The Shift From Grouper to APC Reimbursement: Advice for ASCs and HOPDs

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 payors 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 payors 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 payors who are looking at a conversion.

It’s Not Strictly Apples to Apples

When a commercial payor 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 payors are calling APC reimbursement is something of a misnomer. In practical terms, what’s emerging is usually a hybrid of CMS methodology and the payor’s historical internal proprietary reimbursement models. Payors 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 payors 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 payors handle codes that are not subject to multiple procedure reductions and include devices. It’s also challenging for payors 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 Payor Contracts

Despite these challenges, the trend of payors 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 payors that are in the process of converting.

Here are a few specific items that ASCs and HOPDs should review with the payor 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 payor 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 payor will adopt CMS’s updated weights (there is no preferred interval, but surgery centers will want to be informed about how the payor 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 payor price these examples to determine whether the center’s analysis matches what the payor is expecting to pay.

ASCs and HOPDs entering this process should remain mindful that payors don’t yet have extensive experience contracting under these methodologies. This creates a certain amount of risk for both payors 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 payor’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 payors 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 payor, 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.

This entry was posted in Ambulatory Surgery Centers, Healthcare Reimbursement and tagged , , by Matt Kilton. Bookmark the permalink.

About Matt Kilton

Matt is a highly experienced healthcare executive who has spent more than 20 years leading and advising healthcare delivery organizations. His extensive knowledge of ambulatory surgery center (ASC) reimbursement, coupled with his background managing and working closely with healthcare providers, enables him to win the confidence of hospital leaders as well as the trust of ancillary providers and physicians at a time of increased consolidation and collaboration in the healthcare industry. Before joining ECG, Matt was a Principal and Chief Operating Officer at Eveia Health. In this capacity, he negotiated sustainably profitable managed care contracts for ASCs, physicians and group practices that own ASCs, and other ancillaries. In particular, Matt often assisted distressed providers in reengineering their managed care relationships and business operations. He helped a number of new ASCs prepare for opening by negotiating reimbursement agreements that positioned them for immediate as well as long-term success. Matt also worked with struggling centers to renegotiate their managed care agreements to foster a financial turnaround.

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