You know how to find a procedure code and you may even know how to do the procedure, but where does the reimbursement come from? It seems to be a mystery to many of us, so let's clear up some common confusion and review some of the main reimbursement systems. One of the most important aspects of getting paid is to understand where the reimbursement comes from and how payers look at the codes being reported. Take a look at some of the important payment systems you need to know about for proper reimbursement. 

APC - Ambulatory Payment Classifications

As of 2017, APCs are the government's way of paying for outpatient services under the Medicare program for the cost of care in facilities and hospital outpatient departments.

CMS assigns HCPCS codes to APCs based on similar clinical characteristic and similar costs. APCs are used in outpatient surgery departments, outpatient clinic emergency departments, and observation services. An OPPS payment status indicator is assigned to every CPT/HCPCS code and the indicators identify if the code is paid under OPPS and if it is a separate or packaged code.

Procedures with a J1 status indicator have the following definition:

Medicare will not pay for any service that is packaged with another procedure or supply. Think of it as a bundled service when using APC codes similar to CCI edits. Most types of packaged services will include:

    ● All supplies
    ● Ancillary services
    ● Anesthesia
    ● Operating and recovery room use
    ● Clinical diagnostic laboratory tests
    ● Procedures described by add-on codes
    ● Implantable medical devices, such as pacemakers
    ● Inexpensive drugs under a per-day drug threshold packaging amount
    ● Drugs, biologicals, and radiopharmaceuticals functioning as supplies, including diagnostic radiopharmaceuticals, contrast agents, stress agents, implantable biologicals, and skin substitutes
    ● Image processing services
    ● Intraoperative services
    ● Imaging supervision and interpretation services
    ● Observation services

Most drugs, DME, and lab tests ordered in the ED are bundled into an APC; however, some of the following services may be paid separately. These can also be identified by the status indicator so be sure to verify to avoid non-compliance. This is not a complete list.

    ● Many surgical, diagnostic, and non-surgical therapeutic procedures
    ● Blood and blood products
    ● Most clinic and ED visits
    ● Some drugs, biologicals, and radiopharmaceuticals
    ● Brachytherapy sources
    ● Corneal tissue acquisition costs
    ● Certain preventive services

NOTE: If the patient is admitted from a hospital clinic or Emergency Department, then there is no APC payment. Once the patient is registered as an inpatient, Medicare will pay the hospital under the inpatient Diagnosis-Related Group DRG methodology.

Facility Payments

The Medicare Physician Fee Schedule (MPFS) includes both a facility and a non-facility fee. Facility fees are usually lower than the non-facility fees due to the RVU components assigned by Medicare.

There are three components of the Relative Value Units (RVUs) which affect pricing:

• Work Value
• Practice Expense
• Malpractice Expense

When a physician bills for a service in a facility setting, place of service (POS) 22 for example, there is no practice expense or overhead such as staff, equipment, and supplies used to perform that service. The facility will have expenses they will bill to the patient to cover their costs. The service may also be reported and paid under facility payments in the outpatient hospital using POS code 22. The POS will trigger the facility payment if the patient seen is registered as an outpatient.  

Non-facility (clinic, etc.)

The non-facility rate is the payment rate for services performed in the office. This rate is higher because the physician practice does have the overhead expense for performing that service.

Physicians’ services are paid at non-facility rates for procedures furnished in the following settings:

• Pharmacy (POS code 01)
• School (POS code 03)
• Homeless Shelter (POS code 04)
• Prison/Correctional Facility (POS code 09)
• Office (POS code 11)
• Home or Private Residence of Patient (POS code 12)
• Assisted Living Facility (POS code 13)
• Group Home (POS code 14)
• Mobile Unit (POS code 15)
• Temporary Lodging (POS code 16)
• Walk-in Retail Health Clinic (POS code 17)
• Urgent Care Facility (POS code 20)
• Birthing Center (POS code 25)
• Nursing Facility and Skilled Nursing Facilities (SNFs) to Part B residents (POS code 32)
• Custodial Care Facility (POS code 33)
• Independent Clinic (POS code 49)
• Federally Qualified Health Center (POS code 50)
• Intermediate Health Care Facility/Mentally Retarded (POS code 54)
• Residential Substance Abuse Treatment Facility (POS code 55)
• Non-Residential Substance Abuse Treatment Facility (POS code 57)
• Mass Immunization Center (POS code 60)
• Comprehensive Outpatient Rehabilitation Facility (POS code 62)
• End-Stage Renal Disease Treatment Facility (POS code 65)
• State or Local Health Clinic (POS code 71)
• Rural Health Clinic (POS code 72)
• Independent Laboratory (POS code 81)
• Other Place of Service (POS code 99)

DRGs - Diagnosis-Related Groups

DRGs are a group of codes categorized into medical and surgical services and assigned to a diagnosis group based on the most severe condition. Each diagnosis group is assigned a fixed cost amount based on several factors such as the average resources used in treating the patient under the specific DRG. In addition, the wage index for the area where the service is being provided is considered, as well as educational cost outliers, and disproportionate shares for hospitals treating a large percentage of low-income patients, along with several other factors. DRGs represent a hospital stay from admission to discharge and is generally reported upon discharge. 

RVUs

The conversion factor (CF) translates the scaled relative weights into payment rates.

CMS can update OPPS payment files quarterly to account for mid-year changes. However, CMS establishes the payments for items and services based on scaled relative weights annually and generally does not update them quarterly.

Fee-For-Service

The most common payment arrangement is a Fee-For-Service, these are set by contractually agreed fee schedules between the payer and the provider. Verify the National Correct Coding Initiative (NCCI) procedure to procedure edits to ensure compliance on bundling and proper modifier usage. There is a table for physicians/practitioners (non-facility) and a table for outpatient hospital services (facility).  

Capitation

A different form of payment is a capitation payment. The agreement is to accept a capitation agreement between the health care provider and the health plan, where the provider is paid a fixed payment or a capped payment per patient. Medicare’s capitation plan is a three-way contract between the state, CMS, and participating health plans. With a capitation agreement, payment is made even if the patient is not seeking care. For the patients requiring care, the provider is expected to meet all the patient’s medical needs for the capitated amount. Therefore, if the capitation agreement is $500/year per patient and the patient does not need medical care, the provider will still be paid the $500. However, if the patient is seen and requires $2000 of medical care, the provider loses $1500.

When a primary care physician enters into a capitation agreement, the services generally include but are not limited to:

• Preventive, diagnostic, and treatment services
• Injections, immunizations, and medications administered in the office
• Outpatient laboratory tests either in the office or at a designated laboratory
• Health education and counseling services performed in the office
• Routine vision and hearing screening

The following states are currently under a capitated model with CMS: California, Illinois, Massachusetts, Michigan, Minnesota, Ohio, Rhode Island, South Carolina, Texas, and Washington. 

The capitation model may be a great way to go for a provider as there is less record-keeping and does not require a large billing staff as the practice does not need to wait for reimbursement. There are negative effects as well; a practice could alter treatment or exclude services to stay within the capitated payment.

Episode of Care

Another payment model is Episode of Care, sometimes called a case rate payment. Payment for an episode of care covers all services used to treat a certain condition, from hospital admission to wellness programs to nursing facilities if needed.

So after all of this, how do I know which payment system I need to report claims to and which code sets are reported?  

• Look at your contract; which contract are you under? 
• Verify status indicators, look at payment and bundling rules
• Place of service drives payment; where did the service happen?