Understanding Outpatient Payment Schemes

By Dr. David E. Marcinko; MBA, CMP™

By Hope R. Hetico; RN, MHA, CMP™ 

www.HealthcareFinancials.com

Some physicians are still unaware of the Medicare payment regulations implemented a few years ago regarding outpatient or ambulatory care.  

Ambulatory Payment Classifications (APCs), originally termed Ambulatory Payment Groups (APGs), replaced former cost based, or cost plus reimbursement contracts for outpatient services.  

Much like Diagnostic Related Groups (DRGs), which were enacted for hospitals in 1983 and divided disease management into groups (based on ICD-9-CM diagnoses, procedures, age, sex and discharge disposition), APCs changed the hospital and IPA landscape, forever.  

The Federal Government planned this shift to prospective payments through its Outpatient Prospective Payment System (OPPS) for more than a decade, as a result of the Omnibus Budget Reconciliation Act (OBRA) of 1986.  

Defining the APC

The Ambulatory Payment Classifications (APCs) system was designed to explain the amount and type of resources utilized in outpatient visits.

Each APC consisted of patients with similar characteristics and resource usage and include only the facility portion of the visit, with no impact on providers who were paid from the traditional CPT-4 fee schedule and modifier system.

This effectively eliminated separate payments for operating, recovery, treatment and observation room charges [fragmentation]. Anesthesia, medical and surgical supplies, drugs (except those used in chemotherapy), blood, casts, splints and donated tissue were packaged into the APC. Unbundled, fragmented or otherwise separated codes were eliminated from claims prior to payment.  

APC Types 

APCs group most outpatient services into classes according to ICD-9-CM diagnosis and CPT-4 procedures. This included surgical APCs, significant APCs, medical APCs, and ancillary APCs.

Surgical, significant and ancillary APCs were assigned using only the CPT-4 procedure codes, while medical APCs were based on a combination of ICD-9-CM and E&M CPT-4 codes.

Evolving Impact 

The full impact of this regulation on facilities and IPAs is still evolving but it seemed to decrease reimbursement for about 75 percent of all ambulatory facilities. This occurred because the initial variable used in reimbursement determined the principle procedure.

Payments were then calculated for each APC by multiplying the facility rate, times the APC weight, times a discount factor (if multiple APCs are performed during the same visit). Total payment was the sum of the payments for all APCs.

However, no adjustment provisions are made for outliers or teaching facilities, rural hospitals, disproportionate share or specialty hospitals or facilities. 

Affected OPPS Facilities 

Facilities affected by Medicare’s OPPS include those designated by the Secretary of Health and Human Services, such as hospital outpatient surgical centers, hospital outpatient departments not part of the consolidated billing for Skilled Nursing Facility (SNF) residents, certain preventative services and supplies, covered Medicare Part B inpatient services if Part A coverage is exhausted, and partial hospitalization services in Community Mental Health Centers (CMHCs).  

Exempted facilities include clinical laboratories, ambulance services, End Stage Renal Disease (ESR) centers, occupational and speech therapy services, mammography centers and Durable Medical Equipment (DME) suppliers. The remaining facilities experienced a slight payment increase. 

Time-Line to Launch 

Although the Balanced Budget Act (BBA) of 1997 required an OPPS implementation by January 1, 1999, Y2-K concerns initially delayed implementation until “as soon as possible after January 1, 2000.” This delay meaningfully led to a Y-2001 implementation date and functionally to a Y-2002 date. APCs are fully implemented in Y-2008. 

Relevance of APCs 

APCs are relevant to medical investors, hospital administrators, IPA physician executives and those physicians who use hospital or ambulatory wound care centers, physical therapy centers, emergency rooms and clinics, and hospital or Ambulatory Surgical Centers (ASCs).

Moreover, confusion was a hallmark of the regulations since coding challenges were many and complex.  

For example, ensuring that all visits are coded accurately, completely and specifically is difficult. Other billing challenges include multiple visits on the same day, recurring and line item services, lack of pre-billing edit capacity, handling or late fees, reconciliation of billed versus paid amounts, and the clarification of provider based status, to name a few. 

Assessment 

Obviously, it is safe to say that while some hospitals languished and collapsed under the DRG systems, others flourished. Similarly, if outpatient facilities are to be successful in the futuristic OPPS / APC era, transition planning, monitoring and APC implementation and management must continue now, as it gains momentum in the future.  

Conclusion

And so, as a physician or healthcare executive of a medical facility, what has been your experience with APCs during the past five years, and how has their segmentation into even more classes [tranches] for 2008 affected you? Please comment and opine.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com  or Bio: www.stpub.com/pubs/authors/MARCINKO.htm

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