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CMS plans major changes to payment calculations

JustCoding News: Outpatient, September 5, 2012

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CMS is proposing two major changes as part of the 2013 OPPS proposed rule, released July 6. One has to do with how CMS proposes to calculate APC relative weights; the other addresses the reimbursement level for separately payable drugs and biologicals without pass-through status.

The 2013 proposed rule is approximately half the size of the 2012 proposed rule and does not contain as many changes. However, the proposed suggestions are significant because they represent a major change to how CMS has made payments, says Jugna Shah, MPH, president of Nimitt Consulting in Washington, D.C.
Relative weight calculation
CMS proposes to change the way it calculates APC relative weights. Since the beginning of OPPS, CMS has used median cost data that it derives from provider claims to calculate relative weights, which are used to pay for the vast majority of OPPS/APC services. For CY 2013, CMS suggests using the geometric mean cost to create APC relative weights.
CMS cites several reasons for this proposal. One is that the use of the geometric mean would better capture the range of costs associated with providing services, including cases involving high-cost packaged items or services, and, conversely, cases where very efficient hospitals have provided services at much lower costs. The use of geometric mean costs also would allow CMS to detect changes in the cost of services earlier.
The change would also bring OPPS more in line with the IPPS, which uses mean costs to determine the ­relative payment weights associated with each of the payment classification groups. CMS stated that the ­proposal to base the APC relative payment weights on the geometric mean costs "would not significantly ­impact most providers."
Not everyone agrees with this assessment. "This change could potentially have a far-reaching and as yet unknown impact on future reimbursements," says Debbie Mackaman, RHIA, CHCO, regulatory ­specialist for HCPro, Inc., in Danvers, Mass. "It may be negligent for providers to only consider the impact on 2013 ­payments when in fact multiple years under this methodology may have a significant impact on a hospital's finances."
Payments to low-volume urban hospitals and to hospitals for which disproportionate share hospital data are not available would increase by an estimated 2.1% and 4%, respectively. In contrast, payments to community mental health centers would decrease by an estimated 6.9% due primarily to lower payments for APC 0173.
Shah was surprised to see this proposal from CMS as she says the agency has relied upon median cost data from the beginning of OPPS. She adds that the proposal is interesting and requires further ­review and analysis.
Shah, like Mackaman, wonders what this proposal, if made final, could mean to future outpatient rate-setting efforts. Specifically, CMS may use the move to geometric mean, the same basis as used in the inpatient setting, to support creating payment parity for the same services rendered either in the inpatient or outpatient settings, says Shah.
CMS released online a file called the 2013 Geometric Mean Median Change, which is a great way for providers to begin reviewing the payment impact of CMS' proposal at the CPT® and APC level, Shah says. The file is basically a different view of Addendum B, where CMS shows what payments would be under the proposed geometric mean approach compared to the continued use of median cost data.
Some APC payments go up, which is normal, but the use of geometric mean has a much greater positive and negative impact on certain APCs/service lines more than others. For example, use of the geometric mean cost results in the APC payment for a level I Type B ED visit increasing by 42.5%, says Shah. Looking at the E/M visit codes in general for the clinic and ED setting results in payment rate changes in both directions, while a similar review of the intravenous injection and infusion drug administration codes shows that most of these APC payment rates increase under the geometric mean methodology, Shah says.
However, other APC payments drop significantly. For example, the proposed APC payment rates for CPT codes assigned to APC 139 could decrease by 31.4% if CMS finalizes use of the geometric mean, Shah says.
In addition, payment for CT scans would drop by 10%. Codes that fall under APC 232 appear to have the largest payment decrease.
Consider the example of a patient with a ­complex fracture, most likely requiring the use of the ­OR for the closed treatment of a tibia fracture with ­manipulation and with or without skeletal traction (CPT code 27752).
The July 2012 Addendum B payment is $1,341.55. The 2013 median costs payment (the method CMS currently uses) would be $1,305.70. However, under the proposed geometric mean methodology, the payment would drop to $895.29. (See Figure 1 for a more ­involved scenario.)
All hospitals should perform due diligence and compare various payment scenarios on their high-volume and/or high-cost outpatient services and then provide their comments to CMS, say Shah and Mackaman.
Separately payable drugs
For CY 2013, CMS proposes to reimburse hospitals for separately payable drugs and biologicals without pass-through status at average sales price (ASP) plus 6%, a 2% increase from 2012.
"I am very excited about this," Shah says. "We have been trying to get CMS to make this change for years, and now the agency has finally included this in its ­proposed rule."
The proposal would finally result in payment ­parity for separately payable drugs in the physician office setting, which is something that providers have been pushing the agency to do, Shah says. CMS is able to provide payment at the level of ASP+6% by statute if it believes that it does not have average acquisition cost data for separately payable drugs. Providers have argued for years that CMS has not had an adequate understanding of drug acquisition costs and could therefore have relied on the statute historically but the agency disagreed. Now for 2013, CMS agrees that it should rely on the statute.
"Even though ASP+6 will provide payment parity for separately payable drugs between the hospital and the physician office setting, it likely won't cover the cost to buy the drug, plus the costs to handle the drug, store the drug, quality check the drug, dispose of the drug, etc., in most cases," she says. "Those costs are typically much higher in a hospital setting than in a physician office setting because of the nature of the drugs and therapies provided, as well as the regulations that exist that hospital pharmacies have to follow."
Moreover, full payment parity has not been achieved since all drugs are reimbursed separately in the physician office setting unlike the hospitals setting, where only those drugs that exceed the drug packaging threshold receive separate, says Shah.
As such, while hospitals are likely to be pleased with CMS' proposal of ASP+6%, most will likely disagree that this payment level is sufficient to cover both drug acquisition costs and pharmacy handling/overhead costs. Provider comments are critical, says Shah. "It will be interesting to see what sorts of comments CMS receives on its proposal."
Editor’s note: This article was originally published in the September issue of Briefings on APCs. Email your questions to Senior Managing Editor Michelle A. Leppert, CPC-A, at

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