Here's some good news and bad news on APCs

(Editor's note: Kathryn Barry, senior director of health policy and reimbursement for United States Surgical Corp. in Norwalk, CT, has spent the past few months analyzing the new ambulatory payment classifications [APCs] for ambulatory surgery centers [ASCs]. United States Surgical Corp. is a diversified medical products company that specializes in minimally invasive technologies. For information on how to contact Barry, see source box, p. 68.)

ORM: What are the pros and cons with implementing APCs?

Barry: There's good news and bad news: The good side of it is additional services and procedures are moving into ambulatory settings. The Health Care Financing Administration's [HCFA's] proposed rule for ambulatory surgery centers [ASCs] expands eight groups of payments to 105 ambulatory patient classifications, so that enlargement acknowledges the growth and use of ASCs.

Every year, more and more procedures are being approved to be done in a freestanding ASC. Their existence is providing a cost-effective alternative for HCFA, and to providers and patients. ASCs provide a convenient, accessible site of service.

Now the down side of it is that the methodology that HCFA has used to set the rates is subject to some concerns. And that's always going to be the case. You can't make all people happy. By HCFA's own admission, they were unsuccessful in getting usable resource data from the 1994 ASC survey.

ORM: So what might happen next?

Barry: That heralds a signal that corrections are indicated, and they've already expressed that they're changing how they're going to do the 1999 ASC survey. HCFA is required to survey ASCs every five years, so the next is scheduled for 1999. The lesson that has been learned is the survey should be done differently, and they're taking steps to do that.

The difficulty is that everybody is going to have to learn to play by different rules. If you're an ASC, you want to make sure you can cover your costs and stay in business. So as everybody reads this new proposed rule, administrators want to make sure they can still cover their costs, provide quality care, and stay in business.

ORM: What will happen to the surgery center industry when the dust settles? Will they stop doing certain surgeries because the APCs do not provide enough reimbursement?

Barry: That's a possibility, but not necessarily. People will need to do business analyses quarterly or semi-annually. Years ago, when I worked in the hospital environment in the early 1980s and DRGs [diagnosis related groups] came in, everybody was very alarmed that the DRG system would be financially devastating to hospitals. And it turned out to be not as dire as we all anticipated it would be.

ORM: So what did happen after DRGs were introduced?

Barry: It motivated hospital administrators and all health care providers to change the way they did business. It reduced the length of stay; it reduced the number of unnecessary admissions. So it had overall a favorable impact on reducing health care costs. The DRGs were for Medicare, and individual payers began to do their own thing with it. Some adopted it entirely, and others didn't. But as the population ages, for most hospitals Medicare will continue to be a very large market share, a very large source of revenue.

The DRGs preceded the first of many changes in delivering health care, including a focus on length of stay and unnecessary testing and hospital admissions. Plus they had a ripple effect on other payers. They didn't follow it verbatim, but in today's world of 1998, HCFA can set a precedent for other payers to consider.

Right now we're talking about a proposed rule for freestanding ASCs; it's anticipated that a similar methodology will be applied to hospital-based ambulatory services, and when it's applied to the hospital, then it will be a tidal wave. This is just the first chapter, but it's anticipated that a new prospective payment system soon is going to be released for hospital-based ambulatory services.

ORM: Will APCs be a better system than the current reimbursement codes?

Barry: Eventually, probably yes. Initially, reimbursement managers will have to start all over again to see which CPT-4 code falls into which APC. There will be another book that an ambulatory surgery center administrator is going to have to continually refer to. And until it becomes common by repetition, their job is going to be harder at the start-up.