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Diagnosis-Related Group Reimbursement

Diagnosis-related group reimbursement (DRG) is a reimbursement system for inpatient charges from facilities. This system assigns payment levels to each DRG based on the average cost of treating all TRICARE beneficiaries in a given DRG. The TRICARE DRG-based payment system is modeled on the Centers for Medicare & Medicaid Services' (CMS) Inpatient Prospective Payment System (IPPS). A grouper program classifies each case into the appropriate DRG. 

The grouper used for the TRICARE DRG-based payment system is the same as the Medicare grouper with some modifications, such as neonate DRGs, age-specific conditions and mental health DRGs. Refer to TRICARE Reimbursement Manual (TRM), Chapter 6, Section 5 for more details. 

TRICARE uses the TRICARE Severity DRG payment system, which is modeled on the Medical Severity DRG payment system.


Hospital Value-Based Purchasing Program

Effective for discharges on or after Jan. 1, 2020, TRICARE adopted the Centers for Medicare and Medicaid Services’ (CMS) Hospital Value-Based Purchasing (HVBP) Program for hospitals under IPPS. The HVBP Program rewards acute care hospitals with incentive payments based on the quality of care they deliver. Hospitals subject to HVBP are reimbursed using adjustment factors found in CMS' current IPPS Final Rule Table available at www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps

The program:

  • Withholds participating hospitals’ payments by a percentage specified by law.
  • Uses the payment reductions to fund value-based incentive payments.
  • Applies a claim-by-claim adjustment factor to the base DRG payment for claims in the fiscal year (FY) associated with the performance period.

Hospitals, skilled nursing facilities and other institutional providers under the IPPS are subject to HVBP under TRICARE. 

HVBP Adjustment Factor
The hospital’s HVBP adjustment factor is applied to the base DRG payment amount for each claim, prior to any other adjustments. The HVBP adjustment is added (if positive value) or subtracted (if negative value) from the TRICARE allowed amount in order to determine the final claims payment amount. 

Adjustment rates are based on the date of admission. If a hospital does not have an adjustment factor listed on the CMS IPPS Final Rule Table, it is assumed the hospital does not participate in HVBP and no change to the base DRG payment will be made. 

Hospitals excluded from IPPS are not subject to HVBP. These include psychiatric hospitals; rehabilitation hospitals; long-term care (LTC) hospitals; children’s hospitals; critical access hospitals (CAHs); PPS-exempt TRICARE cancer hospitals, and hospitals in the state of Maryland.


New Technology Add-On Payments

New Technology Add-On Payments, or NTAPs, allow for more appropriate reimbursement for new medical services and technology not yet included in DRG rates. TRICARE adopted CMS' NTAP reimbursement methodology for new services/technology not yet in the DRG, under IPPS. CMS evaluates new technologies that may raise the cost of care beyond the base DRG payment – taking into account newness, clinical benefit and cost – to determine which qualify for an NTAP.

TRICARE’s adoption of NTAPs applies to hospital discharges on or after Jan. 1, 2020. Pediatric-specific NTAPs apply to hospital discharges on or after July 1, 2022. For TRICARE-specific NTAP requirements, refer to TRM, Chapter 6, Section 11.

For pediatric inpatient hospital claims, pediatric NTAPs may be applied when reimbursement is equal to the lesser of:

  • 100% of the average cost of the technology, or
  • 100% of the total covered costs that exceed the Medicare Severity (MS)-DRG payment.

For non-pediatric inpatient hospital claims, NTAPs may be applied when reimbursement is equal to the lesser of:

  • 50% of the amount by which total covered costs exceed the MS-DRG payment, or
  • The maximum NTAP payment amount for the specific technology.

Per law and regulation, NTAPs are allowed until they are incorporated into the DRG, which can take between two and three years. Visit CMS’ New Medical Services and New Technologies page for more information. The reimbursement amounts in the IPPS Final Rule represent the maximum add-on payment for each NTAP. CMS updates maximum NTAP payment amounts annually.

TRICARE-Designated NTAPs

The Defense Health Agency establishes TRICARE-designated NTAPs for covered services and supplies for which CMS has not established an NTAP adjustment for DRGs. Technology manufacturers may submit a TRICARE NTAP application to request a new
TRICARE-designated NTAP. Applications must be received by July 8 of the preceding fiscal year for which the TRICARE-specific NTAP is to be considered. 

Once available, we'll post the application and submission instructions on our Forms page.