Ambulatory patient groups (APGs) form the basis
of a prospective payment system for reimbursing outpatient services that was
developed through funding from HCFA for use in the Federal Medicare program.
APGs classify ambulatory encounters through a grouping process that is based
upon CPT/HCPCS procedure codes and ICD-9-CM diagnosis codes.[a] APGs are to
outpatient care what DRGs are to inpatient care, with a major twist -- a single
outpatient encounter can be assigned multiple APGs.
The initial version of the APG system, Version
1.0, was presented for Congressional review in 1990(b) and was subsequently
adopted by some third-party payers, including Iowa Medicaid. A major update,
Version 2.0, was released in 1995,(c) and some third-party payers are already
using it or are in the process of converting to its use. Healthcare financial
managers must understand how APGs work, what financial impact APGs will have on
their organizations, and how APGs can be applied as a cost management tool for
the growing outpatient services sector.
(a.) APG Version 2.0 Definitions Manual,
Wallingford, CT; 3M/HIS, 1995. (b.) Hirschl. Nancy. "A Closer Look at
Ambulatory Patient Groups: APG Version 2.0 Update." Journal of the American
Health Information Management Association. February 1996, pp. 22-25. (c.)
Hirschl, "A Closer Look..."
STRUCTURE OF APGS
Eight key structural aspects of APGs directly
affect their financial impact:
* Supply and pharmaceutical cost bundling;
* Significant procedure consolidation
* Ancillary packaging;
* Multiple procedure discounting;
* Window of service;
* Medical visit bundling;
* APG weight determination; and
* APG payment rates.
Supply and pharmaceutical cost bundling,
significant procedure consolidation, ancillary packaging, and medical visit
bundling are all ways various outpatient encounters are grouped together under
APGs; encounters may be grouped in one or more of these ways. Reimbursement
amounts are determined by using multiple procedure discounting and weights and
payments similar to those used with DRGs.
Supply and pharmaceutical cost bundling. The
bundling of supply and pharmaceutical costs may appear to be relatively
innocuous, but under the APG system, it can have a significant financial impact.
Virtually all supplies and pharmaceuticals, except for certain expensive
chemotherapy drugs, are bundled into the APG reimbursement amounts; for example,
the cost of the intraocular lens used in cataract surgery is included in the
cataract surgery APG, and the pacemaker cost is included in the insertion of
pacemaker APG.
This can become a problem if the APG payment for
the service provided is relatively modest, but the supplies and/or
pharmaceuticals associated with the service are costly. For example, outpatient
IV therapy provided by a nurse at a hospital results in a relatively modest
payment because across all healthcare organizations the overall average charges
(and thus the APG weight) are relatively modest for IV therapy. However, during
a specific encounter, the drugs infused during therapy may be quite expensive.
Since all drug costs are bundled into the IV therapy payment, the cost incurred
by the healthcare provider may significantly exceed the APG payment for a given
encounter.
Healthcare providers must analyze those
high-frequency services for which the cost of related supplies and
pharmaceuticals greatly exceed the payment for the basic service. In most
instances, there is no way a provider can average out the expensive supplies
within the APG itself. The losses incurred will have to be averaged out over all
APGs. This situation can be mitigated if the third-party payer implementing APGS
includes provisions for cost outlier payments.
Significant procedure consolidation. The
significant procedure consolidation process, which was established in Version
1.0, has been eliminated from Version 2.0, but third-party payers implementing
Version 2.0 may decide to retain the process. Therefore, it is important to
understand how significant procedure consolidation is done and assess what the
financial implications might be.
Significant procedures are generally considered
to be surgical procedures. If two or more related significant procedures are
performed on a patient during an encounter, they are consolidated under the APG
system. The less resource-intensive procedure is included as part of the APG
covering the more resource-intensive procedure, and only the APG reimbursement
amount for the more resource-intensive procedure is paid. The rationale behind
this consolidation is that the performance of the lesser procedure normally does
not significantly increase the resources consumed in performing the greater
procedure.
A simple example of this process is the repair of
two lacerations on a patient, one a simple laceration and the other a complex
laceration. Under Version 1.0, the simple laceration repair is classified under
APG 10, and the complex laceration repair is classified under APG 11. Under
significant procedure consolidation, APG 10 is bundled into APG 11, and payment
is made only for APG 11.
Significant procedure consolidation is based on
CPT procedure codes and HCPCS alphanumerical supply codes. A significant
procedure consolidation list provided by a third-party payer implementing APGs
is key to understanding this aspect of APGs, and it must be analyzed carefully.
Ancillary, packaging. The premise behind
ancillary, packaging is that simple, inexpensive laboratory, radiology and other
diagnostic services are basic to various healthcare procedures and services and
thus should be included in the reimbursement amounts of specific APGs. Under
APGs, certain ancillary departments, such as laboratory and radiolog, will no
longer have an identifiable revenue stream unless a sophisticated cost
accounting program is put in place. Third-party payers implementing APGs must
decide which ancillary, services will be packaged; therefore, this packaging may
vary from payer to payer.
Multiple procedure discounting. After the APG
significant procedure consolidation and ancillary packaging are completed, there
may be multiple APGs remaining. Depending upon the APGs remaining, discounting
may come into play. There are three separate circumstances, each with its own
discount schedule, under which discounting may occur:
* Nonpackaged laboratory services in the same APG;
and
* Nonpackaged nonlaboratory ancillary services (eg,
radiological services) in the same APG.
Multiple significant procedure discounting has
the greatest financial impact of all possible discounting scenarios. In
assessing how great a financial effect there will be, financial managers must
analyze the discounting schedule. A typical discounting schedule for significant
procedures is:
* 100 percent reimbursement for the
highest-weighted APG;
* 60 percent reimbursement for the next
highest-weighted APG;
* 40 percent reimbursement for all subsequent
APGs.
Third-party payers that decide not to implement
significant procedure consolidation are likely, to create a more restrictive
discounting schedule in order to maintain the same overall level of expenditures
as payers that have opted to perform significant procedure consolidation.
Window of service. The APG payment system is
encounter-driven. Therefore. it is important to understand what is considered an
encounter under APGs. An encounter is referred to as a "window of
service" and is comprised of the number of consecutive calendar days (not
24-hour periods) during which related services provided to a patient can be
grouped into an APG. Third-party player's typically set the number anywhere from
one to five calendar days, and this number generally, does not vary from APG to
APG. This concept complicates payments since there may be unrelated services
provided within the window for which separate payments may be made.
Medical visit bundling. Medical visit bundling is
driven by ICD-9-CM diagnosis codes used in conjunction with CPT evaluation and
management codes. The top-level logic within APG grouping asks whether a
significant procedure was performed during an encounter; if the answer is yes,
the grouping is driven purely by the CPT procedure code. Thus, if a significant
procedure and medical and diagnostic services are performed during the same
encounter, payment will be made only for the significant procedure. Depending
upon the services provided, this can have a significant negative impact. For
example, when a simple laceration repair occurs during an encounter that also
includes extensive medical and diagnostic services, only the laceration repair
(and nonpackaged ancillary services) will be reimbursed.
