Evaluating the organizational effectiveness of APC implementation efforts - Ambulatory payment classifications - Brief Article

Healthcare Financial Management, June, 2002 by Rajan Patel

HEALTHCARE FINANCIAL MANAGEMENT has included this article in the 2002 HFMA ANI Guide as a special service to ANI attendees. The article is intended to enhance participation in ANI sessions that focus on Medicare outpatient PPS and APCs.

To optimize revenue under the Medicare outpatient prospective payment system's new coding-based ambulatory payment classifications (APCs), healthcare providers need to ensure several key steps are taken at the organizational level. Individuals who manage coding need to identify areas of overlap and adjust billing systems to reflect changes under the system. Billing managers should develop practices and protocols that provide detailed reviews of claims, implement a formal denial management program, track reasons for denials, and communicate denial information with their staffs. Proper evaluation of financial practices also is important Financial managers need to develop formal ways to monitor financial performance consistently and on an ongoing basis and ensure the hospital is generating sufficient volume and keeping service costs in line with payments.

The implementation of ambulatory payment classifications (APCs) through Medicare's outpatient prospective payment system (PPS) on August 1, 2000, subjected healthcare providers to numerous financial, operational, and strategic challenges. Adjusting to an outpatient payment methodology based strictly on coding required a major paradigm shift. Many providers needed to increase efforts and resources toward appropriately coding and billing outpatient services to avoid dramatic decreases in Medicare outpatient revenue, and the numerous changes that the Centers for Medicare and Medicaid Services (CMS) enacted through program memorandums only added to the challenge of this task. It soon became apparent that the general complexity of Medicare outpatient billing was making it increasingly difficult to measure the effectiveness of implementation efforts.

Yet effective financial management under this new payment system goes well beyond analyzing billing and coding processes. APCs affect many different functional areas of a hospital and require a true integration of clinical, operational, financial, and strategic functions. For example, the APC system requires providers to focus more on generating sufficient Medicare outpatient volume to ensure that revenues are in line with the fixed and variable costs associated with service delivery In particular, hospitals need to evaluate outpatient service lines carefully to determine which generate the most revenue under the PPS. Prior to implementation of APCs, services typically were paid on a cost basis and therefore did not require this high-level analysis based on cost structure.

Exhibit 1 summarizes activities that likely have been addressed by most hospitals and those activities that many hospitals probably have yet to accomplish within the typical functional areas associated with effective APC implementation. Many hospitals have faced resource constraints, making it difficult for them to identify and pursue all issues germane to APC implementation. As a practical matter, therefore, their implementation efforts have tended to focus more on technical billing and coding issues than on strategic planning.

OUTPATIENT CODING

Healthcare providers have recognized that coding processes are the fundamental building blocks for success under APCs. However, the level of attention focused on coding varies by site. Many providers understand the importance of reviewing billing compliance between their charge description masters (CDMs) and the coding used by representatives within their health information management departments. In many instances, this process easily identifies areas of coding overlap so that requisite changes can be made to ensure appropriate coding.

A more detailed review is needed, however, to determine whether the provider is charging appropriately for all services performed. Ensuring effective charge practices at this level requires the provider to train clinical personnel on proper charging methods and to establish billing systems that allow for optimal charge capture. Many providers have not been able to optimize coding because their billing systems fail to include procedures or items that are listed separately under APCs.

One example of this type of coding problem relates to passthrough payments for drugs, biological products, and medical devices. Many providers are not reporting the appropriate HCPCS code for these items on their outpatient claims. Instead, they are using older codes because they have not yet changed their CDMs to reflect the new system of billing an item based on category instead of manufacturer.

Also, many providers are struggling with procedural coding for emergency departments, provider-based clinics, and cardiology and interventional radiology services. Prior to implementation of the new system, many of these services were paid based on cost as a percentage of hospital charges. Therefore, as long as the charges appropriately captured the service delivery cost, a hospital did not have to pay attention to the accuracy of its HCPCS coding. Now, failure to code appropriately for all services performed will result in lost payments.