DRG Coding Advisor-Do you know the difference between APCs and DRGs?

Ambulatory payment classifications (APCs) are a classification system for outpatient services. APCs are similar to DRGs. Both APCs and DRGs cover only the hospital fees, and not the professional fees, associated with a hospital outpatient visit or inpatient stay.

DRGs have 497 groups, and APCs have 346 groups. APCs use only ICD-9-CM diagnoses and CPT-4 procedures. Payments for both are based on a weight for each DRG/APC and a rate for the facility.

The unit of classification for DRGs is an admission while APCs utilize a visit. The initial variable used in the classification process is the diagnosis for DRGs and the procedure for APCs. Only one DRG is assigned per admission, while APCs assign one or more APCs per visit.

The DRG payment calculation multiplies the facility rate times the DRG weight, while the payment calculation for each APC multiplies the facility rate times the APC weight times a discount factor (if multiple surgical APCs are performed during the same visit). Total payment for the visit is the sum of the payments for all APCs.

Medicare's outpatient prospective payment system (PPS) includes hospital outpatient services designated by the secretary of Health and Human Services. This includes most outpatient services, hospital outpatient department services not part of the consolidated billing for skilled nursing facility (SNF) residents, supplies also on the durable medical equipment point of series fee schedule, certain preventative services, Medicare Part B covered inpatient services if Part A coverage is exhausted, and partial hospitalization services in Community Mental Health Centers.

Medicare's PPS excludes services provided by critical access hospitals and prospectively paid services including ambulance; clinical laboratory; physical, occupational, and speech therapy; end-stage renal disease; and screening mammography services as well as durable medical equipment, orthotics, and prosthetics. Also excluded are outpatient services covered by the SNF prospective payment system, and services that require inpatient hospitalization.

The APC classification system is designed to explain the amount and type of resources utilized in an outpatient visit. Each APC consists of patients with similar clinical characteristics and resource usage. APCs include only the facility component of the visit; medical professionals will continue to be paid from a fee schedule based on CPT-4 procedure codes and modifiers. The system encompasses all provider-based ambulatory settings including same day surgery centers (ASCs), emergency departments (ED), and clinics, but excludes home visits, nursing home or inpatient admissions. APCs were based on Version 2.0 of the Ambulatory Patient Groups (APGs). APCs added more groups for procedures performed in freestanding ASCs, which will utilize a subset of the APCs.

The four types of APCS are:

• Surgical procedure APCs are surgical procedures for which payment is allowed under PPS. Only surgical APCs are subject to a payment reduction when multiple surgical procedures are performed during the same visit. Examples of surgical APCs include cataract removal, endoscopies, and biopsies.

• Significant procedure APCs are nonsurgical procedures that often are the main reason for the visit and account for the majority of the time and resources used during the visit. Examples of significant procedure APCs are psychotherapy, CT and MRI scans, radiation therapy, chemotherapy administration, and partial hospitalization.

• Medical APCs consist of encounters with a health care professional for evaluation and management services. The medical APC is determined based on the site of service (clinic or emergency department) and the level of the evaluation and management service (low, mid, or high), as indicated by the evaluation and management CPT-4 code and the diagnosis. An E&M code with a fifth digit of 1 or 2 is considered a low-level visit, a 3 is a mid-level visit, and a 4 or 5 is a high-level visit. The diagnosis is assigned to one of twenty major diagnostic categories. Low-level clinic visit for respiratory diseases, high-level ED visit for cardiovascular diseases, and critical care are examples of medical APCs. A medical APC is assigned in conjunction with a surgical APC only if the surgical procedure is a direct result of the evaluation and management service.

• Ancillary APCs include diagnostic tests or treatments that are not considered to be significant procedure APCs. Examples of ancillary APCs are plain film X-rays, electrocardiogram, and cardiac rehabilitation. An ancillary APC may be performed in conjunction with a medical APC, a significant procedure APC, a surgical APC , or independently if the ancillary procedure is the only reason for the visit.

The 346 APCs consist of 134 surgical APCs, 46 significant APCs, 122 medical APCs, and 44 ancillary APCs. Surgical, significant and ancillary APCs are assigned using only the CPT-4 procedure codes, while medical APCs are based on the combination of the ICD-9-CM diagnosis code and the E&M CPT-4 code. HCFA also considered defining medical APCs based only on diagnosis code or only on E&M code.

Modifiers affect APC payments

Effective last January, providers are required to report modifiers, if appropriate, for outpatient services on the UB-92 billing form. This is a departure from past practice when only physicians were required to report modifiers on the HCFA-1500. Modifiers are being required for outpatient services in preparation for the introduction of Correct Coding Initiative (CCI) edits. Modifiers will be needed to prevent the CCI edits from rejecting pairs of CPT codes that would not normally be reported on the same UB-92. Please refer to the 1999 AMA CPT Coding manual for an explanation of the modifiers and those that can be used for hospital outpatient visits.

Two modifiers will be used to identify terminated procedures. Modifier 73 is used for procedures terminated prior to the administration of anesthesia and results in payment of 50% of the normal APC payment. Modifier 74 is used if the procedure is terminated after anesthesia is administered and is paid the full APC amount. Modifier 25 is applied to an E&M code to indicate that a surgical procedure performed during the visit was a direct result of the evaluation and management service. The presence of the 25 modifier will result in full APC payment for the medical APC as well as the surgical APC.

Another notable coding change includes the ability to bill for critical care (CPT 99291) for the evaluation and management of an unstable critically ill or injured patient who requires the constant attendance of a physician. This code can be used in place of, but not in addition to, an E&M code for an ED visit. You will still be able to bill for any other services provided in conjunction with this visit. However, CPT 99292 cannot be used to bill for additional 30 minute increments. Additionally, a new HCPCS code will be created for reporting screening services performed in the ED when no medical emergency exists and the patient is referred to a clinic or physician's office for treatment. This screening APC would be paid only if no other emergency services were rendered, and includes any consults. If treatment is provided, bill for the appropriate ED visit code.

The claims submission process will change when APCs become effective, claims spanning multiple dates of service will need to be itemized by service date. For example, if you currently bill a month's worth of radiation therapy treatments utilizing the from/through dates on the UB-92 with the number of units indicating the number of treatments given during the period, you will now need a separate line item for each date of service. Multiple clinic visits on the same day for different diagnoses should be submitted on separate claims. There is also a proposal to modify the UB-92 to identify diagnoses by number and link them to the individual line item being billed, similar to the HCFA-1500. Claims will also be edited for "unbundling" prior to the assignment of an APC. The outpatient claims editor will be expanded to include a subset of the CCI edits. Unbundled codes will be eliminated from the claim prior to APC assignment and payment.

Packaging of services under the PPS will eliminate separate payment for operating room, recovery room, treatment room, and observation room charges. Anesthesia, medical, and surgical supplies, drugs (except chemotherapy), blood, IOLs, casts, splints, and donor tissue will also be packaged into the APC. This does not mean that you should stop billing for these services! These services should continued to be reported so that when the weights are recalculated, the data utilized by HCFA will include all of the appropriate costs.

Discounting of payments will occur under PPS for some services. Multiple surgical procedures performed during the same operative session will be discounted by 50%, just as they currently are under the ASC payment mechanism. Procedures terminated before anesthesia is administered will be paid at 50% of the APC payment, while procedures terminated after anesthesia is administered will be paid at 100% of the APC payment rate. However, significant procedure, medical and ancillary APCs will not be subject to discounting.

Weights and rates for APCs

Weights and rates for APCs were based on 1996 Medicare claims and the most recent settled cost report for each facility. The departmental ratio of cost to charges was utilized to estimate operating and capital costs. APC weights were based on claims containing only a single APC. The median cost for each APC was calculated after standardizing costs for wage variations. A mid-level clinic visit for cardiology services was assigned a weight of one. The weight for all other APCs was calculated by dividing the median cost of the APC by the median cost of the mid-level clinic visit for cardiology services APC.

The national payment rate was based on projected fiscal year payments for 1999 under the current payment system with the elimination of the formula driven overpayment and extension of the 5.8% operating cost limitation and a 10% capital cost reduction. The proposed national payment rate of $50.67 has subsequently been adjusted by HCFA to $50.89. The national APC payment rate is adjusted by the area wage index using a 60% labor component to determine a hospital's APC payment rate. However, the proposed system does not provide adjustments for outliers or teaching, rural, disproportionate share, TEFRA or specialty hospitals.

Beneficiary copayments will be determined for each APC. The copayment will initially be set at 20% of the 1996 national median APC charge after standardizing for wage variation and then will be updated to 1999. The copayments are frozen at the 1999 level until the Medicare payment percentage reaches 80% of the APC rate. Annual updates to the APC payment will increase the Medicare payment percentage. Once the Medicare payment for an APC reaches 80%, the copayment will be recalculated annually as 20% of the APC payment rate.

Hospitals will be allowed to discount their copayment amount in an effort to generate competition between providers. Hospitals can discount copayments for individual APCs and advertise those discounts. However, this decision must be made prior to the start of the year and cannot be changed during the year. Additionally, the discount cannot be less than 20% of the APC payment rate and the copayment reduction cannot be written off or the deductibles waived.

A volume control method is mandated by the Balanced Budget Act to control unnecessary volume increases. HCFA expects hospitals to improve their coding for outpatient services, just as they did for inpatient services when DRGs were implemented. The calendar year (CY) 1999 update of the targeted expenditure for CY 2000 included factors for inflation (market basket — 1%), changes in volume and intensity of service, and changes in Part B fee for service enrollment. If the CY 2000 actual payments exceed the CY 2000 target, the CY 2002 update factor will be adjusted downward by the same percentage to compensate for that increase.

Payments can be determined as follows. First, calculate your hospital's payment rate:

Hospital payment rate = national payment rate × .6 × wage index + national payment rate × .4

To calculate the payment for each APC, use one of the following calculations:

Payment for surgical APCs = hospital payment rate × APC weight × units × discount

Payment for other APCs = hospital payment rate × APC weight × units

For visits with multiple surgical APCs, the APC with the highest weight is not discounted, but all additional procedures are paid at a 50% discount. Total payment for a visit equals the sum of the payments for the individual APC(s).

PPS will have a significant impact on hospital finances and operations. Hospitals will experience increased financial risk due to the lack of a phase-in, very limited payment adjustments, and volume control induced reductions to future rates. PPS will also affect hospital operations, particularly the registration, coding, and billing processes and the information systems that support them.

Unfortunately, preparing for PPS will be hampered by several factors. Outpatient data access, availability, and quality is problematic for many hospitals due to the volume of visits and information systems limitations. Outpatient coding is more complex since a visit may contain codes assigned by clinic staff and the charge description master (CDM) as well as medical records staff. Information systems will need to be modified to support the operational requirements of PPS. Additionally, management and reporting processes based on APCs will need to be developed. Multiple APCs for a visit will complicate these processes.

The coding challenges will be many and complex. Ensuring that all visits are coded completely, accurately and with specificity will be difficult. Outpatient documentation requirements will increase significantly. The assignment of E&M codes at an appropriate level will be a difficult task since the E&M coding guidelines are written for physicians, not hospitals. Most hospital billing and coding staffs are unfamiliar with modifiers and the CCI edits. Codes may be assigned via the CDM file, from super bills or via data entry. Some coding may be assigned by multiple departments plus the CDM and medical records abstractors. Compliance issues may result if monitoring and control procedures are not carefully implemented and followed.

The billing challenges include multiple visits on the same day, line item identification of recurring services, clarification of provider-based status, APC grouper errors, lack of pre-bill edit capability, handling of late charges, and reconciliation of billed vs. paid amounts, to name a few.

The operational challenges include the ability to distinguish whether multiple visits on the same date of service are related to the same diagnosis or different diagnoses. Documenting all procedures performed in the ED, clinics, and treatment/procedure rooms, identifying those that are the direct result of a medical visit and selecting the appropriate modifier will require training. Documentation will become increasingly important as we rely on HIM staff to validate coding of CPT-4 and appropriate modifiers. Both hospital staff and physicians will require training and instruction. An APC management staff and process will need to be developed.

The systems challenges include retaining historical data in a readily available format, integrating the APC grouper, enhancing the pre-bill edit process, identifying multiple visits on the same date, splitting out recurring visits by date of service, establishing and maintaining data integrity across system interfaces, standardizing the hospital's CDM across departmental systems, and developing a management reporting capability.

The financial challenges include reduced payments resulting from incomplete coding of services (undercoding), multiple related visits on the same day, potential loss of provider-based status, elective copayment reduction analysis, and cost management for services where the cost of service exceeds payment.

There are several steps that hospitals will need to take to be successful under PPS:

Hospitals will need to improve their coding and billing practices. They must determine and correct the causes for undercoding and grouper errors. They will also need to review the CDM, superbills, and data entry screens to ensure that appropriate codes are assigned.

Hospitals will need to ensure that their claims will not raise compliance flags. Pre-billing edit procedures or software will be essential to minimizing compliance issues.

Education of administrative, departmental, clinic and medical staffs will be essential to complete the first two prerequisites.

An APC management process must be developed to monitor both operational and financial performance under APCs. This will require improvements to data access and retention as well as reporting and analysis capabilities.

While hospitals have learned to survive and thrive under DRGs, success did not happen over night. So, if hospitals are to be successful under PPS, they must start making the transition now!

[IMRglobal-ORION is a full-service management consulting firm that provides strategic, management, operational, technical and consulting services to health industry clients nationwide. It is a division of IMRglobal, a worldwide provider of business and information technology services. For more information, contact: IMRglobal-ORION, The Tower at Erieview, Suite 3000, 1301 E. Ninth St., Cleveland, OH 44114-1800. Telephone: (216) 687-1480. Fax: (216) 687-1488. World Wide Web: http://www.orion-consulting.com.]