Ambulatory Payment

Classifications

APCs

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

History of APCs
OBRA 1986
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 - 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
(DRGs)
2. Medicares 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
Efficiency
Facilitate payment
Address beneficiary coinsurance
issues

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
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

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
OPPS

How Are APC Groups Created

HCPCS codes are grouped together
because they have
Similar clinical aspects
Pacemakers cant 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

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

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
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

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

Exceptions to Fixed Payment Rates

Outliers
Pass-through items
New technology

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

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
Cant 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
92014)

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
service
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

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

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
EKGs
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
discharged
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
admission

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

Other Outpatient Facility Payment

Systems
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

comments
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
payments
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
readdressed
Nuclear medicine payment system
revised
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
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

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

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
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

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

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

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

Significant Abbreviations

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

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