Calculating Pass-Through and Outlier Payments under APCs

Healthcare Financial Management, July, 2001 by Martin Gold, Susan Snodgrass

The outpatient PPS provides additional payment for outlier costs on a claim-by-claim basis. The outpatient PPS outlier mechanism operates similarly to the inpatient PPS outlier mechanism, but the threshold is set at 2.5 times the APC payment amount plus any pass-through payments. The outlier payment equals 75 percent of the costs in excess of this threshold.

Pass-Through Payment Calculation

When a hospital implants a device or uses a drug or biological that is eligible for pass-through payment, the item would be paid on a "reasonable-cost basis," which is the hospital's billed charges reduced by the hospital's outpatient cost-to-charge ratio (CCR). [b] The charge for the item should be posted on the charge description master (CDM) at an amount sufficient to recoup the item's acquisition cost after the CCR is applied.

Exhibit 1, page 58, illustrates how an outpatient surgical procedure involving an implantable medical device that is approved for a pass-through payment would be paid under this system. For the purpose of this example, the hospital will be performing an implant of a device. These figures are for illustrative purposes only.

The financial assumptions are as follows:

(1) The markup on the implantable device is 330 percent.

(2) The markup on the surgical procedure is 125 percent.

(3) The outpatient CCR is 32 percent.

(4) Facility costs for the procedure equal $1,625.

(5) The implantable device cost is $9,000.

(6) The procedure (CPT/HCPCS code 99999) falls within APC 9999.

(7) The implantable device appears on the pass-through list, coded C9999.

(8) To determine the pass-through payment for the implantable device:

a. The hospital would mark up its acquisition cost to an appropriate charge level.

b. The hospital's charges for the device would be reduced by the hospital's outpatient CCR (32 percent). The hospital's acquisition cost for the device was $9,000, and the hospital applied a markup of 330 percent (1 [devided by] the CCR), bringing total charges for the implantable device to $29,700.

c. HCFA then applies the CCR [$29,700 x 0.32] to establish the level of payment, $9,504.

Outlier Calculation for a Non-Pass-Through Item

When a hospital implants a device or uses a drug or biological that is not eligible for pass-through payment, the hospital would receive the appropriate APG payments for the procedure but would receive no additional payment specifically for the device, drug, or biological. The entire claim would undergo an automatic outlier calculation. The claims system would determine whether the CCR-adjusted charges exceed 2.5 times the total claim amount. If so, an additional outlier payment equal to 75 percent of the balance would be paid.

Exhibit 2, page 59, illustrates how an outpatient surgical procedure involving an implantable medical device that is not approved for a pass-through payment would be paid under this system. These figures are for illustrative purposes only.

The financial assumptions are as follows:

(1) The markup on the device is 520 percent.