APGs & APCs
Ambulatory Patient Groups
& Ambulatory Patient
Classifications
What are APCs
• Method used to pay hospitals &
ambulatory surgery centers for
outpatient services using a
prospective payment system (PPS)
– Providers receive fixed payments for
individual services
– Services assigned to various APC
categories
What are APCs
• APCs developed from Ambulatory
Patient Groups (APGs)
• Amount & type of resources used in
an outpatient visit are grouped in
APC categories
• Services in each APC have similar
clinical characteristics, resource
use, & cost
What are APCs
• Each APC group assigned a weight
value applied to a conversion factor
to yield a hospital payment
– Conversion factor for 1999 = $51.42
– Based on 1996 data from claims paid &
cost data
Why APGs Were Developed
• To encompass the full range of
ambulatory settings
– i.e. same day surgery units, hospital
emergency rooms, outpatient clinics
• To represent ambulatory patients
across the entire patient population
• To differentiate facility & control costs
– Variation from RBRVS
• To focus on primacy of hospital care
Current vs. Proposed System
• Example: current system
– Total charges =
$5,963
– Copay (20%) =
$1,193
– Total MC allowable = $3,578
– MC payment (80%) = $2,862
• Example: proposed system with outpatient PPS
– Total charges =
$5,963
– Copay (20%) =
$1,193
– Total MC allowable = $3,578
– Actual copay (33%) = ($1193)
– Total MC payment = $2,385
Current vs. Proposed System
• Variance between systems
Difference = Proposed (outpatient PPS) - Current
= $2,385 - $2,862
= ($477)
– Increased cost control with proposed
system of outpatient PPS
Cost Reductions With
Outpatient PPS
• Congressionally mandated
– 5.8% reduction in amounts payable for
hospital operating costs
– 10% reduction in amounts payable for
hospital capital costs
• Scheduled sunset 9/30/98
• Extended through 12/31/99
Steps in Developing APGs
1 Choosing initial classification
variable
– DRGs used major diagnostic categories
– APCs use procedure categories
2 Partition procedures into set of
mutually exclusive procedure groups
– Inpatient only vs. outpatient
Steps in Developing APGs
3 Procedures done on ambulatory
basis then assigned to a class
– Significant procedure
• Constitutes reason for visit
– Ancillary service procedure
• Ordered to assist in diagnosis & treatment
Steps in Developing APGs
4 Significant Procedure APGs then
divided into groups of CPT-4 codes
based upon body system associated
with the procedure
– Integumentary system
– Musculoskeletal system
– Respiratory system
– Cardiovascular system
– Hematologic, lymphatic, & endocrine system
Steps in Developing APGs
4 APGs divided based upon body
system (cont.)
– Digestive system
– Urinary system
– Male & female genital system
– Nervous system
– Eye & ocular adnexa (accessory parts)
– Facial, ear, nose, mouth, & throat
Steps in Developing APGs
4 APGs divided based upon body
system (cont.)
– Therapeutic & other significant radiology
procedures
– Physical medicine & rehabilitation
– Mental illness & substance abuse therapies
Steps in Developing APGs
5 Each significant procedure then
assigned to a body system & subdivided
into clinically similar classes
– Example: classes of surgical procedures
– Example: classes of medical procedures
– Signs, symptoms, & findings + underlying
disease provides indication extensiveness
of condition
Steps in Developing APGs
Example: Classes of Surgical Procedures
Variable
Site
Extent
Purpose
Type
Method
Device
Medical Specialty
Example________________
Face, hand, etc.
Excision size 2 cm x 20 cm
Diagnostic or therapeutic
Incision, excision, or repair
Surgical, endoscopic, etc.
Insertion or removal
Urology, gynecology, etc.
Steps in Developing APGs
Example: Classes of Surgical Procedures
• Method = primary classification variable
• Extent of procedure also important
• Medical specialty, although classified as a
variable, not important
• Procedures performed by different medical
specialties are placed in different APCs
Steps in Developing APGs
Example: Classes of Medical Procedures
Variable
Etiology
Body system
Type of disease
Medical specialty
Patient age
Patient type
Complexity
Example________________
Trauma, malignancy, etc.
Respiratory, digestive, etc.
Acute, chronic
Internal medicine, pediatrics
Pediatric, adult
New, old
Time required, treatment
Steps in Developing APGs
Example: Classes of Medical Procedures
• Primary variable forming medical APC is
diagnosis coded as reason for visit-etiology
• Visit complexity also important because it
influences number of visits + overhead costs
Steps in Developing APGs
6 Development of ancillary service
APGs
– Laboratory APGs assigned as a
function of different lab departments
• i.e. hematology, microbiology, toxicology
• Testing method also used
• Different methods for performing same
test assigned to same APC
• Also differentiated based on test
complexity
Steps in Developing APGs
6 Ancillary service APGs (cont.)
– Radiology APCs assigned as a
function of equipment used
• i.e. MRI, CAT, plain film
• Nuclear medicine separated into
diagnostic & therapeutic groups
• Five radiologic procedures are considered
significant procedures because they are
interventional & meet definition of
Significant Procedure
Steps in Developing APGs
6 Ancillary service APGs (cont.)
– Pathology divided into two APGs as a
function of complexity
• PAP Smears assigned separate APG
– Anesthesia assigned to single APG
Steps in Developing APGs
6 Ancillary service APGs (cont.)
– Chemotherapy divided into two
significant procedures as a function of
route of administration
• Intravenous
• Continuous infusion
• Five additional chemotherapy APGs
formed as a function of cost of
chemotherapy drugs
Steps in Developing APGs
6 Ancillary service APGs (cont.)
– Other ancillary tests & procedures
• EKGs
• Pulmonary function tests
• Vascular tests
Steps in Developing APGs
6 Ancillary service APGs (cont.)
– Ancillary APGs performed as part of
medical visit & add to cost of visit
• Immunizations
• Biofeedback
• Tube changes
• Minor reproductive procedures
• Needle or catheter introduction
• Minor ophthalmological procedures
Components of APC-Based
Outpatient PPS
• Basis of payment weights
– Charges or costs
– Higher if computed from historical
charges
– Therefore, historical cost basis more
likely
Components of APC-Based
Outpatient PPS
• Ancillary packaging
– Inclusion of certain ancillary services
into APC rate for significant procedure
or medical visit
– Full packaging of all routine low cost
procedures is likely
Components of APC-Based
Outpatient PPS
• Outlier policy
– Covers atypical cases having higher
costs than APC payment amount
– A stop loss provision
– Likely to be minimized
Components of APC-Based
Outpatient PPS
• Discounting
– When multiple significant procedures
are performed or when same ancillary
procedure performed multiple times
• Window of time for ancillary
packaging
– Can be expanded well beyond the day
of a visit
APC Payment System
• Patient is described by list of APCs
corresponding to each service
provided to that patient
• Contrast to DRGs
– Multiple APCs can be assigned to a single
patient whereas DRGs form a hierarchy
• Example: Patient has two procedures
performed + chest x-ray + blood test
– Four APCs are assigned
APC Payment System
• Incentives to encourage efficiency &
to stanch upcoding are built into
system
– Ancillary packaging
• Services that contribute to the cost of
services in an APC but which are not paid
for separately
• i.e. chest x-ray packaged with patient
pneumonia visit
APC Payment System
• Incentives (cont.)
– Ancillary discounting
• Multiple procedures
– 100% of APC with highest payment rate & 50%
for all other APCs
– i.e. multiple significant procedures performed or
same procedure performed multiple times
• Two surgical procedures performed at same
time but the cost of prep & use of procedure
room is shared by procedures
• Therefore a discount is applied
• Terminated procedures
APC Payment System
• Use of beneficiary copayment
– National unadjusted copayment using
1996 median charges + 135 for 1999
• Multiplied by 20%
– Minimum copayment
• Payment rate x 20%
APC Payment System
• Medicare payments
– Wage adjusted APC payment
– Pay the lesser of the program
percentage determined for each APC
or 80%
Example: APC Payment
• Breast biopsy:
• Relative weight (RW):
• Conversion factor (CF):
APC 197
11.94
$51.42
Proposed Payment Rate = RW x CF
= 11.94 x $51.42
= $613.95
Total Payment = $613.94 + patient copay
Number of APCs
APC Type____________________# of APCs
Significant procedure
47
Procedure
133
Ancillary services
44
Visits to clinic & ER
120
Partial hospitalization services__
1___
TOTAL 345
Update:10/3/99
Outpatient Services Grouped
into APCs
• Partial hospitalization services
furnished in community mental
health centers & hospitals
• Surgical procedures
– Designated only
• Radiological procedures
– Includes radiation therapy
• Diagnostic services & tests
Outpatient Services Grouped
into APCs
• Screening tests that are covered
– i.e. colorectal screening
• Medical services & covered vaccines
when furnished by a provider of
services
– Medical services include antigens, splints,
casts, etc.
– Vaccines include pneumococcal,
influenza, hepatitis B, etc.
Outpatient Services Grouped
into APCs
•
•
•
•
•
Clinic visits
Emergency Department visits
Chemotherapy for cancer
Surgical pathology
Supplies
– i.e. surgical dressings
Outpatient Services Grouped
into APCs
• Services furnished to SNF inpatients
exempt from consolidated billing
– i.e. MRI, CT scans, cardiac catheterization,
ambulatory surgery, ER visits, angiography,
lymphatic & venous procedures, radiation
therapy, etc.
• Services furnished to inpatients who
have exhausted Part A benefits or
otherwise not covered under Part A
Advantages of APCs
Advantages of a Visit-Based
APC PPS
• Many similar services are aggregated
thereby reducing the number of
service units
• Need to establish separate payment
rates for minor differences in the unit
of service is eliminated
– i.e. 99211 vs. 99212
Advantages of a Visit-Based
APC PPS
• Opportunity for unbundling units of
service is greatly reduced
• Financial incentives as used package
ancillary services efficiently
• Multiple procedures during a single
visit reasonably compensated but not
excessively rewarded
Advantages of a Visit-Based
APC PPS
• Payment of medical visits a function
of type of patient treated, not level of
effort reported by physician
• Ultimately, greater control of costs
• Expected that other third party payers
will follow HCFA’s lead in using APCs
for outpatient reimbursement
– i.e. DRGs, RBRVS
Implementation of APCs
Implementation Issues to be
Addressed
• Volume of visits
– Must work to minimize incentives to
increase visits for certain services
• Upcoding & fragmentation of
procedure codes
– New compliance issues for providers
Implementation Issues to be
Addressed
• Identification of visits
– Clear rules needed on reporting dates of
service, what revenue trailers are to be
permitted or prohibited, & how how batched
bills are to be submitted
• Shift of ancillaries to non-hospital
settings due to ancillary packaging
– Must be able to identify hospital-ordered
procedures performed in non-hospital setting
Implementation Issues to be
Addressed
• Payment of ancillaries ordered
outside of hospital
– Must be mindful of incentives to shop for
most advantageous price to the provider
• Applicability
– Will PPS be applicable to non-hospital
entity providing similar services
Implementation Issues to be
Addressed
• Consistency with inpatient payment
levels
– Must be mindful for financial incentives
to move patient services
Implementation Issues to be
Addressed
• Computation of prospective APC
payment rates
– Must watch to see if a practice’s
historical cost structure has been too
high
– This will peg APC too high
Implementation Issues to be
Addressed
• Hospital specific payment
adjustments
– Need to be careful regarding inclusion of
adjustments for labor costs & outliers
• Can render APCs at too high a level
– Can occur when single procedure
reported using multiple procedure codes
Implementation of APCs
• APC implementation projected to
occur between July 1, 2000 and
January 1, 2001
Preparing for APCs
Activities to Prepare for APCs
• Budgeting & planning
– Estimate expected revenues
• Focus activities
– Categorizing services appropriately
– Training for physicians
– Accurate coding
• Develop baseline to evaluate progress
– Goals to decrease errors & increase
reimbursement
Provider Responsibilities
• Accurate & complete coding for
services
• Adequate documentation in medical
records to support APC category
assignments
Importance of Data Quality
• Quality of data recorded on claims
will directly affect reimbursement
– Providers will either undercode or
overcode
• Quality of provider’s historical
claims data will affect ability to
evaluate potential impact of APCs
Balanced Budget Act
Balanced Budget Act of
1997
BBA of 1997
• Enacted August 5, 1997
• Required HCFA to adopt an
outpatient PPS by January 1, 1999
– Delayed due to Y2K issues
Balanced Budget Act
Revisions
Balance Budget Refinement Act
1999
Key Changes to BBA
• Reverse 5.7% payment reduction in
the conversion factor
– System is supposed to be budget
neutral
– Conversion factor should be calculated
so that fee schedule amounts under
PPS would equal the total amounts
estimated by DHHS to be paid for
outpatient services
Key Changes to BBA
• Transition to outpatient PPS
– 3 year transition to protect against
significant payment reductions
– Affects hospitals & ambulatory surgery
centers
Key Changes to BBA
• Delay PPS implementation for rural
hospitals
– 3 year cost-based reimbursement
option
– Must have less than 100 beds
Key Changes to BBA
• Outlier adjustment for high cost
cases & transitional pass-through
payments for new drugs & medical
devices
– 2-3 year transitional pass-through for
additional costs of innovative devices & drugs
– Payments must be budget neutral & cannot
exceed portion of all outpatient payments
– Due to underpayment & potential prevention
of the introduction of new drugs & devices
Key Changes to BBA
• Limitation on outpatient hospital
copay for a procedure to the
inpatient hospital deductible amount
– Copay cannot exceed inpatient
deductible
– Medicare will increase payment to
hospital to reflect copay reduction
Key Changes to BBA
• Therapy caps moratorium
– Will not apply until implementation of
consolidated billing
– Recommend to include appropriate
utilization & functional status in
payment modifications
Key Changes to BBA
• Secretary required to review
outpatient payment group rates
annually & update when necessary
• Payment for implantable devices
made through outpatient PPS
Administrative Changes
• More homogenous APC groups
– Will also create new APCs where
needed to provide accurate payments
for services provided
– Will prevent payment redistributions
Administrative Changes
• Unbundling of supportive therapies
– Separate APCs for supportive &
adjunctive therapies for cancer
patients
– Originally had reimbursement bundled
with other APC groups
Administrative Changes
• Unbundling of blood products
– Separate APCs for blood, blood
products, & anti-hemophilic factors
– Originally had reimbursement bundled
with surgical procedures &
transfusions
Administrative Changes
• Cost-based payment for corneal
tissue
– Cover actual costs to prevent both
underpayment & overpayment
– Originally bundled with corneal
transplant surgery
Administrative Changes
• Elimination of diagnosis code for
medical visits
– Not required for payment calculations
– Payment was to be based on
procedure (CPT) & diagnosis (ICD-9)
codes
Administrative Changes
• Volume control mechanism delayed
– Gives providers time to adjust to new
system
– Would eventually reduce
reimbursement should hospitals
exceed target patient volumes