Prepare for the Financial Effects of APCs

A ccording to the Health Care Financing Administration (HCFA), the new Medicare outpatient prospective payment system (OPPS) was never intended to cost hospitals money. The original ambulatory payment classification (APC) plan was budget-neutral. But in the wake of complaints by industry groups, Congress allowed additional expenditures so that HCFA could offer hospitals transitional payments and other financial aid. According to one HCFA spokesman, APCs may even increase the reimbursement hospitals receive: We estimate that with the corridor payments, revenue will go up 5 percent compared to what theyre paid now. HCFA Administrator Nancy-Ann DeParle further stresses that the APC methodology was designed to restructure payments, not reduce them. The new system gives hospitals changed incentives to become more efficient and will result in more consistent payments across hospitals.

While overall reimbursement may not drop, individual hospitals are likely to see widely varying financial effects, according to Caral Edelberg, CPC, CCS-P, president of Medical Management Resources, an emergency department coding consulting firm in Jacksonville, Fla. I think the win-lose decision will be made after a thorough comparison of payments under the current cost-to-charge methodology to payments under APCs. You also have to consider the extraordinary cost of implementing this new systeman indirect cost to hospitals that HCFA doesnt reimburse.

Because every hospital will receive the same base paymentafter locality adjustmentsfor each APC, and because the payments are based on average historical costs and charges, she agrees that many hospitals whose current payment rates are low may find that payment is better under APCs. Likewise, facilities with high costs and low profit margins may find that APC payments increase their income. Hospitals that routinely pocket more than the average proportion of their charges, however, will be forced to accept an amount closer to the average gleaned by all hospitals.

Although it may be difficult to predict accurately what effects APCs will have on individual hospitals, there is an upside: under APCs, hospitals will know exactly how much they will be paid for certain procedures and services.

New Co-pays May Affect Reimbursement

One of the key intents of APCs was to reduce the share of payment made by beneficiaries. To do this, HCFA established national copayments based on 20 percent of the 1999 median hospital charge, adjusted for a regions cost of living. Under APCs, however, numerous procedures will carry extraordinarily high co-pays that may place financial pressures on those beneficiaries without some form of secondary insurance.

HCFAs new system of adjustable co-pays could threaten a hospitals revenue stream as well, Edelberg notes. Under the current system, co-pays are based on the charge and not the actual payment rate, and the patients financial liability is still somewhat limited. Under APCs, some of the co-pays are significant, and now [...]

- Published on 2000-08-01