Introduction

Medicare's Hospital Outpatient Prospective Payment System (HOPPS) and its Ambulatory Payment Classification (APC) system became effective August 1, 2000. The Proposed Rule for calendar year 2002 was issued on August 20, 2001. Are you ready?

HOPPS benefits (according to Medicare) abound. HOPPS "encourages" hospital efficiency. It simplifies the payment system. Payments are sufficient to compensate hospitals adequately for their legitimate costs. Beneficiary coinsurance for hospital outpatient care is reduced. The aggregate growth in Medicare's costs is reduced. HOPPS shifts the financial risk of providing medical care from the payer to providers. HOPPS also reduces payment differentials between provider settings.

HOPPS services are reimbursed based on APC payments. HOPPS also includes payment for outliers; transitional pass-through payments for designated drugs and biologicals and for innovative medical devices. New technology APCs pay for new techniques or items not eligible for transitional pass-through payments. HOPPS also provides transitional corridor payments to ease the transition from cost-based reimbursement.

HOPPS excludes services already paid under fee schedules, inpatient services, and certain hospital outpatient services furnished to SNF inpatients. An assessment of the APC program is an excellent opportunity to review non-HOPPS services as well.

Assessing Progress

The initial implement of your APC system should be complete. A comprehensive assessment will recognize progress; identify issues; and set goals and monitoring protocols. An understanding of APC's and adoption of operational changes to improve patient outcomes while promoting cost effective operations is essential for success. The very complexity of APC coding provides a detailed database upon which to develop improved systems and procedures.

HOPPS Assessment

Assess the overall APC system. Were critical APC issues identified and dealt with? Are the APC Coordinator and team proactive? Is senior management supportive? Are physicians, nursing, and clinical personnel actively involved? Has the staff received in-service training? Have department-specific issues been addressed? Do protocols support early identification of and correction of errors? Has responsibility and accountability been assigned? Have Cost Report requirements been considered? Were performance indicators and benchmarks established and monitored?

Revenue Cycle and Accounts Receivable Management
Has the revenue cycle been flowcharted and key activities evaluated?

• Scheduling. Is medical necessity determined? Are "inpatient only" procedures identified?



• Registration. Are patients registered properly? Notified about co-payment amounts? Does the procedure fall under the "outpatient payment window"? Is Medicare the primary or secondary payer? Have COBRA/EMTALA requirements been followed?



• Clinical Services/Documentation/Data Quality. Are physicians and clinical personnel documenting clinical information? Has in-service training included department-specific requirements? Is documentation of bilateral or multiple surgical procedures during the same operative procedure, terminated surgical procedures, and clinic and emergency visits accurate? Are the components of invasive radiology and cardiology procedures clearly documented?



• Charging. Who is responsible for charge entry? What procedures are "statically" coded using the Charge Master? What procedures are 'dynamically" coded based on a review of clinical records? Do departments have "reconciliation" protocols to ensure that all patient services are charged daily? How are duplicate charges avoided? What controls minimize "lost" or "late" charges? Are units of service properly charged?



• Coding and Documentation. Do coders know when all records are received? Do they have timely access to physicians and clinicians and to original physician orders, procedure notes, lab, x-ray, and other reports? Have Coders been trained in CPT/HCPCS coding? If bills are "suspended" pending final coding, are work lists generated and processed in a timely basis? Are technical references readily available? Are requirements of the National Correct Coding Initiative (NCCI) and the Outpatient Code Editor (OCI) understood and followed? Do internal audits catch the inappropriate simultaneous coding of a comprehensive service and the separate code(s) for components of the comprehensive service? Is coding accurate for "screening" services? Modifiers? Bilateral and multiple procedures? Clinically complex services such as ambulatory surgery, gastroenterology, invasive radiology and cardiology, E/M, and emergency services? Have items that qualify for new technology, transitional pass-through, or expensive pharmaceutical payments been documented and coded? Are safeguards in place to ensure that the system is not being "gamed" through improper upcoding of claims?



• Error Detection. Are errors detected early? Corrected? Have "feedback loops" been developed? Are random coding audits completed each day? Are focused reviews conducted on high volume and/or high cost procedures? Are chart audits performed? Have "late" or "lost" charges been minimized? Are remittances thoroughly analyzed? Are claims reviewed?



• Billing. Do billing edits include Outpatient Code Editor (OCE) edits? Do edits reflect APC quarterly updates? Are non-HOPPS services being billed properly? Are prohibitions against unbundling of hospital outpatient services being complied with? Does the claim include all services from the same day? Does the system handle modifiers properly? Are units of service accurate? Does each line-item charge include a date of service and a HCPCS code? Do charges sum properly? Are UB 92 fields properly completed? Are valid diagnostic codes included? Have all services been processed and coded? If late charges occur, are they submitted on an adjustment bill?



• Payment and Transaction Processing. Are remittance transactions posted in an accurate and timely manner? Analyzed for problems? Are denial codes understood? If errors are identified, is the cause determined and corrective action taken? Is processed claims information used to update contractual allowance models? Are deductibles and copayments accurately identified and billed? Are "outlier" payments being received?

Charge Master

Is one individual responsible for maintaining the Charge Master? Does a multi-disciplinary group assist? Are charge tickets and procedures current? Does the Charge Master reflect the unique requirements of the APC system? Have department-specific issues been addressed? Are appropriate personnel involved in identifying, coding, and pricing medical devices, drugs, and biologicals? Is the Charge Master reviewed at least annually? Are changes being implemented as new guidance is issued? Does the Charge Master accommodate items eligible for "transitional pass-through" and "new technology" payments? Are modifiers handled properly? Have provider service codes been linked to CPT/HCPCS codes and descriptions? Are CPT/HCPCS codes mapped to Revenue Codes? Are prices compatible with costs and units of service? Has a pricing policy and algorithm been established? Does the Charge Master relate to the Medicare Cost Report? Does the Charge Master reflect "related-entity" requirements? With the 2002 annual update to HOPPS pending, has a line-item review of the Charge Master been scheduled?

Intermediary Reviews

Have intermediary payment and medical review concerns been incorporated into your APC program? Are areas of vulnerability-billing covered services but at an inappropriately higher level; incorrect coding; duplicate processing of services under HOPPS and under carrier billing; unrelated E/M procedure codes with single/multiple surgeries; billing of multiple same day visits on separate claims; or the inappropriate use of partial hospital billing being reviewed? Are patterns such as significant error rates, billing for noncovered or not-medically necessary services; questionable utilization patterns, consistent upcoding or incorrect use of modifiers; excessive use of high cost drugs or devices qualifying for transitional pass through payments investigated?

Management Information Systems (MIS)

Does the MIS support APC requirements? Are databases maintained properly? Are users in-serviced? Are standing reports adequate and used? Can ad hoc reports be generated? Do applications interface automatically? Are privacy and other safeguards adequate?

Technical Considerations

Technical considerations must be considered to ensure proper reimbursement.

• Beneficiary Coinsurance Payments. Are copayments reduced? If coinsurance amounts are reduced, has the Intermediary been notified? Is advertising accurate? Are voluntary reductions of coinsurance excluded from Bad Debts on the Cost Report? Is the reduction applicable for a full year? Offered to all Medicare beneficiaries? Has the impact on market share been assessed? Are coinsurance amounts being accurately computed? Do copayment calculations ignore outlier and transitional pass-through payments? Do computed coinsurance amounts exceed the inpatient deductible amount? Are hospital outpatient departments and hospital-based entities providing services in facilities not located on the main provider's campus properly notifying beneficiaries of their potential financial liability?



• Wage Index. APC payment rates include labor and non-labor components. The annually updated wage index used in the hospital inpatient PPS is used to calculate APC payments. The wage index applies to the APC labor component. HOPPS has increased the importance of accurate wage information. Is your wage index database properly developed? The latest wage increase, applicable for the DRG program on October 1, 2001 and the APC program on January 1, 2002, was just released. What is the impact on your facility?



• Cost to Charge Ratio. Is the Outpatient Cost-to-Charge Ratio correct?



• Outlier Payments. Medicare automatically calculates outlier payments for services rendered. To receive outlier payments, does the organization code claims completely and accurately? Are charges reflective of the cost to provide the service?



• Transitional Corridor Payments. Congress feared that reimbursement limitations might force providers to restrict beneficiary access to necessary and appropriate ambulatory care. The Balanced Budget Refinement Act of 1999 (BBRA 1999) created a transition period with "transitional corridor payments" to assist providers adapt to APCs. Are "transitional corridor payments" calculated and paid correctly? Is information contained in the Intermediary provider profile correct? Is action being taken to reduce costs below APC payments prior to the end of the transitional period?



• Small Rural Hospitals. HOPPS adversely impacts small rural hospitals because of reduced revenues due to under coding, a higher percentage of income from outpatient services, lack of economies of scale, and a reliance on the median rather than the geometric mean in calculation of APC weights. BBRA 1999 provides hold harmless protection to hospitals located in rural areas with no more than 100 beds. If your hospital is in a rural area and if it has less than 100 beds, do Intermediary records and payments reflect your status?



• Cost Reports. Are databases kept current? If outpatient copayments are waived, do safeguards exclude waived copayments from the Cost Report? Is detailed documentation of the exact cost of services available?



• Provider-Based Entity Criteria. Medicare provider-based criteria have been tightened to ensure that only entities entitled to receive higher payment levels tied to provider-based status actually receives the designation and payments. Provider-based status increases beneficiary liability for deductibles and coinsurance. Are provider-based entity criteria met? Has CMS been contacted and an affirmative provider-based determination been obtained? Do billing and cost report activities reflect the correct provider status?

The Next Steps

Summary

The APC payment methodology required under HOPPS is not just another reimbursement system. Hospitals must aggressively upgrade patient accounting systems to meet payment and compliance requirements. To survive financially, hospitals must systematically review and revamp administrative and operational processes to provide good clinical outcomes in a cost effective manner. If hospitals meet the challenge of APCs, they will also enhance their competitive position as providers of ambulatory services.