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Regulations that Impact Medical Practice Value

Understanding USPAP Standards

Dr. David E. Marcinko; MBA, CMP™

Hope R. Hetico; RN, MHA, CMP™  

 

When a medical practice changes ownership, both the buyer and seller need to understand how industry regulation impacts practice value, as well as have an appreciation for accepted appraisal definitions and methodologies used by qualified appraisers to estimate value.   

Uniform Standards of Professional Appraisal Practice [USPAP] 

USPAP standards are promulgated to provide the minimum requirements to which all professional appraisals must conform. USPAP requires the three recognized approaches to value (the income, market, and cost approaches) be considered to estimate value. 

History 

In the fall of 1994 and 1995, the IRS first issued training guidelines pertaining to the valuation of physician practices. These guidelines suggest that appraisers consider all three of the general approaches to valuation as required by the USPAP. 

Valuation Approaches

Specifically in transactions involving physician organizations, the IRS implied: 1. The discounted cash flow (DCF) analysis is the most relevant income approach. 2. The DCF must be done on an “after-tax” basis regardless of the tax status of the prospective buyer. 3. Practice collections must be projected for DCF based on reasonable and proper assumptions for the practice, market, and health industry. 4. Physician compensation must be based on market rates consistent with age, experience, and productivity. 

Conclusion

And so, what is your experience with the above USPAP regulations, or are they new to you? 

NOTE: For comprehensive institutional information on this topic, please subscribe to our premium, 1,200 pages, 2-volume quarterly print subscription guide: Healthcare Organizations [Financial Management Strategies]       http://www.stpub.com/pubs/ho.htm  OR  www.HealthcareFinancials.com  

Speaker: If you need a moderator or a speaker for an upcoming event, Dr. David Edward Marcinko; MBA is available for speaking engagements. Contact him at: MarcinkoAdvisors@msn.com

On Ambulatory Payment Classes [APCs]

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Understanding Outpatient Payment Schemes

[By Dr. David E. Marcinko; MBA, CMP™]

[By Hope R. Hetico; RN, MHA, CMP™ ]

David and HopeSome 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.

The Duopoly

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?

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

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