Know difference between APCs, current system

By Mason Smith, MD, FACEP

President and CEO

Lynx Medical Systems, Bellevue, WA

What is the Medicare ambulatory payment classification (APC) system? Simply stated, APC is the name that the Health Care Financing Administra tion (HCFA) has given to its solution for prospectively paying hospitals for outpatient services provided to Medicare beneficiaries.

Please note that APCs have no relationship to ambulatory patient groups (APGs). HCFA considered, and then rejected, using the APG system of prospective payment. Similarity in the names of the two approaches has left many administrators assuming the two methods were simply slightly different forms of the same method. They are not. APGs are a derivative of the diagnosis related groups (DRGs). APCs are a clone of the Medicare physician payment system.

APCs will replace the present cost-based method by which Medicare reimburses hospitals for outpatient services. The present method has been in use since the founding of the Medicare program in 1960s. Rapid and continued growth in Medicare outpatient expenditures caused major political concern throughout the last decade. Congress finally mandated a change from cost to prospective reimbursement in the Balanced Budget Act of 1997.

To grasp the magnitude of the change in the payment mechanism, one must appreciate the differences in the incentives between cost reimbursement and prospective payment. Let’s start with an analogy.

Cost reimbursement

Assume you are a college student, and your parents agree to pay your school costs. In this analogy, the student is a hospital outpatient department, and the parents are the Medicare program.

Medicare cost reimbursement is the equivalent of having the student turn in a report (cost report) to the parents so the parents can reimburse the student for his/her expenditures. The parents have established certain rules with the student as to what costs they will reimburse and what personal expenses they will not. But the only limits on reimbursement relate to the fact that the cost was incurred. It does not matter if the student selects an expensive private school or a low-cost public university. In either case, the parents reimburse whatever the tuition expense turns out to be. This is exactly how the Medicare program reimburses hospitals for their expenses related to ED care.

The student also incurs ancillary expenses, such as living expenses and books, and turns in an expense report to the parents that lists all expenses. To cover expenses, the parents provide a monthly stipend based on expected costs. This stipend is similar to the payment Medicare makes for outpatient services when the hospital bills for the service. Medicare’s payment is only an advance payment — not the final amount that the hospital will receive. Later, after reviewing the expense report, excluding any inappropriate costs, the parents write a check or reduce future payments to the student for the allowed (approved) expenses.

Medicare follows the same procedure. Only Medicare is normally two or three years behind in completing the hospital cost report.

Prospective payment will work differently. The parents agree to reimburse the student for each college course completed. The student will get a specific payment for each course based on value the parents have placed on each course. Like a fee schedule, different courses have different values. Value assigned to each course might depend on the typical number of hours of course work, its difficulty, and its importance for graduation.

An efficient student can keep any money left over after the expenses associated with the course are paid. The parent does not base reimbursement on the cost of the course but instead on the fact the course was completed. Because full-time student tuition covers an unlimited number of courses, productive students can increase their average net reimbursement per course by taking more courses.

In addition to paying a fixed amount for the course tuition, the parents also agree to pay a fixed price for books, supplies, lab fees, transportation, tutoring, computer fees, and other related expenses (ancillary expenses in the Medicare APC payment system). The student reports to the parents that he/she purchased a particular textbook. To reimburse the student, the parent looks up the retail price of the book in the reference list and writes a check for the amount shown in the reference list (Medicare Fee Schedule). The student’s actual cost has no effect on the amount of the reimbursement the parents are willing to pay. In fact, the student can be paid substantially more or less than the cost of the book.

A frugal student can spend less money buying used books, and the parent will not care. This type of student will have extra money to spend on other "uncovered" expenses. If the student buys a full-price version of the same book, he/she actually may be reimbursed less than the actual cost of the book.

This analogy can help bring understanding to the very significant differences in incentives that are associated with reimbursement based on cost vs. fee schedule. APCs represent the transition from a cost-based reimbursement to a fee schedule method of reimbursement. Prospective reimbursement will reward efficient low-cost providers and punish high-cost providers.

[Editor’s note: Lynx Medical Systems is a consulting firm specializing in coding and reimbursement for emergency medicine. Smith may be contacted at Lynx Medical Systems, 15325 S.E. 30th Place, Suite 200, Bellevue, WA 98007. Telephone: (425) 641-4451. Fax: (425) 562-4860.]

Green SM, Clark R, Hostetler MA, et al. Inadvertent ketamine overdose in children: Clinical manifestations and outcome. Ann Emerg Med 1999; 34:492-495.

To date, reported inadvertent overdose with ketamine has been uncommon, but overdose might increase with the growing popularity of the drug, according to this study. The researchers studied nine cases of inadvertent ketamine overdose in children treated in the ED.

Patients received five, 10, or 100 times the intended dose, either by the intramuscular or intravenous route. All nine patients experienced prolonged sedation of three to 24 hours. Four experienced brief respiratory depression shortly after administration, and assisted ventilation was performed in two. Two children without respiratory difficulty or hypoxemia were intubated by their physicians as a precaution. In five children, the dosing error was not discovered until late in the sedation, often when the child was not waking at the expected time.

No adverse outcomes were noted, and all children were normal neurologically on discharge and longer-term follow-up, where available.

ED physicians must be prepared to encounter inadvertent ketamine overdoses, the researchers warn. "The first attention of the physician should be directed at airway maintenance and assessment of oxygen saturation, especially in the first 5-10 minutes after administration, when the risk may be greatest," they say. They also suggest that physicians should be prepared to monitor the child closely during an extended recovery period, either in the ED or the pediatric ICU.

The margin of safety in ketamine overdose may be wide, but less common and more serious outcomes, such as life-threatening adverse events and even death, cannot be excluded by this small self-reported sample, they say.

Chin MH, Jin L, Karrison TG, et al. Older patients’ health-related quality of life around an episode of emergency illness. Ann Emerg Med 1999; 34:595-603.

For elderly patients, a visit to the ED can represent a sentinel event indicating an inadequate care plan or support system in the outpatient setting, according to this research from the University of Chicago.

The researchers studied 983 patients 65 years or older who presented to an urban academic ED. The health-related quality of life during a 40-month period surrounding a visit to the ED was studied, and factors associated with less recovery were identified.

Elderly patients are at high risk for poor outcomes because they often have multiple medical, social, and economic problems. In general, patients worsened markedly after a visit to the ED and then improved, although not to baseline levels.

To target those at greatest risk for poor recovery, ED physicians should inquire about functional status of elderly patients and the adequacy of help at home for acutely ill older patients, the researchers say. Baseline functional impairment, lack of adequate help, and increasing morbidity were the most consistent predictors of poor recovery from the emergency illness, they report.

"Patients with problems in these areas may be particularly likely to benefit from re-evaluation of their medical and social plans of care."

Barlas D, Homan CS, Rakowski J, et al. How well do patients obtain short-term follow-up after discharge from the emergency department? Ann Emerg Med 1999; 34:610-614.

Many patients discharged from the ED who were believed to be at risk for clinical deterioration did not obtain medical follow-up within 48 hours when instructed to do so, according to this study from the State University of New York University Medical Center at Stony Brook.

The study looked at the follow-up rate of discharged ED patients to find out why patients fail to obtain follow-up. Of 300 patients, 68% obtained follow-up. Inability to obtain an appointment was cited by 34% of patients who did not obtain follow-up care.

Free ED follow-up resulted in a better rate of short-term follow-up than that for clinical and private physicians. "This may be especially useful if a patient’s ability to obtain follow-up is uncertain or if timely re-evaluation is particularly imperative," say the researchers.

Poor access discourages patients from seeking outpatient care on short notice and makes the ED an attractive alternative, especially for patients receiving Medicaid, uninsured patients, and, to a lesser degree, those with commercial insurance.

ED physicians shouldn’t assume that patients will be able to obtain recommended care, suggest the researchers. "We also suggest that free ED follow-up should be considered for those with financial constraints, for those for whom close follow-up is particularly imperative, and for those seek follow-up with provider with whom appointments are known to be difficult to obtain."