Will you lose money under APGs? That depends . . . .

By Kimberly T. Sheets, MSW, MPH

Lead Business Planning Analyst

3M Health Information Systems

Murray, UT

[Editor’s note: In this issue, Outpatient Reimbursement Management is launching a regular column devoted to questions about ambulatory patient groups (APGs). Each month, an expert will reply to questions submitted by readers and our own editorial staff regarding the effects of APGs on reimbursement. For instructions on submitting questions for consideration, please turn to the resource box, at the bottom of p. 30.]

Question: When ambulatory patient groups (APGs) are implemented under either Medicare or private insurers, should we expect to lose considerable revenue? If so, how much should we expect to lose?

Answer: Whether a provider organization loses money under an APG-based payment system depends on several factors. First, who is the payer — a Blue Cross plan, a state Medicaid program, or the Health Care Financing Administration (HCFA)?

The reason for differing monetary losses is that in many cases, the payment rate for each payer can vary greatly. What the payer’s goals are in using APGs as a reimbursement methodology is another factor.

Which specific clinical services your organization provides and the type of facility you are also can affect your revenue. Facilities with low-volume, high-cost procedures are likely to make less money than providers that offer numerous low-cost services. Operating costs for a large medical center from an APG standpoint can be different from those of a small freestanding clinic. Finally, how well you can optimize your coding and billing systems to properly capture the correct APG payment also can affect your revenue.

But not all APG systems will cause providers to lose money across the board or as a result of specific services. In fact, you may not lose revenue at all. However, payment policies and rates under APGs will differ among payers, including Medicare, and those policies could affect your reimbursements.

How much you stand to "lose" will depend on your ability to provide specific clinical services at a cost below the established APG payment level for that service. Depending on the payer, the rates will be based on the average costs for each service among groups of providers in a geographic region, for example, or in a peer group (such as all teaching hospitals).

Numerical weights help determine costs

The averages themselves are partly determined by the assignment of numerical relative weights that reflect economic variations such as a provider’s overall costs, market location, or operating efficiency. The standard for assigning different weights to costs based on a facility’s individual case-mix will vary with each payer. But the weights will directly influence the payment rate for individual APGs.

The dollar amount for a relative weight of 1.0, for example, typically ranges between $90 and $200. The weights act like a multiplier that changes the value of each APG. You can obtain a complete set of the Medicare research relative weights by contacting HCFA. The Medicare research weights and those for Iowa Medicaid also are available in most standard APG grouper software.

Because rates are altered by these relative weights, some services and patient visits will yield "profits," while others will be considered "losers." You won’t be able to change the weights. But how well you monitor your costs, your ability to lower them, and the quality of your patient documentation will determine your survival under APGs.