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In the Balanced Budget Act of 1997, there are provisions for HCFA to implement a prospective payment system under Medicare for hospital outpatient services, certain Part B services furnished to hospital inpatients who do not have Part A coverage, and partial hospitalization services furnished by community mental health centers. All services paid under the new prospective payment system are classified into groups called Ambulatory Payment Classes, or APCs. There are 346 APCs grouped into four status types, and they will include all hospital outpatient services. The following shows what services are included and which services are specifically excluded in this new payment methodology.
In the managed care marketplace, there are a handful of organizations that have picked up on this change and identified it as a major force in their long-term strategy planning over the next year. Others seem to be relying upon the fact that implementation of the APC system, which was supposed to go into effect January 1, 1999, was postponed by HCFA due to Y2K computer system concerns, so it is not on the immediate horizon. The literature is inconsistent with some articles stating that it will be implemented in January 1, 2000, and others follow HCFA's indications that it will be in effect July 1, 2000. HCFA states on its website, www.hcfa.gov, "We will implement the PPS as soon as possible after January 1, 2000, and we will publish notice of the anticipated implementation date in the Federal Register at least 90 days in advance of the implementation."
It is time for hospitals to begin thinking about what internal operational changes they will need to make in order to use APCs as a payment methodology with 90 days notice. Hospitals and PHOs must see this change as imminent to their Medicare business.
Why is the federal government instituting yet another payment change? According to DeMarco & Associates, a healthcare consulting firm specializing in physician-driven integration including physician-hospital joint venture strategies, there is a drive for the federal government to work toward a national fee schedule for Medicare. A first step in this is to tie together DRGs with payments for outpatient services through a prospective payment methodology, such as APCs. Another reason is that in some cases, the DRG system does not create the intended savings or has been gamed by hospitals on the outpatient side. The federal government wants simplified billing and a level playing field. For example, in the APC system, DRGs will receive the same payment for a post-surgical observation for a particular procedure whether it was performed in the emergency room or in an outpatient setting. In addition, the federal government wants to level payments between outpatient DRGs and the ambulatory surgery center fee schedule, and the next step with APCs is to apply them to ambulatory surgery centers.
For hospitals, the implementation of APCs means that they will need to assess their internal operations, including billing, coding, and information systems. Physicians cannot look to the hospital to manage this change for them. Hospitals and physicians will need to cooperate at the office level to make sure that medical records and coding accurately reflect diagnosis that can be attached to the new APC payment categories. Hospitals will also need to look to their accounting department to conduct activity-based costing so time spent on a procedure, labor, supplies, pharmaceuticals, equipment, and anesthetics can all be tied to a particular case so that hospital can begin to track their costs and manage them efficiently. Moving toward the mindset of accepting a case rate from the federal government and then managing those dollars inside the hospital will be the long-term challenge for hospitals in the new millennium.
How will APCs compare with payment methodologies that have preceded them? The following is a profile of APCs and a comparison of APCs to DRGs and APGs (Ambulatory Patient Groups). APCs are a derivative of APGs, which are the result of Congress mandating the development of outpatient prospective payment system in 1986. In early 1983, inpatient prospective payment went into effect for Medicare, and over the next 10 years, Medicare outpatient expenditures rose from $2.7 billion to $9.9 billion. In 1988, HCFA awarded 3M Health Information Systems a grant to develop ambulatory patient groups. By the mid-1990s, 3M had completed two versions of the APGs and submitted implementation reported and recommendations to Congress.
Age, sex factors
Rate per facility
Multiple APG discounting
With the advent of APCs, also known as "Another Payment Change," one might expect all of the healthcare literature and conference agendas to highlight it and place under the microscope the impact that it will have on managed care. HCFA projects that when this system is in place, total payment to hospitals for Medicare allowed outpatient service will be reduced by an average of 3.8 percent. Payments to hospital for inpatient and outpatient Medicare services combined are projected to be reduced by 0.4 percent. Cancer hospitals and children's hospitals are expected to be hit the hardest, with revenue for Medicare outpatient expected to drop by 29.2 percent and 34.8 percent, respectively.
There are associations and organizations that are taking the lead on education in this area, showing managed care professionals how the APC payment methodology will impact long-term strategy of hospitals, as well as managed care enterprises overall. One such association is HFMA. Along with articles in its magazine and newsletters, HFMA state chapters have held workshops on the topic. On October 13, there was an audioteleconference, "Ambulatory Payment Classification: Tracking the System Issues," available through HFMA.
As the federal government attaches prospective payment methodology to the outpatient side of a hospital's business, the next link to build will be to the RBRVS payment methodology to have the inpatient and outpatient payments under one roof; a national unified fee schedule is born. With the federal government as the largest payer, managed care plans and employers will follow the APC methodology. "Many relationships between hospitals and physicians may be reconsidered in light of this payment methodology change," says Jennifer Marx, MBA, consulting analyst for DeMarco & Associates. "Hospitals will find all current single specialty joint ventures between hospitals and physicians may see a reduction in income as the hospital's billing will be attached to APCs for reduced payments."
There will be pressure for groups to innovate and be able to operate with payments below the APC methodology at some point in time. William DeMarco, president and CEO of DeMarco & Associates, states that the dawn of this prospective payment methodology brings to the healthcare system one of the biggest changes since the passage of the HMO Act. "APCs bring forward the necessity for hospitals to work with physicians to prepare for these changes. Hospitals with affiliations but no true 'management arrangement' with distant hospitals or clinics will not be able to bill for these distant outposts under APCs. There will be opportunities for physicians and hospitals to begin to innovate as Medicare links outpatient and inpatient care through one payment system."
You can contact Jennifer Marx at DeMarco & Associates at 815-877-8781 or send an e-mail to: Marxja@globaldialog.com.
Reprinted by the PFS Forum with permission from DeMarco & Associates.
Publication Date: Wednesday, March 08, 2006
In this Business Profile, Bruce Haupt, president and CEO of ClearBalance, discusses how a patient loan program can increase patient collections, reduce bad debt, and speed cash flow.
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This white paper, written by Apex Vice President of Solutions and Services, Carrie Romandine, discusses the importance of patient segmentation and messaging specifically related to the patient revenue cycle. Applying strategic messaging that is tailored to each patient type will not only better educate consumers on payment options specific to their billing needs, but it will maximize the amount collected before sending to collections. Further, targeted messaging should be applied across all points of patient interaction (i.e. point of service, customer service, patient statements) and analyzed regularly for maximized results.
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Faced with a rising tide of bad debt, a large Southeastern healthcare system was seeing a sharp decline in net patient revenues. The need to improve collections was dire. By integrating critical tools and processes, the health system was able to increase online payments and improve its financial position. Taking a holistic approach increased overall collection yield by 10% while costs came down because the number of statements sent to patients fell by 10%, which equated to a $1.3M annualized improvement in patient cash over a six-month period. This case study explains how.
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Before launching an energy-efficiency initiative, it’s important to build a solid business case and understand the funding options and potential incentives that are available. Healthcare leaders should consider taking the steps outlined in the whitepaper to ease the process of gaining approval, piloting, implementing, and supporting sustainability projects. You will find that investing in sustainability and energy efficiency helps hospitals add cash to their bottom line. Discover how hospitals and health systems have various options for funding energy-efficient and renewable-energy initiatives, depending on their current financial structure and strategy.
Health care is a dynamic mergers and acquisitions market with numerous hospitals and health systems contemplating or pursuing formal arrangements with other entities. These relationships often pose a strategic benefit, such as enhancing competencies across the continuum, facilitating economies of scale, or giving the participants a competitive advantage in a crowded market. Underpinning any profitable acquisition is a robust capital planning strategy that ensures an organization reserves sufficient funds and efficiently onboards partners that advance the enterprise mission and values.
The success of healthcare mergers, acquisitions, and other affiliations is predicated in part on available capital, and the need for and sources of funding are considerations present throughout the partnering process, from choosing a partner to evaluating an arrangement’s capital needs to selecting an integration model to finding the right money source to finance the deal. This whitepaper offers several strategies that health system leaders have used to assess and manage capital needs for their growing networks.
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Yuma Regional Medical Center (YRMC) is a not-for-profit hospital serving a population of roughly 200,000 in Yuma and the surrounding communities.
Before becoming a ZirMed client, Yuma was attempting to manually monitor hundreds of thousands of charges which led to significant charge capture leakage. Learn how Yuma & ZirMed worked together to address underlying collections issues at the front end, thus increasing Yuma’s overall bottom line.
Kindred Hospital Rehabilitation Services works with partners to audit the market and the facility’s role in that market to identify opportunities for improvement. This approach leads to successes; Kindred’s clinical rehab and management expertise complements our partners’ strengths. Every facility and challenge is unique, and requires a full objective analysis.
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Emergency Mobile Health Care (EMHC) was founded to be and remains an exclusively locally owned and operated emergency medical service organization; today EMHC serves a population of more than a million people in and around Memphis, answering 75,000 calls each year.
Since the Physician Quality Reporting Initiative (PQRI) introduction, CMS has paid more than $100 million in bonus payments to participants. However, these bonuses ended in 2015; providers who successfully meet the reporting requirements in 2016 will avoid the 2% negative payment adjustment in 2018, so now is the time to act! Included in this whitepaper are implications of increasing patient responsibility, collections best practices, and collections and internal control solutions.
Getting paid what your physician deserves—that’s the goal of every biller. Yet even for the best billers, achieving that success can be elusive when denials stand in the way of success, presenting challenges at every turn. Denials aren’t going away, but you can learn techniques to manage and even prevent them.Join practice management expert Elizabeth W. Woodcock, MBA, FACMPE, CPC, to: Discover methods to translate denial data into business intelligence to improve your bottom line, determine staff productivity benchmarks for billers, and recognize common mistakes in denial management.
Physician practices must improve organizational efficiency to compete in this era of reduced reimbursement and escalating administrative costs.
Many healthcare organizations are pursuing next-generation health information systems solutions. Learn more about Navigant's work with University of Michigan Health System.
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Drive down costs while improving quality in a reform environment.
Receive expert insights and how-to action to achieve and maintain peak revenue cycle performance.
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