Final APC rule soothes critics — but experts warn there’s hard work ahead

Quality managers face boom in outpatient denials

First, the good news: The Health Care Financing Administration’s (HCFA) final rule on ambulatory payment classifications (APCs) probably won’t lead to anything like the 15% decrease in outpatient reimbursement some experts originally had predicted. The bad news, according to several leading experts, is that virtually no hospital in the country is ready for the July 1, 2000, implementation date that HCFA has set for its new outpatient prospective payment system (PPS).

Mason Smith, MD, FACEP, president and CEO of Lynx Medical Systems in Bellevue, WA, says hospitals that act quickly to achieve full compliance with the new PPS may actually put themselves in a position to earn increased reimbursement under the APC system.

Smith notes that the final rule addressed several of the largest concerns hospitals had with the initial rule, which appeared in the Federal Register on Sept. 8, 1998. Most significantly, he says, HCFA has improved the distribution of revenue among hospitals. "The most important issue was, would the hospitals providing expensive outpatient services be harmed by a payment averaging system that didn’t recognize high-end outpatient service? In the initial rule, there was a lot of potential damage there. That’s largely been mitigated now," Smith says.

Also encouraging is HCFA’s addition of "transitional protection" for hospitals that can’t immediately comply with the new PPS. "For the first four years of prospective payment, there is transitional protection that mitigates any losses that hospitals incur as a result of the transition," Smith says. "That’s important, because there’s no negative on the upside. If you perform really well, you can make more money. And if you perform poorly, your losses will be mitigated by incremental payments based on cost reports."

Other changes include the following:

• There is no APC for a medical screening exam, which could have a positive impact on reimbursement.

• Hospitals can continue to use the current charge structure and correspond present levels of service with the appropriate CPT visit level.

• Hospitals will have to unbundle visit levels to separately list nursing and physician procedures as specific line items.

• An APC has been added for "special technology," in response to critics who argued that lumping high-cost technology in with other expenses could lead to serious financial losses and discourage the use of cutting-edge equipment.

In the final rule, HCFA also made some changes to the list of procedures that will be reimbursed only if conducted on an inpatient basis. Most notably, laparoscopic cholecystectomy, partial mastectomy, and coronary and noncoronary angioplasties were removed from the list and now will be covered in the outpatient setting. "But, all through the final rules, [HCFA] talks about the fact that it would expect that when these procedures are done in the outpatient setting, it should be only those that are the simplest and least intense," says Deborah Hale, CCS, president of Administrative Consulting Services in Shawnee, OK.

HCFA’s conservative stance on inpatient vs. outpatient procedures is unfortunate, given the changing nature of health care, says Sue Prophet, RHIA, CCS, director for coding policy and compliance at the Chicago-based American Health Information Management Association. "Things are changing all the time," she says. "Lots of things that a few years ago you would never have thought to do except as inpatient have been safely moved to the outpatient setting. So it’s a bit concerning to have the government basically say you can only have this procedure done on an inpatient basis."

While Prophet appreciates the fact that HCFA moved some procedures off the inpatient-only list, she wishes the agency had gone further. "I was hoping to see [the list] reduced down to a bare minimum — really super-major surgeries that it’s just impossible to even conceive they could be done on an outpatient basis," she says. She adds that it isn’t clear yet how frequently HCFA will re-evaluate the list in light of new clinical developments.

"It’s very interesting that at the same time this is being implemented, the PROs [peer review organizations] in their Payment Error Prevention program are looking at one-day stays to determine whether or not those stays were appropriate admissions," Hale says. "And technically [under the outpatient PPS], the hospital doesn’t have any reimbursable alternatives."

Another problem with the inpatient-only list concerns the issue of emergency admissions that go immediately to surgery, Smith says. "Say you have a patient with a gunshot wound to the chest who needs immediate open thoracotomy for trauma to the lung. That’s an excluded outpatient procedure, which makes sense; you wouldn’t usually do that in the outpatient treatment room," Smith says. "However, if that patient expires in the operating room before his status is changed to inpatient — even though he is getting inpatient surgery — he will die as an outpatient. Those services will be paid as outpatient, and any excluded services will not be paid."

Because of this admission rule, it’s more important than ever to decide quickly whether or not to admit a patient to the hospital and start the ball rolling as quickly as possible, Smith says. That’s likely to involve changes to admission policies and procedures and place an additional burden on access managers.

Quality managers and utilization review personnel are also likely to shoulder additional burdens as hospitals adjust to the new PPS. "The major responsibility that I see we will have will be fighting denials," says Joel Mattison, MD, physician adviser in the department of utilization management and quality assurance at St. Joseph’s Hospital in Tampa, FL. Mattison says quality personnel also may get pulled into discussions of whether patients should be treated as inpatients or outpatients. "When they start to say that sicker patients can be done as inpatients and healthier patients can be done as outpatients, then you get into a real argument, because the payer sees everybody as young, healthy, and without comorbidities, and that’s just not so," he says. "So then you get into quality questions."

A further challenge posed by the outpatient PPS is that, at least for the time being, hospitals will be forced to learn new rules for Medicare patients while maintaining business as usual for all other payers, Prophet notes. But that state of affairs may not last long. Smith says private payers are likely to move to the PPS system as well before long. "There’s a very pragmatic reason for that," he says. "The PPS system is no different than the physician fee schedule. The payment rules and the edits on the payment rules from a compliance perspective are the Medicare Correct Coding Initiative edits. So it’s one uniform set of rules. Why have two systems?"

Whatever action private payers take, HCFA is sticking to its July 1 implementation date, despite pleas for more time from industry groups like the Chicago-based American Hospital Association. "I know some people are hoping that some big group will convince HCFA to postpone it beyond July," Prophet says. "The biggest thing is for people not to assume that that’s going to happen and instead really get their hands around these regs and get started trying to put all this in place."

Prophet recommends first looking at your information systems to determine what data you currently capture. "Hopefully, you’ve already done the part about analyzing the chargemaster and making sure that’s completely up to date," she adds. It’s also important to perform an updated financial assessment based on the final rule, "to see where you’re going to be making money, where you’re going to be losing money, and where you have weaknesses in documentation or in capturing charges," she recommends.

Prophet adds that the outpatient PPS represents "a huge opportunity for people to really get involved in a lot of collaboration among a variety of different departments within the hospital. Now, it remains to be seen whether or not the actual payment rates for some of these things are reasonable and whether hospitals in general are going to be losing a lot of money or not."