Ambulatory Payment Classifications APCs

Definition APC stands for Ambulatory Payment Classifications System for reimbursing acute care facilities for outpatient services (e.g., Outpatient Prospective Payment System or OPPS) Developed because of success of DRGs

History of APCs OBRA – 1986 BBA – 1997 BBRA - 1999 CMS directed to develop OPPS 3M won bid 1988 APGs developed by 1990 but not implemented BBA – 1997 CMS to implement PPS by 1999 BBRA - 1999 APCs implemented 2000 OBRA required OPPS to 1) use HCPCS 2) for ambulatory surgery, ER, outpatient clinic 3) must develop by 1991 and include only facility costs (example, room, medical and surgical supplies APGs implemented by many payers BBRA included 1) requires annual review and update 2) expert advisory panel 3) coinsurance limited 4) pass-through payment items and outliers

What are APCs?? Outpatient Payment Groups Groups of codes with a fixed payment amount Based on HCPCS codes Both Level 1 and Level 2 used Codes in the same APC must have Comparable clinical aspects Comparable resource consumption APCs created in effort to control rising costs and still provide adequate reimbursement to hospitals. Each APC has a fixed reimbursement amount. Hospitals are encouraged to keep costs down since they know how much they will be reimbursed. Also, hospitals share in the benefit when costs are low and share in the loss when costs are higher than usual.

Why Another Payment System? There was a rapid growth in outpatient services and ambulatory care expenditures and payments. Some of the reasons were: Cost efficiency incentives in the inpatient PPS (DRGs) Medicare’s 1982 decision to qualify and recognize facility payment of ASCs (Ambulatory Surgical Centers) Some private insurer incentives to hospitals to treat their beneficiaries in the outpatient setting The decline in inpatient revenue due to DRGs Advancements in medical technology (i.e. anesthetics and laparoscopes) Prior to APCs implementation, 11 outpatient methodologies were used by CMS to reimburse hospitals and other ambulatory facilities for costs incurred when treatment Medicare beneficiaries. However, multiple payment methodologies can result in the following three major problems: Hospitals find they can increase outpatient charges in order to offset inpatient loses under the DRG system. Outpatient costs are more difficult to monitor than inpatient costs Overpayment of outpatient services sometimes occurs.

Purpose of APCs Cost control Efficiency Facilitate payment Address beneficiary coinsurance issues Payment rates are determined in advance and are fixed for the fiscal year in which they are incurred. Prospective payment rates are paid in full Hospitals retain the profits or suffer losses based on actual vs projected costs Copayment limited to inpatient coinsurance amount $840 for 2003 where previously copayments remained at 20% and could become very prohibitive in the course of a year for outpatient services

Key Aspects of APCs Packaging Discounting Services like laboratory (still paid on a fee schedule basis), most supplies, anesthesia, intraocular lenses, and observation care are included in the APC payment Drugs, pharmaceuticals, and biologicals usually not bundled Discounting Multiple procedures provided during the same patient encounter are provided at lower cost than they would be if provided at separate encounters Applies to services with status indicator T

Key Aspects of APCs Fixed payment rate Three Year Transition Period Hospitals and payers know in advance how much they will be paid for certain services Three Year Transition Period Transitional corridors allowed for a three-year period that limited the payment reductions to hospital under OPPS Fixed payments help to control and predict costs and also encourage efficient use of resources to maximize reimbursement Packaged services include drugs, pharmaceuticals, and biologicals. Surgical services include use of the OR or procedure room, the recovery room, an observation bed, anesthesia and supplies for administering and monitoring anesthesia, medical and surgical supplies and equipment, dressings, intra-ocular lenses, capital costs, costs incurred for procedure donor services, other minor services (e.g., venipuncture) Discounting refers to multiple procedure discounts

How Are APC Groups Created HCPCS codes are grouped together because they have Similar clinical aspects Pacemakers can’t be grouped with bronchoscopies even if resource usage is similar Comparable resource consumption Clinically similar codes are grouped by the cost to perform the service Two Times Rule

Two Times Rule Requirement HCPCS codes grouped into APCs based on comparable resource utilization Median costs determined for each HCPCS code Average cost for each HCPCS code within a specific APC Codes are not similar if the resource costs of the highest HCPCS is more than 2 times the cost of the lowest Exceptions example, low use codes

Status Indicators Letters assigned to each HCPCS code to indicate its payment status Examples “C” status indicator Inpatient only list “A” status indicator Other (non-APC payment system) “G” and “H” status indicators Payment by pass-through “T” status indicator Payment under APCs and subject to multiple procedure discount List of status indicators in handout

Types of Services Under APCs Service with status indicators K, S, T, V, X Outpatient evaluation and management (status V) Outpatient surgery (status S or T) Outpatient ancillary services Radiology services (status S and X) Pathology and laboratory services (status X) Medical testing and evaluations and injections and infusions performed in the outpatient facility (status K, S, T and X) Certain drugs and biological (status K) Other services and supplies are either not paid separately, not covered, or paid via other methods

More About Status Indicators Significant procedures with status (T) are paid at a reduced rate when performed with other procedures during the same visit Significant procedures with status (S) are not discounted when multiple procedures are performed When an S procedure is performed with other procedures, the S still receives full reimbursement Services with a status (N) are bundle into other APCs and are considered incidental A cardiac catheterization code drives the APC payment Ventriculography, coronary angiography, and S&I codes are all bundled into APC for a heart catheterization

Exceptions to Fixed Payment Rates Outliers Pass-through items New technology

Outliers Outlier Payments mandated by BBRA-1999 Outlier threshold Multiply the total costs for services eligible for APC payment by an outpatient cost to charge ratio Costs must exceed 2.5 times more than the APC payment Less than 2.5 times more is considered standard fluctuation in cost of care Outlier payment is 75% of the amount that the cost exceeded the payment Originally computed per claim; now computed per service As we know, the purpose of APCs is to reimburse facilities for the use of their resources. This includes rooms, supplies and personnel. When a patient’s treatment requires an unusual amount of resource consumption, this is called an “outlier”. Outliers were not originally part of the APC system. But the Balanced Budget Refinement Act of 1999 required outlier payments so this was implemented and was part of the system from its implementation in 2000. Determination of the eligibility of a claim for payment as an outlier is based on an outlier threshold. The threshold determines the specific payment amount that the costs must exceed the APC payment in order to qualify for outlier payment.

Transitional Pass-Through Payments Additional temporary payments – 2 to 3 years Allows evaluation of cost data for APCs Specific drugs, devices and biologicals Chemotherapy drugs and adjuvant and supportive drugs used with them Immunosuppresive drugs Orphan drugs (by FDA definition) Radiopharmaceuticals New medical devices, drugs, and biologic agents Not paid as a hospital outpatient service as of 12/31/96 And cost of the items is significant Coinsurance may be less than 20% The BBRA 1999 requires CMS to make additional payments (over-and-above the APC group payments) to hospitals for a period of 2 – 3 years for specific items. The law designates the following items: Chemotherapy drugs and adjuvant and supportive drugs used with them Immunosuppresive drugs Orphan drugs (by FDA definition) Radiopharmaceuticals New medical devices, drugs, and biologic agents where both of the following statements are true Not paid as a hospital outpatient service as of 12/31/96 And cost of the items is significant Although Medicare beneficiaries pay a copayment of 20%, for these items they may pay less because of the amount of the pass-through.

New Technology APCs Specific APC groups created for new treatment technologies Services that do not fit into any other APC Temporary payments during assessment periods

Outpatient Evaluation and Management Codes Describe use of space in facilities Describe use of supplies in facilities Describe involvement of hospital employees in E/M services Can’t Be Used If… Patient admitted within 48 hours Patient taken to surgery Patient receives other global service Example: Dialysis

Codes with Status V Only codes used in outpatient settings Outpatient clinic Office or Other Outpatient Service (99201 – 99215) Office or Other Outpatient Consults (99241 – 99245) Confirmatory Consults (99271 – 99275) HCPCS exams (G0101, G0175, G0245, G0246, G0264) Ophthalmology codes for appropriate exams (92002 – 92014) Patients in observation status Hospital Observation Services (99217 – 99220 and 99234 – 99236) Emergency Room Emergency Department Services (99281 – 299285)

APCs for E/M Codes for E/M visits route to 6 APC groups APC 0600 Low-level clinic visits 92012, 99201, 99202, 99211, 99212, 99241, 99242, 99271, 99272, 99431, G0101, G0245, G0246, G0264 APC 0601 Mid-level clinic visits 92002, 99203, 99213, 99243, 99273 APC 0602 High-level clinic visits 92004, 92014, 99204, 99205, 99214, 99215, 99244, 99245, 99274, 99275, G0175 APC 0610 Low-level emergency visits 99281, 99282 APC 0611 Mid-level emergency visits 99283 APC 0612 High-level emergency visits 99284, 99285

CMS on Level of E/M Service Hospitals identify and follow a method for choosing the level of service "As long as the services furnished are documented and medically necessary and the facility is following its own system, which reasonably relates the intensity of hospital resources to the different levels of HCPCS codes, CMS will assume that it is in compliance with these reporting requirements." There should not be a high degree of correlation between the code reported by the physician and that reported by facility.

Choosing the Level of Service Systems for choosing the level of E/M are developed by each facility Facilities must follow their own systems Facility codes would not often match providers “New" and "established" pertain to whether the patient already has a medical record Use 99281 for screening services in the ER when no treatment is furnished

CMS on Documentation Facilities that use documentation to determine the level of E/M have little problem supporting the codes. If physicians, nurses, or clerical staff assign codes without reference to documentation, routine periodic audits should be performed to ensure that documentation supports the level of service This includes facilities that crosswalk to link their acuity levels to E/M codes. Documentation is the final arbiter of the level of service Inappropriate assignment of E/M codes is viewed as a compliance issue

Observation Care Originally packaged item Bundled into ER and Surgery APCs Separate payment now allowed for 3 diagnostic categories: Chest pain Asthma Congestive heart failure May use admitting diagnosis Patient must be in observation for at least 8 hours and no more than 48 hours Until 2003 bundled into all ER and surgery payments. Policy includes specific payable HCPCS code G0244 for APC 339. Must be associated with another E/M or critical care code for payment. As of 2003 may use admitting diagnosis to justify payment, rather than principal diagnosis

Critical Care Critical care is classified as a "significant procedure" (APC 0620) under the OPPS. Hospitals use code 99291 to report outpatient critical care services Used in place of a code for a medical visit or emergency department service. Use CPT definition of "critical care" and coding guidelines Exceptions Facilities only paid for one period time with code 99291 Services usually bundled into Critical Care codes may be billed separately when furnished on the same day

Other Coding Difference Surgery package includes all anesthesia but does not include pre- and post-operative global visits Bill with separate E/M when provided in facility-based clinic Do not use global maternity codes Use “Delivery Only” codes and code for prenatal and postnatal care with E/M codes if provided in facility-based clinic Do not use “global” codes (i.e., with interpretation and report) for services like EKGs Use the “tracing only” codes

Inpatient Only List Status Indicator “C” Services that must be performed inpatient due to Invasive nature of procedure Need for at least 24-hours of recovery or monitoring time before the patient can be safely discharged Performance in the inpatient setting because of underlying condition of patient Codes removed from list due to re-evaluation and technology changes 2003 allowed payment for Inpatient Only services in outpatient for emergencies An early list had over 1,000 codes on it, but changes in technology and available types of procedures have reduced number and every year more codes are removed from the inpatient only list. Also, as of this year may be paid in outpatient if emergency procedure.

ASC List ASC is Ambulatory Surgery Center Free-standing outpatient surgery center not associated with a hospital ASC list includes procedures that require ORs but not admission for procedure or recovery Procedures not on ASC list are “out-of-scope” Procedures that might be performed in outpatient but might require emergent admission Cannot be ASC if a TIN is shared with a hospital.

Factors in APC Payment Calculation Relative weight Conversion factor Wage adjustment factor Copayment Annual updates affect – APC groups, payment adjustments, conversion factor, and payment weights Relative weight is the resource intensity of a specific HCPCS code. The relative weight is multiplied by the conversion factor to reach a reimbursement amount. The conversion factor is a monitary multiplier that is used to convert the relative value to the fixed payment amount for each APC. This conversion factor is developed from information reported by the facility each year. The wage adjustment factor takes into consideration geographic differences in wages to create an adjustment factor. This factor is applied to the portion (60%) of each APC’s reimbursement that is attributed to the work of individuals providing the services. Finally, the copayment amount is also calculated in advance. APC payment is the total APC amount minus the copayment. These factors are updated annually. Calculating the exact reimbursement for each APC is actually quite complex but once calculated, the same amount is paid each time.

Other Outpatient Facility Payment Systems Fee schedule Outlier and pass-through payment Composite rate methodology Fee schedule for lab and for DME Extraordinatory or extreme services and new technology and drugs (discussed more later Dialysis paid by composite rate

UB-92 and APCs Importance of coding in APC system UB-92 Codes Dates of Service Service units Bill Type Revenue Codes Reimbursement based on correct coding and correct use of modifiers. HCPCS codes and modifiers placed in field 44 of the UB-92 form. Up to 32 codes per form, but only two modifiers per HCPCS code. The date of service and service units must be shown for each procedure. Forms without correct dates of service or unit amounts are returned without being processed. Dates of service are particularly important as they must match documentation. Also, dates of service that overlap dates the patient has been treated as an inpatient will not be paid. The bill type is in field 4 of the UB-92 and indicates the type of facility sending the bill (e.g., hospital or home health agency), the type of service being billed for (e.g., inpatient vs outpatient), and also the “frequency” (e.g., is this bill for the entire service or is it a periodic bill for a partial service). The bill type is generally very straightforward for APC billing. The type of facility is hospital, the type of service is outpatient and the frequency is entire. But this same form is used for billing many types of services and this information is required on the form. Revenue codes tie APCs and HCPCS codes to specific revenue centers. These revenue centers may reflect the type of service performed or even the location where the service is performed. The revenue centers are required for each HCPCS code.

Annual Updates and Changes Required by law and may change APC groupings Payment adjustments Conversion factor Payment weights Changes to APCs may result from Changes in technology Changes in CPT codes Codes removed from Inpatient Only List New procedures or services CMS publishes Proposed Rule for comments Final Rule is issued after comment period and any adjustments

2001 Changes Revisions to APCs due to new or deleted HCPCS codes Procedures removed from Inpatient Only list APCs reconfigured for some devices removed from pass-through list New APCs for Radiology using contrast

2002 Changes Outlier threshold and payment percentage changed Outlier payment computed per service rather than per claim Observation care payment allowed for three diagnoses Packaging changes New guidelines for pass-through payments Exceptions to the 2-times rule

2003 Changes Exceptions to the Inpatient Only list were made for these services performed in emergencies Observation care payment based on admitting diagnosis Pass-through payments were updated Codes developed for trial billing

2004 Changes Outlier payments revised again Payments for new technology readdressed Nuclear medicine payment system revised Standard system for choosing level of E/M services were not implemented but CMS acknowledged need

E/M Standard CMS received industry criticism for lack of a standard E/M level methodology for all providers. CMS recognized that a national standard is needed. 2002 OPPS proposed rule, CMS deferred comment on establishing a standard. Several organizations submitted their version of E/M criteria. Most hospitals have developed what is called a "point system" for selecting E/M levels A decision on a standard methodology still has not been made

Legislative Changes Several changes have affected APCs since implementation Benefits Improvement and Protection Act (BIPA) Took effect in December 2000 Changes to APCs Accelerate reductions in beneficiary copayment amounts Set up categories of devices for pass-through payment

Outpatient Code Editor Analyzes hospital outpatient claims for coding edits using CCI Validates ICD-9 and HCPCS codes Assigns APCs Identifies errors Indicates actions needed

National Correct Coding Initiative The NCCI is a set of billing edits developed by HCFA to identify coding patterns resulting in overpayment to the providers More than 107,000 Correct Coding Initiative edits are incorporated into the outpatient code editor for OPPS Edits determine what procedures and services cannot be billed at the same time when they are furnished for the same patient on the same day

Assignment of Codes and APCs Appropriate procedure and diagnosis codes are extracted from the medical record Encoding software helps with bundling issues and assignment of APCs Codes may also be assigned in specific departments Related charges are added by the Chargemaster

Charge Description Master (CMD) A computerized master price list of everything the facility can prove to patients Includes supplies, diagnostic tests, pharmaceuticals, procedures, and other room time Hundreds of thousands of items are included in chargemaster to link services provided in a hospital and the generation of claim forms Chargemaster is maintained by the Chargemaster Coordinator including Annual updates (e.g., code changes) Updates specific to the CDM Monthly audits to determine whether bills follow billing regulations

CDM Continued Some claims are generated almost entirely from the Chargemaster Chemotherapy Interventional radiology Radiation therapy Some services that previously were chargemaster driven require coding to be performed by the HIM department under APCs

Significant Abbreviations CMS Center for Medicare and Medicaid Services DME Durable Medical Equipment DRG Diagnosis Related Group HCPCS Healthcare Common Procedure Coding System OBRA Omnibus Budget Reconciliation Act OPPS Outpatient Prospective Payment System APC Ambulatory Payment Classification APG Ambulatory Patient Group ASC Ambulatory Surgery Center BBA Balanced Budget Act BBRA Balanced Budget Refinement Act CDM Charge Description Master