In 2008, when the Centers for Medicare & Medicaid Services (CMS) shifted its payment approach in the outpatient surgery industry from the nine-grouper methodology to APC-based reimbursement, many assumed that commercial payers would follow suit. But the majority of insurers continued to base reimbursement to ambulatory surgery centers (ASCs) and hospital outpatient departments (HOPDs) on grouper-based methodologies. Their models remained enhanced or modified versions of the historical CMS ASC model, with a few differences such as mapping of CPT codes and additional groupers. The resistance to adopting an APC-based model was largely due to the high system and operational costs associated with making the switch.
However, the limitations of these grouper-based methodologies have recently driven some payers to make the move to APC reimbursement in the ambulatory space, despite the cost. This is mostly good news – APCs provide a greater number of classifications and a wider range of reimbursement rates, allow for placement of new procedure codes in more revenue-appropriate payment classes, and offer more appropriate reimbursement for implants. But there are also some challenges related to the transition that ASCs and HOPDs should be aware of when they enter into contract negotiations with commercial payers who are looking at a conversion.
It’s Not Strictly Apples to Apples
When a commercial payer converts from groupers to APCs, its procedural reimbursement methodology will mirror CMS rates and weights; but that’s where the similarities often end. What commercial payers are calling APC reimbursement is something of a misnomer. In practical terms, what’s emerging is usually a hybrid of CMS methodology and the payer’s historical internal proprietary reimbursement models. Payers are not intentionally being misleading; rather, the hybrid model is a reflection of their struggle to remain current with the intricacies of CMS policy. And this struggle can manifest itself in myriad ways. Some payers are using a prior year’s methodology or delaying implementation until a midyear start date, as opposed to using a calendar year update. Others have not implemented CMS GPCI adjustments.
Furthermore, there is inconsistency in how payers handle codes that are not subject to multiple procedure reductions and include devices. It’s also challenging for payers to deal with codes that do not have an APC weight, many of which were previously compensated using carve-outs in legacy contracts. Finally, while the APC methodology is a vast improvement over the groupers, it remains imperfect, and there are some codes that incur implant costs or other variables that render the current allowable amount unsatisfactory.
Evaluating the New Payer Contracts
Despite these challenges, the trend of payers converting their outdated ambulatory reimbursement systems to current-generation APC-based methodologies remains far more positive than negative. If outpatient surgery centers ask the right questions, they won’t suffer any downstream negative impact in contracting with payers that are in the process of converting.
Here are a few specific items that ASCs and HOPDs should review with the payer before signing a contract. Discussion of these items during contract renewals and renegotiations will help outpatient surgery centers assess the reimbursement conversion being proposed in a new contract labeled “APC”:
- Request a full list of APC weights the payer will be using
- Ask whether area GPCI adjustments will apply
- Determine how procedure codes deemed not eligible for multiple-procedure reduction under the CMS rule are being paid (preferably at 100%, regardless of the position billed)
- Discuss how implants will be handled, including codes classified as “device intensive” (preferably implants are paid separately or in addition to the APC amount)
- Determine how often and when the payer will adopt CMS’s updated weights (there is no preferred interval, but surgery centers will want to be informed about how the payer handles this)
- Identify how codes without an APC weight will be reimbursed (preferably as a percentage of the billed charge)
- Ascertain how cases that contain a mix of codes with and without APC values will be reimbursed (preferably those with an APC are paid at the contracted rate and those without are paid at a percentage of the billed charge)
In addition to asking these questions, whenever possible, ASCs and HOPDs should share specific CPT code examples and request that the payer price these examples to determine whether the center’s analysis matches what the payer is expecting to pay.
ASCs and HOPDs entering this process should remain mindful that payers don’t yet have extensive experience contracting under these methodologies. This creates a certain amount of risk for both payers and surgery centers, so it is imperative that the centers take the time to sort through the details related to these methodologies, including expected payments by procedure and case. It is also important for ASCs and HOPDs to obtain written confirmation of the specific CMS year serving as the baseline for the contract, as well as the payer’s specific methodology and approach to issues such as multiple procedures, bundling codes, and implants and codes not priced under the CMS rules.
Once the Ink Is Dry
Once a contract is fully implemented, ASCs should closely monitor payments to ensure consistency with contractual expectations. It is very important that surgery centers develop tools and systems to confirm that future reimbursements match their negotiated payment methodology.
A Final Cautionary Note
When commercial payers switch from the old nine-grouper-based methodologies to an APC-based approach, they will pick up the reimbursement rates established by CMS. Therefore, when an ASC or HOPD signs an APC-based contract with a payer, it is effectively agreeing to adjust year-over-year reimbursements in step with CMS changes – unless the contract specifically refers to the year that will be used for the term of the contract. The result could be increases or decreases in reimbursement rates, depending on a surgery center’s case mix and Medicare’s annual adjustments. ASCs and HOPDs should be prepared to negotiate annual increases to the center’s conversion factor, include language that mitigates risk for reductions, or negotiate floors and ceilings in year-over-year rate changes.