In the 2016 Outpatient Prospective Payment System (OPPS) Final Rule, the Centers for Medicare & Medicaid Services (CMS) adopted a new comprehensive ambulatory payment classification (C-APC) to encompass observation services.
First adopted in 2015, the C-APC can be viewed as the outpatient version of the diagnosis-related group (DRG) payment system, with one payment to cover all services provided during an outpatient encounter. This is a progression of CMS’s ever-intensifying move toward bundling payments for services instead of paying “per piece.” The initial C-APCs included predominantly invasive procedures such as cardiac catheterization and stenting, pacemaker and defibrillator placement, and general, gynecologic, and orthopedic procedures.
But with the addition of the C-APC for observation services, CMS has gone into uncharted waters. Currently (prior to Jan. 1, 2016), observation services are paid under APC 8009 if the patient has received eight or more hours of observation services (HCPCS code G0378) and a clinic visit G-code (G0643), a Level 4 or 5 Type A emergency department (ED) visit code (99284-99285), a Level 5 Type B emergency department visit code (G0384), ED critical care (99291), or direct referral to observation (G0379). Additionally, the APC is not paid if the patient receives a procedure with a status indicator of T on the same day or a day earlier than the start of the observation services.
When CMS proposed C-APC 8011, commenters pointed out that patients often undergo periods of observation prior to the status indicator T procedure, and those services should be payable. CMS, though, was not swayed by the comments and in fact expanded the criteria. In the final rule, the agency noted that payment for observation services will always be packaged (not separately payable) when furnished during the same encounter as a procedure assigned status indicator T or J1 (which signifies the other C-APC services.) CMS did however expand eligible claims to include all ED visit levels. It also set the reimbursement for C-APC 8011 at $2,275, higher than the proposed rate of $2,211.
To illustrate how this will work in practice, here are several scenarios:
Say a patient is seen in the ED for syncope and is placed as an outpatient receiving observation services. The patient has several diagnostic tests and is discharged 20 hours later. The hospital will bill for all services (ED visit, observation hours, diagnostic testing) and will be paid C-APC 8011, receiving $2,275 (adjusted for their wage index.)
Say a patient is seen in the ED vomiting a small amount of blood. The patient is stable and placed as an outpatient with observation services. Blood counts are monitored over 18 hours and when there is no drop, the decision is made to discharge the patient and schedule an outpatient esophagoduodenoscopy (EGD). The hospital will bill for all services (ED visit, observation hours, lab tests) and will be paid C-APC 8011, receiving $2,275 (adjusted for their wage index.)
Say a similar patient is seen in the ED vomiting a small amount of blood. The patient is stable and placed outpatient with observation services. Blood counts are monitored over 18 hours and when there is a small drop, an EGD is performed. The hospital will bill for all services (ED visit, observation hours, lab tests, EGD). The EGD is assigned a status indicator T. Because there is a T procedure on the claim, the C-APC 8011 is not eligible to be paid; the observation hour charges will be packaged into the payment for the EGD. The hospital will be paid individually for the ED visit, the EGD, and any other testing. Depending on the ED visit level, that service will be paid $250-$450. The EGD is paid about $750 and the labs are generally non-reimbursable, as they are under $100. Therefore, for this claim, the hospital will be paid approximately $1,200 (rather than $2,275 if the EGD was not done). In other words, the hospital is financially penalized over $1,000 by performing the EGD – paid less for doing more.
To complicate things more, if a patient undergoes an electively scheduled outpatient laparoscopic cholecystectomy, the hospital will be paid approximately $4,000 for C-APC 5314. But if a patient presents to the ED with abdominal pain, receives over eight hours of observation services, and subsequently goes for a laparoscopic cholecystectomy (a J1 procedure) and goes home prior to the second midnight, the hospital will be paid that same $4,000 for C-APC 5314 – with absolutely no additional revenue for the ED visit, observation services, or any other diagnostic testing performed.
Comprehensive APCs, as first introduced, made sense. As CMS itself said, “patients come to the hospital to have their gallbladder removed or have a pacemaker placed,” so why should they get a bill for every individual service? However, adding observation services to the C-APC list, as illustrated above, creates more confusion and the potential for significant financial loss for hospitals.
About the Author
Ronald Hirsch, MD, FACP, CHCQM is vice president of the Regulations and Education Group at Accretive Physician Advisory Services at Accretive Health. Dr. Hirsch’s career in medicine includes many clinical leadership roles at healthcare organizations ranging from acute care hospitals and home health agencies to long-term care facilities and group medical practices. In addition to serving as a medical director of case management and medical necessity reviewer throughout his career, Dr. Hirsch has delivered numerous peer lectures on case management best practices and is a published author on the topic. He is a member of the American Case Management Association and a Fellow of the American College of Physicians.
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