Reader Question: APCs and Hospitals

Question:How much money will hospitals lose under ambulatory payment classifications (APCs)?

North Carolina Subscriber

Answer: In the proposed rules, the Health Care Financing Administration (HCFA) says the average hospital will lose approximately 5.7 percent of its Medicare revenue. Industry groups believe that number is too low. According to a report prepared for the American Hospital Association by The Lewin Group, outpatient payment reductions will grow from 7.9 percent in 1998 to 17.7 percent in 2002, with small and rural hospitals taking the hardest hit.

When it released the final regulations, HCFA said that most hospitals would lose very little money. We wont know who is right until APCs have been in effect for a few months. But at first glance, it looks like the hospitals face some financial challenges. Hopefully, the transitional and outlier programs, in addition to the new APCs for drugs and biologicals, will compensate for the potential loss.

When Medicare switched to a diagnosis-related group (DRG) prospective payment system for inpatient care several years ago, hospitals tightened their belts. They cut costs, but they also came up with a creative way to preserve a portion of their revenue stream. Hospitals were able to move some procedures into the outpatient side if they werent paid very well under DRGs. It gave hospitals a way to deal with the financial strain caused by inpatient DRGs.

APCs arent the same as DRGs, but they will cause the same kind of cost-cutting at hospitals, ambulatory surgery centers and other facilities that offer outpatient care. Now the costly outpatient cases cant be shunted anywhere else in the hospital to increase reimbursement, so the whole hospital will suffer increased financial strain.

- Published on 2000-07-01