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Implications of DRG Classification in a Bundled Payment Initiative for COPD
Trisha M. Parekh, DO; Surya P. Bhatt, MD; Andrew O. Westfall, MS; James M. Wells, MD; deNay Kirkpatrick, DNP, APN-BC; Anand S. Iyer, MD; Michael Mugavero, MD; James H. Willig, MD; and Mark T. Dransfield, MD
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Implications of DRG Classification in a Bundled Payment Initiative for COPD

Trisha M. Parekh, DO; Surya P. Bhatt, MD; Andrew O. Westfall, MS; James M. Wells, MD; deNay Kirkpatrick, DNP, APN-BC; Anand S. Iyer, MD; Michael Mugavero, MD; James H. Willig, MD; and Mark T. Dransfield, MD
Diagnosis-related group coding determines eligibility for many Medicare bundled payment initiatives. This approach excluded many patients with chronic obstructive pulmonary disease likely to benefit while including others without the disease.
We show that there is significant variation in the clinical characteristics, outcomes, and costs of patients hospitalized with AEs of COPD who are and are not included in the COPD BPCI initiative. More than one-third of patients with an ICD-9 diagnosis of AE of COPD were excluded from the initiative despite having a higher severity of illness, greater ICU utilization, longer hospital and ICU LOS, and increased likelihood of mortality. Despite having ICD-9 codes for an AE of COPD, these patients were given a wide range of non-COPD DRG classifications, which confirms the heterogeneity of the group excluded from the bundled payment initiative. These patients did not receive the additional interventions reserved for those included in the program, and the institution is neither incentivized for improved outcomes nor penalized for increased costs in this group. Our findings show that the current system based on COPD DRGs excludes a large number of patients with COPD and respiratory failure who would potentially benefit from these interventions.

Patients in the DRG group had a significantly lower and less skewed total cost of index hospitalization than patients in the ICD-9 group. This can be explained by the increased resource utilization in the ICD-9 group, as these patients had a longer LOS and more days in the ICU. By excluding these patients from the COPD DRG, Medicare aimed to establish a clinically homogeneous group of patients with similar resource utilization,8 and our data show that Medicare was successful in reaching this goal. This can benefit BPCI initiative participants by relieving the financial pressures caused by paying for more severely ill patients in which resource utilization is unavoidable. However, this also prevents these sicker patients from receiving postacute care that may be beneficial. 

In addition, one-fourth of patients assigned to a COPD DRG did not have an ICD-9 diagnosis of AE of COPD and were more likely to be admitted for other diseases. These patients had a longer hospital LOS and higher index admission costs, perhaps because their disease process is not directly addressed by the COPD-specific interventions provided through the BPCI initiative. Institutions should be mindful of potential misclassifications, as they will be financially responsible for all patients who are assigned to the BPCI. Misclassification of non-COPD patients will also dilute resources intended for patients with COPD, making the evaluation of any COPD-focused intervention difficult. 

Our study results not only highlight the differences between the DRG and ICD-9 groups, but also shed light on the implications of participation in the BPCI initiative. In a resource-limited healthcare setting, we were unable to provide COPD-focused interventions and transitional care services for all patients with the disease. Our resources were necessarily targeted to those patients with COPD for whom we were held financially responsible as defined by the BPCI. Although excluded patients may benefit from the BCPI interventions, and both we and other providers often felt strongly that they ought to be included, we did not have the capacity to accommodate patients for whom we did not carry financial responsibility. This exclusion was disconcerting to both the pulmonologists involved with the program and the referring providers. 

Multiple variables are used to place an episode of care into a specific DRG. In an Australian study reviewing clinical documentation for impact on DRG allocation, Chin et al found that 48% of reviewed summaries resulted in reassignment of DRG and a reimbursement increase of $142,000 Australian dollars, with the most coding variance seen in respiratory infections.9 Another study evaluated 2 episode-creation algorithms for diabetes and coronary artery disease and found that each method identified different patients with the 2 conditions. For diabetes, the 2 methods resulted in markedly different payments, with one capturing 69% of total diabetes-related payments and the other only 20%.10 These studies highlight the potential for misclassification and misdiagnosis, as well as the financial impact that DRG classification can have on participants in the BPCI initiative. 

In order for the BPCI initiative to be successful, patients who are correctly classified into a DRG code should also receive cost-saving interventions that result in higher quality of care and fewer readmissions. By paying a fixed amount for an episode of care, Medicare presents participating institutions with the challenge of finding a less expensive, faster, and more effective way to deliver care that does not come at greater expense. Although there have been numerous studies evaluating the predictors of COPD readmissions,11-13 there are currently no interventions that have been specifically demonstrated to reduce these readmissions.14 Some studies have shown that integrated disease management interventions can lead to improvement in disease-specific quality of life and reduction in hospital admissions15; however, these findings are not consistently reported16 and the long-term effectiveness of these interventions is unknown. 

Previous studies have evaluated BPCI participants in nonspine surgical orthopedic episodes and found reduced LOS, fewer discharges to postacute care units, and fewer readmissions compared with non-BPCI participants.17,18 The findings of a recent study evaluating more than 30,000 lower extremity joint replacement episodes add confirmatory evidence that the BPCI initiative is successful in reducing Medicare payments while preserving quality of care for orthopedic episodes.19 Hip and knee arthroplasty were ideal treatments to evaluate early trials of bundled payments; however, the extension of episode-based payment to chronic diseases presents new challenges. Episodes for chronic conditions, including COPD, congestive heart failure, and end-stage renal disease, have a clinical trajectory that is dramatically different from that of elective surgical procedures. Patients with chronic diseases can present with multiple interrelated conditions that require coordinated and long-term management.20 This complicates the DRG classification of a specific episode and can add to the heterogeneity of patients in a single DRG or misclassification of patients to an alternative DRG, as was seen with one-fourth of patients in our cohort. In addition, far greater cost variability has been observed in patients with COPD and stroke compared with lower extremity joint replacement and hip fracture, which places providers and institutions at a higher financial risk when volunteering for a BPCI initiative for these conditions.21 


Our study has several limitations. First, the selection of patients was based on ICD-9 and DRG coding to determine episodes of AEs of COPD, which may not accurately reflect the reason for admission.22 The purpose of this study was to evaluate a classification system based on medical records documentation and administrative coding; therefore, the authenticity of COPD in each patient was not confirmed by evidence of airflow obstruction on pulmonary function testing. This process reflects the real-world case determination processes a medical center and CMS would utilize to identify patients qualifying for the BCPI. Second, we acknowledge that inclusion of respiratory failure ICD-9 codes accounted for some of the observed differences between the ICD-9 and DRG groups. However, we found similar results in our subgroup analysis excluding respiratory failure codes from the ICD-9 group. Third, our single center study had a relatively small sample size, which reduced its power. Despite this, we did observe a number of statistically and clinically significant differences between the characteristics and outcomes of the ICD-9 and DRG groups, which we believe provide important information. Finally, we did not have access to outpatient cost data, which is known to contribute to cost variability.23 


The sole use of DRGs to identify COPD exacerbations led to the exclusion of over one-third of patients with AEs of COPD who had more severe illness and worse outcomes and may benefit most from the additional interventions provided by bundled payment initiatives. In addition, this approach led to the misclassification of patients without COPD in the BPCI initiative (one-fourth of the total) who utilized resources intended for patients with COPD. Comprehensive data from implementation of the BPCI initiative across a range of chronic diseases will not be available for several years; however, the current study provides new information to future BPCI initiative participants about the program’s design and potential consequences for COPD reimbursement and quality of care. Exclusion of the sickest patients from the BPCI initiative presents an ethical and logistical predicament for healthcare professionals. Alternative strategies should be explored to maximize the benefits of the initiative for chronic diseases like COPD, including the development of a bundled payment model that includes respiratory failure. 

Author Affiliations: Department of Medicine (TMP, SPB, JMW, dK, ASI, MM, JHW, MTD), and Division of Pulmonary, Allergy, and Critical Care (TMP, SPB, JMW, dK, ASI, MTD), and Division of Infectious Diseases (MM, JHW), University of Alabama at Birmingham, Birmingham, AL; UAB Lung Health Center (TMP, SPB, JMW, dK, ASI, MTD), Birmingham, AL; Department of Biostatistics (AOW), and Department of Health Behavior (MM), University of Alabama School of Public Health, Birmingham, AL; Birmingham VA Medical Center (JMW, MTD), Birmingham, AL.

Source of Funding: None.

Author Disclosures: Dr Iyer reports receiving grant # T32HS013852 from the Agency for Healthcare Research and Quality and an institutional Ruth L. Kirschtein National Research Service Award. Dr Bhatt reports funding from NIH K23HL133438. Dr Wells reports receiving grants from NIH/NHLBI K08 HL123940, the Cystic Fibrosis Foundation SORSCH15R0, contracts with GlaxoSmithKline and AstraZeneca for conducting clinical trials, and other funding from AstraZeneca. Dr Mugavero received consulting fees for scientific advisory board for Gilead and Bristol-Myers Squibb and grant funding (to UAB) from Bristol-Myers Squibb. Dr Dransfield reports receiving grants from the NIH, Department of Defense, and the American Heart Association; personal fees and other funding from Astra Zeneca, Boehringer Ingelheim, Boston Scientific, Genentech and GlaxoSmithKline; and other funding from Pearl, Pulmonx, PneumRx, AstraZeneca, Novartis, and Yungjin. The remaining authors report no relationship or financial interest with any entity that would pose a conflict of interest with the subject matter of this article.

Presentation: This work was submitted for presentation at the American Thoracic Society Conference in San Francisco, California in May 2016.

Authorship Information: Concept and design (TMP, dK, ASI, MM, JHW, MTD); acquisition of data (TMP, SPB, ASI, JHW, MTD); analysis and interpretation of data (TMP, AOW, JMW, ASI, MTD); drafting of the manuscript (TMP, AOW, JMW, ASI, JHW, MTD); critical revision of the manuscript for important intellectual content (TMP, SPB, AOW, JMW, dK, MM, JHW, MTD); statistical analysis (TMP, AOW); provision of study materials or patients (SPB, dK); administrative, technical, or logistic support (MM, MTD); and supervision (SPB, JHW, MTD). 

Send Correspondence to: Trisha Parekh, DO, University of Alabama at Birmingham, 1900 University Blvd, THT 428, Birmingham, AL 35233. E-mail:

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