Ambulatory Payment
• 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
– CMS directed to develop OPPS
– 3M won bid 1988
• APGs developed by 1990 but not
• BBA – 1997
– CMS to implement PPS by 1999
• BBRA - 1999
• APCs implemented 2000
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
Why Another Payment System?
There was a rapid growth in outpatient services
and ambulatory care expenditures and
payments. Some of the reasons were:
1. Cost efficiency incentives in the inpatient PPS
2. Medicare’s 1982 decision to qualify and
recognize facility payment of ASCs (Ambulatory
Surgical Centers)
3. Some private insurer incentives to hospitals to
treat their beneficiaries in the outpatient setting
4. The decline in inpatient revenue due to DRGs
5. Advancements in medical technology (i.e.
anesthetics and laparoscopes)
Purpose of APCs
Cost control
Facilitate payment
Address beneficiary coinsurance
Key Aspects of APCs
• Packaging
– 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
• Discounting
– Multiple procedures provided during the same
patient encounter are provided at lower cost
than they would be if provided at separate
• Applies to services with status indicator T
Key Aspects of APCs
• Fixed payment rate
– 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
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
– 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
• 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
Types of Services Under APCs
• Service with status indicators K, S, T, V, X
– Outpatient evaluation and management (status
– 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
– 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
• 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
• 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
• 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
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%
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 –
– 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
– 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
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
– 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 postoperative global visits
– Bill with separate E/M when provided in facilitybased 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
– 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
– Performance in the inpatient setting because of
underlying condition of patient
• Codes removed from list due to reevaluation and technology changes
• 2003 allowed payment for Inpatient Only
services in outpatient for emergencies
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-ofscope”
• Procedures that might be performed in
outpatient but might require emergent
Factors in APC Payment Calculation
Relative weight
Conversion factor
Wage adjustment factor
Annual updates affect – APC groups,
payment adjustments, conversion factor,
and payment weights
Other Outpatient Facility Payment
• Fee schedule
• Outlier and pass-through payment
• Composite rate methodology
UB-92 and APCs
• Importance of coding in APC system
• UB-92
– Codes
– Dates of Service
– Service units
– Bill Type
– Revenue Codes
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
– 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
• 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
• Nuclear medicine payment system
• 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
– CMS recognized that a national standard is
• 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
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
• 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
– Encoding software helps with bundling issues
and assignment of APCs
• Codes may also be assigned in specific
– Related charges are added by the
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
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
Significant Abbreviations
– Ambulatory Payment
– Ambulatory Patient Group
– Ambulatory Surgery Center
– Balanced Budget Act
– Balanced Budget
Refinement Act
– Charge Description Master
– Center for Medicare and
Medicaid Services
– Durable Medical Equipment
– Diagnosis Related Group
– Healthcare Common
Procedure Coding System
– Omnibus Budget
Reconciliation Act
– Outpatient Prospective
Payment System

Overview of Ambulatory Payment Classifications (APCs)