportion of payers whose reimbursement is greater than those expenses, it still can be a very profitable facility. On the other hand, a cardiac surgery specialty hospital may have a case mix index as high as the hopes of an American Idol contestant and still go bankrupt if its money is poorly managed and/or its population is unfunded.

Unless you’re a certified public accountant, the case mix index still may look like a lot of smoke and mirrors. We don’t need a calculator to tell us that theoretical money isn’t always the same as cash in the bank. Consequently, we must keep in mind that the case mix index is a barometer, not a deposit slip. It’s a tool that can be used to predict income, summarize patient populations, explain the cost of treating those populations, and even suggest what kind of services are most viable for that population. But the case mix index is only one of the tools necessary to achieve a friendly financial forecast. And if a provider spends more money than it can get paid, the best case mix index in the business can’t fix it.

— Judy Sturgeon, CCS, CCDS, is the clinical coding/reimbursement compliance manager at Harris County Hospital District in Houston and a contributing editor at For The Record. While her initial education was in medical technology, she has been in hospital coding and compliance for 22 years.