Top 10 Most Commonly Asked Questions Regarding APGs

Top 10 Most Commonly Asked Questions Regarding APGs

Top 10 Most Commonly Asked Questions Regarding APGs

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Since 1990, outpatient payment reform has steadily moved toward an outpatient prospective payment system (PPS) using ambulatory patient groups (APGs). Questions always arise as we learn more about the outpatient reform process. This “Top 10 List” of APG questions did not exactly derive from The Late Show with David Letterman—instead, these are typical questions we are frequently asked.

10. How are APGs defined as both a patient classification system and a payment system?
Actually, APGs are defined as a patient classification system that can be used as a payment system. First, APGs are a patient classification system designed to explain the amount and type of resources used during an ambulatory visit. A visit is defined as a contact between the patient and a health care professional. This system addresses all ambulatory patient visits (i.e., surgery, medical, ancillary). Patients in each APG have similar clinical characteristics with similar utilization of resources and similar cost. As a result, APGs can be used as a utilization tool by collecting, analyzing and managing outpatient clinical data. This database will be a valuable source for internal financial and operational decision-making and for managed care negotiations.

APGs are also a payment system used to reimburse hospitals for outpatient facility fees or the technical component, not professional fees. As an outpatient prospective payment system (PPS), this means that:

  • payment rates are fixed in advance by fiscal year;
  • payments are made in full; and
  • hospitals profit when they are efficient and lose when they are inefficient.

Basically, this outpatient PPS will take payment of outpatient facility claims from a conglomeration of procedure-by-procedure fee schedules and cost-based (or at least partially cost-based) payments to a prospective system, where payment is based on patient visits or encounters.

9. What are the differences between Version 1.0 and Version 2.0?
The Omnibus Budget Reconciliation Act of 1986 (OBRA 86) mandated that the Health Care Financing Administration (HCFA) develop and implement a PPS for outpatient claims. HCFA responded to OBRA 86 by awarding 3M/HIS a contract to develop the outpatient prospective payment system. APGs were developed to replace the current payment system (procedure-by-procedure fee schedules and cost-based payment systems) with a prospective payment system.

In 1990, 3M/HIS issued Version 1.0, which included 303 APGs. The development of Version 1.0 involved two major designs.

First, it’s an encounter driven system. The payment is based on patient encounters instead of itemized payment units. For the encounter, the payer will define a window of service. Within the window of service, significant procedure consolidation, ancillary packaging and discounting may occur.

Second, APGs are driven by two coding systems. In Version 1.0, 1989 CPT/HCPCS codes map to the procedure APGs and 1990 ICD-9-CM codes map to medical APGs. Outpatient coding will have a direct impact on reimbursement.

Version 2.0 became available in August 1995 and differs from Version 1.0 (see Table 1). In Version 2.0, there are only 290 APGs. Within the window of service, ancillary packaging and discounting may occur but there is no significant procedure consolidation. The APGs are driven by 1995 CPT/HCPCS codes and 1995 ICD-9-CM codes.

The final payment calculations for APG reimbursement is determined by:

Final Payment Rate x APG weight(s).

This calculation looks very similar to the DRG final payment calculation. The payer will define the final payment rate and the APG weights.

8. Why was Version 2.0 developed?
HCFA funded 3M/HIS to develop Version 2.0 for several reasons:

  • availability of improved data;
  • expanding use of APGs and potential use of APGs for the Medicare outpatient prospective payment system; and
  • simplification of the APG system for easier implementation.

HCFA participated in the development of Version 2.0.

7. When will Medicare implement APGs?
Medicare may implement APGs in 1999. According to our HCFA contact, an outpatient PPS is included in President Clinton’s 1998 budget proposal. If the budget passes, APGs may be implemented Jan. 1, 1999. In March of 1995, HCFA submitted a report to Congress stating APGs as the outpatient PPS. In July of 1995, the Prospective Payment Commission (ProPAC) also agreed with APGs as the recommended outpatient PPS. However, ProPAC disagreed with HCFA’s phased-in implementation approach. Congress is moving slowly on implementing APGs due to other governmental issues (i.e., balanced budget, education and other health care issues).

6. What are HCFA’s recommendations regarding the implementation of APGs?
According to the “Design and Evaluation of a PPS for Hospital Based Outpatient Care” (Version 2.0 Final Report), 3M/HIS and HCFA recommended:

  • cost-based relative weights;
  • full ancillary packaging;
  • 1 percent outlier policy;
  • 50 percent discounting of each additional significant procedure;
  • no repeat ancillary discounting; and
  • same day window of time for ancillary packaging.

5. Which states are implementing APGs?
Even though Medicare is postponing implementation, individual states have implemented or are planning to implement APGs to some degree. These states are Iowa, Ohio, Massachusetts, Virginia, Utah, Idaho, Kentucky, California and Washington. In addition, Maryland’s Health Services Cost Review Commission (HSCRC) is utilizing APGs to classify the outpatient data.

There is a great deal of APG activity taking place in many states. Data are being collected and analyzed by private insurers, who are assessing this information along with the APG system.

If your state is not represented above, then ask your fiscal intermediaries (private Blue Cross/Blue Shield and Medicaid programs) about APGs. Are they collecting and analyzing data and assessing the APG system? Are they planning to implement an APG-like system before or after HCFA implements a cost containment system? It is important for hospitals to learn about APGs to prepare for implementation. Hospitals can begin making positive changes to optimize payment under the APG system. The good news is that these positive changes can also optimize their current reimbursement system.

4. Will managed care organizations adopt APGs as a payment system?
Managed care organizations probably will not adopt APGs as a payment system, but they may adopt APGs as a patient classification system. APGs encourage hospitals to focus on outpatient services, particularly benchmarking, performance improvement and utilization management. Managed care organizations can use APGs as a financial/utilization tool in order to access capitated rates.

3. How can APGs be used as a financial/utilization tool?
As managed care continues to dominate the health care industry and outpatient services continue to escalate, it will be important to know how your hospital is utilizing outpatient services and at what cost. Remember, APGs are a patient classification system that can provide useful, meaningful data for decision making. For example, case mix indexes and frequency data may be maintained to quantify the effects of APG consolidation, packaging and discounting that occur for services (i.e., medical, surgical procedures, ancillaries) being provided. Case mix information also will provide a measure of severity or complexity of patients being served by the hospital. Cost accounting data will be vital in order for hospitals to know what it costs to provide services. Accumulating and analyzing cost data will provide valuable information to help managers make informed decisions. This cost data can be used for tracking purposes (i.e., profit vs. loss by APG, physician APG profiling, cost of outlier cases, cost/volume of services by APG) (see Table 2).

2. How do I get ready for APGs?
The first step is to learn the basics of APGs and stay up to date on evolving information. Ask your fiscal inter- mediary how they assess APGs. Are they collecting and analyzing information? Documentation, accurate outpatient coding and cost control will optimize reimbursement under the APG system. Start improving these areas. The good news is that improving these areas will be good for now under the current system. Share this information with your hospital administrator and gain his/her backing of developing a team to address these areas. See the accompanying list of team members and areas to address (Table 3) (this list is not all inclusive).

Drum Roll Please—And the number one question regarding APGs…

1. Should I Find a New Career?
No Way! The fun is only just beginning. As you begin exploring the utilization of your outpatient services, you may find a potpourri of problems. An anonymous source said it best: “If you are not having problems, you are missing an opportunity for growth.” As your facility implements an outpatient prospective payment system, you will find an abundance of opportunities for performance improvement regarding outpatient services.

* About the author: Julia Dean is a senior consultant for Healthcare Management Advisors, a national consulting firm based in Atlanta. She is currently helping a 200+ bed Massachusetts hospital implement APGs.

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