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Ohio Department of Medicaid (ODM) released a draft rule on October 17, 2023, that will transform how inpatient behavioral health services are reimbursed for some hospitals. ODM will migrate inpatient payments for behavioral health and substance use disorder services (BH/SUD) provided by freestanding psychiatric hospitals (FSPs) from the APR-DRG payment methodology to a per diem payment methodology derived from the APR-DRG system.

The draft rule also 1) increases inpatient payments for BH/SUD services provided by FSPs and acute care general hospitals and 2) seeks to improve inpatient cost coverage for FSPs and acute care general hospitals providing BH/SUD services.

Background on DRG and Per Diem Payment Methodologies

State Medicaid programs are required to cover inpatient hospital services, although they have flexibility to determine the payment methodologies for the services they provide. Common reimbursement methodologies for inpatient hospital services include DRGs (diagnosis-related groups), per diems, and cost-based reimbursement. Historically, DRGs have been the most prevalent reimbursement methodology for hospital Medicaid reimbursement; However, many states use an alternative payment methodology – like a per diem – for inpatient behavioral services even when the state uses a DRG methodology for general inpatient hospital reimbursement.

Under the DRG system, hospitals are reimbursed based on the principal diagnosis or condition requiring the hospital admission. The DRG system is designed to classify patients into groups that are clinically coherent with respect to the amount of resources needed to treat a patient with a specific diagnosis. The Centers for Medicare & Medicaid Services assigns a unique weight to each DRG, which reflects the average level of resources for an average patient in the DRG relative to the average level of resources for all patients. In comparison, under the per diem methodology, hospitals receive a fixed rate for each day of inpatient services provided, regardless of a hospital’s charges or costs incurred for caring for that particular patient.

Payors often favor DRG-based payment methods because of their stronger incentives and rewards for shorter stays and reduced costs. For inpatient behavioral health services, however, reducing length of stay often means patients with chronic behavioral health needs are readmitted. Shifting toward a per diem reimbursement methodology theoretically should aim to better cover provider’s costs while ensuring patients stay in the hospital as long as necessary to receive the necessary services.

The Switch to Per Diem Payment

Rather than include the very technical per diem calculation components in this client alert, please reach out to your BMD attorney for more details.

Miscellaneous Rule Provisions

Under the rule, if a hospital paid under the prospective payment system transfers an inpatient to another hospital or receives an inpatient from another hospital, then each hospital is paid a per diem rate for each day of the patient's stay in that hospital, plus capital, medical education, and outlier allowances, not to exceed the DRG maximum.

Additionally, a readmission within one calendar day of discharge to the same institution is one discharge for payment purposes so that only one DRG payment is made. If two claims are submitted, then the second claim processed will be rejected. To receive payment for the entire period of hospitalization, the hospital will need to submit an adjustment claim reflecting services and charges for the entire hospitalization.

Also, the rule increases inpatient payments for BH/SUD services provided by acute care general hospitals. Per diem payment calculations for acute care general hospitals follow the same methodology as payments to FSPs.

Lastly, the rule increases reimbursement for neonate APR-DRGs with major or extreme severity of illness (SOI). The relative weights for neonate DRGs 580-640 with an SOI of major or extreme were increased by five and thirteen hundredths percent to provide enhanced payments for donor breast milk and milk fortifiers. The computation of relative weights for the DRGs is equal to the average inflated cost per case within the DRG/SOI divided by the average inflated cost per case across all DRG/SOIs.

If you have questions about the content of this Client Alert or hospital reimbursement for inpatient behavioral health and substance use disorder services, please contact BMD Healthcare Member Daphne Kackloudis at dlkackloudis@bmdllc.com.