Info system efficiencies important with APGs

Washington APG experience teaches lessons

[Editor's note: Nancy Hirschl, CCS, director of clinical data services with Cascade Health Information Software of Beaverton, OR, worked with a hospital in Washington state to assist with the implementation of ambulatory patient groups (APGs). Hirschl assisted in conducting reviews of hospital coding, billing, information system protocols, and hospital payment processes. Hirschl discusses the lessons learned from the Washington APG experience.]

ORM: How did the Washington APG program get started?

Hirschl: In 1996, Blue Cross of Washington and Alaska initiated the use of the APG system to reimburse a number of hospitals for all ambulatory encounters. Blue Cross decided to use APGs based on the company's efforts to contain costs and promote more efficient utilization of hospital outpatient services.

With the help of a consulting company, Blue Cross developed payment and rate setting methodologies for its first contract year. Each APG is assigned a relative weight - a number that is used to identify resource intensity. An APG with a relative weight of 1.0 is deemed to possess the average resource utilization and will generate the average APG payment systemwide. APG payment calculation is achieved by multiplying the APG relative weight to the predetermined hospital base rate. The average hospital base rate for the first Blue Cross contract year was $108. Therefore, an APG with a relative weight of 1.0 would generate $108 in reimbursement. As far as I know, Blue Cross did not factor certain variables such as teaching vs. non-teaching and high disproportionate share status into their rate-setting process.

As part of the first year contract, Blue Cross developed a risk corridor of Stop Loss/Gain Reconciliation that protects both the provider and Blue Cross, the payer, from unusual under- or over-payments. The Stop Loss/Gain mechanism was eliminated in the second year contract terms.

ORM: What have you learned from this experience?

Hirschl: Three key points:

First, we learned that all hospital departments including health information, management, information systems, patient accounts, finance, ancillary, and clinical services, affect how the hospital may fare under an APG system. The DRG [diagnosis related group] system, used by Medicare and some other payers to reimburse hospitals for inpatient admissions, is based on demographic data such as patient age, gender, discharge disposition, ICD-9-CM diagnosis, and procedure codes usually generated in the health information management department.

Unlike DRGs, the APG system is driven by CPT-4 codes, some of which are reported from ancillary and clinical departments. Accurate APG assignment rests in part on accurate CPT-4 codes generated from a clean charge description master (CDM). The CDM is a listing of all hospital-provided services and supplies with correlating CPT-4/HCPCS codes, narrative descriptions, revenue codes, and charges. If the CDM lists an invalid or outdated code for a certain radiology service, or if the code's transmission is snagged somewhere between the radiology department and the UB-92 [uniform bill], then the hospital would not receive proper reimbursement.

Secondly, we learned that there is very little uniformity when dealing with UB-92 issues. Each payer has specific claim submission requirements that should be programmed into the hospital's information system billing module and updated regularly. Keeping track of payer-specific claim submission guidelines may generate cleaner claims and prompt reimbursement.

Last, but not least, we learned that the efficiency and effectiveness of the hospital information system is critical to accurate data reporting and optimal reimbursement. Data from various points such as health information management (medical records coding) or clinical points-of-service (laboratory and radiology) should be transmitted through the hospital information system to the payer flawlessly. This may not always be the case.

ORM: How did some of the hospitals prepare for APGs?

Hirschl: Many hospitals performed APG modeling. Using clinical and financial databases, the most frequently performed ambulatory surgery procedures and the most common reasons for emergency room encounters were identified. The hospitals compared the payment previously received with what they might expect under APGs. The analysis showed that some services might provide financial benefit, while others would cause significant loss.

So the hospitals recognized the need to start process improvement programs. Some developed the mechanism internally, while others hired external consultants. In either case, various components of outpatient billing and data collection practices were identified, process variations were distinguished, and plans for corrective action were initiated. In my opinion, these hospitals derived great benefit even though they were subject to new reimbursement methodologies. They were afforded the opportunity to plan and be ready for the federally mandated ambulatory PPS [prospective payment system] scheduled to be implemented in January 1999 for hospitals.