APCs and observation: Learn when to admit

Consulting and educating physicians is key

(The following is excerpted from "Reimbursement: An ever-changing process," given by Deborah Hale, CCS, at the sixth Annual Hospital Case Management Conference in Orlando, FL, March 26. Hale is president of Administrative Consulting Service Inc. in Shawnee, OK. )

Certain implants and devices; the anesthesia; the recovery room — all are packaged services. One which has become the most catastrophic for most hospitals is observation following an ambulatory surgery procedure, or with a medical observation patient who presented to the emergency department (ED).

Here’s an example of a patient who came into the ED:

The patient, who had no previous history of coronary artery disease, came in with chest pain and nausea. The EKG was normal, the enzymes were negative, and the lungs were clear, but nevertheless, the ED physician felt it was important to keep the patient for observation, to get some additional lab work back, and to make sure that an acute myocardial infarction was not occurring.

The patient receives IV morphine for control of the pain, and so we’re reimbursed for an IV injection. That ambulatory payment classification (APC) is a status X, which is an ancillary service APC, and generates a payment of $47. An EKG generates an APC payment of $18. Of that, the patient pays $16 and Medicare pays $2.

The chest X-ray will generate an APC payment, and all of the ancillary services will be paid by an APC, if medical necessity for the services is documented and coded.

Now, in managing this patient in the ED, we’re going to use med/surg supplies, and we’re going to administer some routine pharmaceuticals. Morphine is not considered a routine pharmaceutical, so that actually generates a separate payment. But any other drugs that we give to the patient — unless it’s a thrombolytic drug or some of the other high-cost drugs in the ED — would be packaged under routine pharmacy.

The real kicker: We keep this patient in the intensive care unit (ICU) for observation, and there are zero dollars assigned there. The Centers for Medicare and Medicaid Services (CMS, formerly the Health Care Financing Administration) consider that when we assigned this case to a high-level ED visit, that payment rate of $158 was supposed to cover all of our observation time. Obviously, it’s not going to do that when the patient’s in ICU for observation. As a result, we’ve had some real trouble with hospitals trying to decide, "Is this an appropriate patient to admit to observation status, or is this an appropriate inpatient admission?"

With the services delivered as I’ve listed above, our total APC payment is $263 for this patient, who may have stayed 24 or 36 hours. We can’t stay in business very long with those kinds of reimbursement amounts. Now, in addition, any lab tests that the patient has are paid by the fee schedule, so the total amount is $263, plus those individual lab tests, subject to documentation of medical necessity.

In the APC final rule (published April 7, 2000), CMS says, "We believe that, in general, if a patient needs to be monitored in the ICU or the CCU [critical care unit] for any length of time, then the patient should be admitted as an inpatient." So right there is the answer to your overutilization of observation and the fact that you’re not getting paid for ICU and CCU observation under APCs. CMS has told you: "Admit those patients if they need to go to ICU or CCU."

From a financial perspective, had we left our patient in observation status, our total APC reimbursement would have been less than $300. That would allow a little extra for some lab tests that were done. But if we convert the patient to an inpatient admission, the DRG payment would be dependent upon what caused the patient’s chest pain. If the physician says, "I can’t prove it, but I think this is cardiac, and so we’re going to schedule him later for a cardiac cath," then suspect angina would drive the DRG assignment, and that’s a $3,000 payment.

So many times, what we see is that, after study, physicians decide that this is reflux disease. That pays even better. You have to know the insides of the system to be paid, and to understand what does help us. So often, the physicians will just say "noncardiac chest pain," but if you look at the home meds — what they’re sending patients home on — and that physicians have documented the reflux disease, getting that additional documentation would drive the payment up to $3500. And, if in fact, we hold them to a cardiac cath during this admission, and it turns out that they have coronary artery disease, the DRG payment for that is $6,300. So a lot of money can slip through our fingers if we overutilize observation status under APCs.

I have seen letters from CEOs advising their medical staff that they no longer have observation services. I would encourage you not to do that. Observation still does exist. And there are still times when it is appropriate to use an observation bed rather than formally admitting that patient as an inpatient. (For guidelines, see "Which patients to observe," in this issue.)

Outpatient prospective payment seeks to put up a huge wall to divide outpatient services from inpatient services. We have to recognize that wall and know where it is if we’re going to be successful financially in managing our patients.