1. Ambulatory Payment Classifications APCs

2. 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

3. 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
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

4. 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.

5. 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.

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

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

15. 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.

16. 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.

17. 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

18. 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

19. 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 – and – 99236)
Emergency Room
Emergency Department Services (99281 – )

20. 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

21. 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.

22. 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 for screening services in the ER when no treatment is furnished

23. 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

24. 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

25. Critical Care
Critical care is classified as a "significant procedure" (APC 0620) under the OPPS.
Hospitals use code 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

26. 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

27. 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.

28. 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.

29. 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.

30. 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

31. 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.

32. 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

33. 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

34. 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

35. 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

36. 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

37. 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

38. 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

39. 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

40. 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

41. 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

42. 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

43. 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

44. 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