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TRICARE Reimbursement Manual 6010.61-M, April 1, 2015
Diagnosis Related Groups (DRGs)
Chapter 6
Section 2
Hospital Reimbursement - TRICARE Diagnosis Related Group (DRG)-Based Payment System (General Description Of System)
Issue Date:  October 8, 1987
Authority:  32 CFR 199.14(a)(1)
This policy is mandatory for reimbursement of services provided by either network or non-network providers. However, alternative network reimbursement methodologies are permitted when approved by the Defense Health Agency (DHA) and specifically included in the network provider agreement.
2.0  ISSUE
How is the TRICARE DRG-based payment system to be used in determining inpatient reimbursement for hospitals?
3.1  Scope
The TRICARE DRG-based payment system applies only to hospitals. Under the TRICARE DRG-based payment system, payment for the operating costs of inpatient hospital services furnished by hospitals subject to the system is made on the basis of prospectively determined rates and applied on a per discharge basis using DRGs. DRG payments will include an allowance for Indirect Medical Education (IDME) costs. Additional payments will be made for capital costs, direct medical education costs and outlier cases. Under the TRICARE DRG-based payment system, a hospital may keep the difference between its prospective payment rate and its operating costs incurred in furnishing inpatient services, and is at risk for operating costs that exceed its payment rate.
3.2  Modeled On Medicare’s Prospective Payment System (PPS)
The TRICARE DRG-based payment system is modeled on the Medicare PPS. Although many of the procedures in the TRICARE DRG-based payment system are similar or identical to the procedures in the Medicare PPS, the actual payment amounts, DRG weights, and certain procedures are different. This is necessary because of the differences in the two programs, especially in the beneficiary population. While the vast majority of Medicare beneficiaries are over age 65, TRICARE beneficiaries are considerably younger and generally healthier. Moreover, some services, notably obstetric and pediatric services, which are nearly absent from Medicare claims comprise a large part of TRICARE services.
3.2.1  DRGs Used
With some exceptions, the TRICARE DRG-based payment system uses the same DRGs used in the current Medicare Grouper. Although claims may be grouped into either DRG 998, Principal diagnosis invalid as discharge diagnosis, or DRG 999, Ungroupable, claims in these DRGs must be denied without development. DRGs for these descriptions can be found at
•  EXCEPTION 1. The DRG-based payment system under TRICARE has replaced DRG 897 (Alcohol/Drug Abuse or Dependence, Detoxification or Other Symptomatic Treatment Without Complications or Comorbidity) with two age-based DRGs. Any claim which groups into DRG 897 shall be grouped by the contractor into either DRG 899 (where the beneficiary is 21 years old or younger) or DRG 898 (where the beneficiary is over 21 years old). This grouping by the contractor shall be based on the patient’s age, as shown on the claim, on the date of admission. DRGs for these descriptions can be found at
•  EXCEPTION 2. The TRICARE DRG-based payment system uses Pediatric Modified-DRGs (PM-DRGs), also known as TRICARE-specific DRGs, for all neonatal and pediatric claims. The PM-DRGs/TRICARE-specific DRGs can be found at
3.2.2  Assignment Of Discharges To DRGs
TRICARE uses a “Grouper” program to classify specific hospital discharges within DRGs so that each hospital discharge is appropriately assigned to a single DRG based on essential data abstracted from the inpatient bill for that discharge. The TRICARE Grouper is developed by Health Information Systems, 3M Health Care, and is based on the Centers for Medicare and Medicaid Services (CMS) Grouper, but it also incorporates the PM-DRGs, and DRGs 899 and 898.  The Medicare Code Editor (or other similar editor programs) is an integral part of the CMS Grouper and serves two functions. It helps to ensure that the claim discharge data is accurate and complete, so that it can be correctly grouped into a DRG. It also “edits” the claims data to identify cases which may not meet certain coverage requirements or which might involve inappropriate services. Contractors are not required to use any “Editor” program, but it is recommended since the first function will facilitate claims processing, and the second function may be useful in assessing coverage under TRICARE.  The classification of a particular discharge is based on the patient’s age, sex, principal diagnosis (that is, the diagnosis established, after study, to be chiefly responsible for causing the patient’s admission to the hospital), secondary diagnoses, procedures performed, and discharge status. (Contractors are required to use the expanded diagnosis and procedure code fields.) For neonatal claims (other than normal newborns), it also is based on the newborn’s birth weight, surgery, and the presence of multiple, major and other problems which exist at birth. For services provided before the mandated date, as directed by Health and Human Services (HHS), for International Classification of Diseases, 10th Revision (ICD-10) implementation, the birth weight is to be indicated through use of a fifth digit on the neonatal International Classification of Diseases, 9th Revision, Clinical Modification (ICD-9-CM) diagnosis code. For services provided on or after the mandated date, as directed by HHS, for ICD-10 implementation, the birth weight is to be indicated through use of a sixth digit on the neonatal ICD-10-CM diagnosis code.  In situations where the narrative diagnosis on the DRG claim does not correspond to the numerical diagnosis code, the contractor shall give precedence to the narrative and revise the numerical code accordingly. Contractors are not required to make this comparison on every claim. Precedence should be given to the narrative code in those cases where a difference is identified as the result of editing, prepayment review, or other action that would identify a discrepancy. If an adjustment is subsequently necessary because the numerical code was, in fact, correct, the adjustment should be submitted with a reason for the adjustment code indicating that there was no contractor error.  It is the hospital’s responsibility to submit the information necessary for the contractor to assign a discharge to a DRG.  When the discharge data is inadequate (i.e., the contractor is unable to assign a DRG based on the submitted data), the contractor is to develop the claim for the additional information.  In some cases the “admitting diagnosis” may be different from the principal diagnosis.  For neonatal claims only (other than normal newborns), the following rules apply.
•  If a neonate (patient age 0 - 28 days at admission) is premature, the appropriate prematurity diagnosis code must be used as a principal or secondary diagnosis.
•  Where a prematurity diagnosis code is used, a fifth digit value of 0 through 9 must be used in the principal or secondary diagnosis to specify the birth weight. If no fifth digit is used, the Grouper will ignore that diagnosis code and the claim will be denied.
•  If a neonate is not premature, a prematurity diagnosis code must not be used. The Grouper will automatically assign a birth weight of “> 2,499 grams” and assign the appropriate PM-DRG. If the birth weight is less than 2,500 grams, the birth weight must be provided in the “remarks” section of the CMS 1450 UB-04.
•  If there is more than one birth weight on the claim, the Grouper will assign the claim to the “ungroupable” DRG, and the claim will be denied.
•  All claims for beneficiaries less than 29 days old upon admission (other than normal newborns) will be assigned to a PM-DRG, except those classified to DRGs 103, 480, 495, 512, and 513. DRGs for these descriptions can be found at  Each discharge will be assigned to only one DRG (related, except as provided in paragraphs and, to the patient’s principal diagnosis) regardless of the number of conditions treated or services furnished during the patient’s stay.  When the discharge data submitted by a hospital show a surgical procedure unrelated to a patient’s principal diagnosis, the contractor shall develop the claim to assure that the data is not the result of miscoding by either the contractor or the hospital. Where the procedure and medical condition are supported by the services and the procedure is unrelated to the principal diagnosis, the claim shall be assigned to the DRG, Unrelated OR Procedure.  When the discharge data submitted by a hospital results in assignment of a DRG which may need to be reviewed for coverage (e.g., abortion without dilation and curettage, which does not meet the TRICARE requirements for coverage), the contractor is to review the claim to determine if other diagnoses or procedures which were rendered concurrently are covered. If other covered services were rendered, the contractor shall change the principal diagnosis to the most logical alternative covered diagnosis, delete the abortion diagnosis and procedure from the claim so that it does not result in a more complex DRG, and regroup the claim.
Example:  If a claim is grouped into the DRG for an abortion and the abortion is not covered, but a tubal ligation was performed concurrently, the contractor should change the principal diagnosis to that for the tubal and delete the abortion from the procedures performed. If no covered services were rendered, the claim must be denied, and all related ancillary and professional services which are submitted separately must also be denied.  Contractors are not normally required to review all diagnoses and procedures to determine their coverage. Contractors are required to develop for medical necessity only if the principal diagnosis is generally not covered but potentially could be. Deletion of a diagnosis and/or procedure is required only when the principal diagnosis or procedure is not covered.  The only exception to the above paragraph is for abortions. Since abortions are statutorily excluded from coverage except for pregnancies resulting from rape, incest or if the life of the mother is endangered, the contractor is to ensure that payment is not affected by a noncovered abortion diagnosis or procedure whether it is principal or secondary. In all cases where payment would be affected, the abortion data is to be deleted from the claim.
3.3  Beneficiary Eligibility
3.3.1  Change Of Eligibility Status  Payment when eligibility changes. If a beneficiary is eligible for TRICARE coverage during any part of his/her inpatient confinement, except for the following cases, the claim shall be processed as if the beneficiary was eligible for the entire stay.  Claims which qualify for the cost outlier payment. See paragraph  Claims where a beneficiary gains eligibility after admission. The DRG-based payment is calculated beginning on the first day of TRICARE eligibility.  Claims where the loss of TRICARE eligibility results from gaining Medicare eligibility. The claim may still be processed by TRICARE, but it must be submitted to Medicare first and TRICARE payment shall be determined under the normal double coverage procedures.  Transfer payments when eligibility status changes. Since payments to a transferring hospital are always based on a per diem amount, if the beneficiary’s eligibility status changes while an inpatient in a transferring hospital, payment shall be made only for those days for which the beneficiary was eligible. The procedures below shall be followed in paying outlier amounts in cases involving transfers.  Outlier payments when eligibility status changes. Since short-stay outlier payments are made on a per diem basis, no payment is to be made for any days of care which occurred after loss of eligibility and which result from the short-stay outlier. The hospital may bill the beneficiary for any services which would result in short-stay outlier payments were it not for the beneficiary’s loss of eligibility. When computing the standardized costs for the cost outlier payment, any charges that occur after a beneficiary loses TRICARE eligibility, shall be subtracted from the billed charges prior to multiplying the billed charges by the Cost-to-Charge Ratio (CCR) when calculating the cost outlier payment. The contractor shall request an itemized bill from the hospital to identify these charges.
Example 1:  The beneficiary loses eligibility on day two where the short-stay outlier cutoff is three days. The beneficiary was discharged on the seventh day. TRICARE reimbursement shall be made for two days on a short-stay outlier basis. The beneficiary’s cost-share shall be based on the two paid days. The hospital may bill the beneficiary for all days of care beyond the second day.
Example 2:  The beneficiary is discharged on day 10 and lost eligibility on day six. The short-stay outlier cutoff is day 2. TRICARE reimbursement shall be based on the normal DRG payment which will apply to the entire Length-Of-Stay (LOS) (nine days). The beneficiary cost-share for a retiree would be based on the total covered days (nine days times the per diem), assuming this is not greater than 25% of the billed charge. An active duty dependent’s cost-share would be nine times the current active duty per diem amount. The hospital cannot bill the beneficiary for any costs other than the cost-share.
Example 3:  The beneficiary gains eligibility after admission. The DRG calculation begins on the first day of TRICARE eligibility. For example, a beneficiary is admitted March 6, 2016 and discharged May 16, 2016, but was only TRICARE eligible starting May 10, 2016. The claim shall be treated as if the beneficiary was admitted on May 10, 2016, and the base DRG rate calculated.
3.3.2  Change Of Sponsor Status From Active Duty To Retired During An Active Duty Family Member’s (ADFM’s) Inpatient Stay
An inpatient claim shall be cost-shared as active duty whenever there is evidence that the sponsor was on active duty during any period of the ADFM’s inpatient stay.
3.3.3  Change Of Sponsor Status From Active Duty To Retired During An Active Duty Member’s Inpatient Stay
An inpatient claim shall be cost-shared as retired if a Service member’s status changes to retired during an inpatient stay.
3.3.4  Professional Claims
Since payment for related professional services are itemized and billed on a daily basis, the claim shall be paid for the days the beneficiary is TRICARE eligible and denied for the days the patient was not TRICARE eligible.
3.3.5  Infant Of An Unmarried Family Member
A child of an unmarried family member is not eligible, therefore, charges for an infant of an unmarried family member are not eligible for reimbursement.
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