Why APC Status Indicators and Private Payer Contracts Matter

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For more years than I care to count, I have been teaching wound management professionals that the existence of a code does not guarantee coverage and payments. This month’s Consultation Corner topic pertains to real-life examples of this reimbursement fact.

Scenario

Program directors and medical directors from hospital owned outpatient wound management provider-based departments (PBDs) contacted this author when they received their revenue reports at the end of 2018. They were quite upset because their actual revenue was significantly lower than their projections. They did not understand how this could be true because the number of patient visits to the PBD had increased over the previous year. In all cases, they were hoping that I could prove that their year-end revenue report was incorrect.     

Facts to Consider

•    For Medicare fee-for-service patients, the codes for all services and procedures performed in PBDs are assigned to ambulatory payment classification (APC) groups based on the similarity of the resources required by the services and procedures and to a status indicator.
•    Each APC group is assigned an allowable payment rate and an allowable patient copayment rate.
•    The quarterly National Correct Coding Initiative (NCCI) edits prevent inappropriate payment of services that should not be reported together.
•    For patients with private insurance, the payment rate for services and procedures performed in the PBD will depend on the hospital’s contract with that payer.
•    Medicare coverage determinations and private payer medical policies may prohibit certain services and procedures performed during the same encounter from receiving payment even if an NCCI edit does not exisit and the status indicators permit full payment.  

Consultation

During teleconsultations with the program directors and medical directors, I learned they meticulously projected their 2018 revenue. They began by obtaining their PBD’s Medicare wage index-adjusted APC allowable rate for each service and procedure they intended to perform during the year. Based on data from previous years, the PBDs calculated their 2018 estimated volume of each service and procedure. They even reduced the estimated revenue based on the NCCI procedure-to-procedure edits. This author was encouraged because those calculations appeared correct. However, a few important issues were not included.

1. The PBDs failed to consider the 2018 status indicators assigned to their service and procedure codes.¹ If 2 services/procedures were performed during the same encounter and did not have an NCCI procedure-to-procedure edit, the status indicators can kick in.

For example, throughout 2018 these PBDs performed many low frequency non-thermal ultrasound procedures (97610) on the same day as they applied disposable negative pressure wound therapy (NPWT) (97607). The ultrasound procedure had a status indicator of “Q1.” The disposable NPWT procedures had a status indicator of “T.” The “Q1” status indicator means the APC payment is packaged if the code is billed on the same claim as a HCPCS code with a status indicator of  “S,” “T,” or “V.” The “T” status indicator means a multiple procedure reduction applies if 2 procedures with the “T” status indicator are performed during the same encounter. Therefore, every time the PBDs billed those 2 procedures on the same claim, the ultrasound procedure was not paid because it had a “Q1” status indicator. However, the PBDs’ revenue projections included payments for both procedures.

2. Similarly, the PBDs applied many NPWT durable medical equipment pumps (97605) following a surgical debridement of subcutaneous tissue (11042). Because the “Q1” status indicator was assigned to the NPWT code and the “T” status indicator was assigned to the debridement code, the NPWT procedure was not paid when the 2 procedures were billed on the same claim. Once again, the PBDs’ revenue projections included payments for both procedures.

This author also uncovered that these PBDs also billed many encounters with 2 procedures that had a “T” status indicator. In those cases, one procedure was paid at 100% of the allowable rate and the other was paid at 50% of the allowable rate. You guessed it: the PBDs’ revenue projections did not include these payment reductions.  

After uncovering the PBDs’ lack of knowledge about the effect of status indicators on their Medicare payment, this author wondered if the PBDs had taken into consideration their private payer contracts. Unfortunately, not one of the PBDs had reviewed those contracts. In fact, every PBD estimated their revenue based on their Medicare allowable payment rates.

Because approximately 40% of their patients were insured by private payers, it was essential that we review the PBDs’ contracted rates on every private payer contract. We found some big surprises. Not one of the contracts paid as much as the Medicare allowable rates. In fact, several of their major contracts paid flat “per encounter rates” between $25 and $50, which were not adequate for any of the PBD services/procedures. Some of the other contracts paid between 40% to 60% of the Medicare allowable rates. Along with the decreased revenue due to the status indicators, these low contracted rates accounted for the large disparity between the PBDs’ projected vs. actual 2018 revenue. Therefore, the consultations ended when we proved that their year-end revenue report was correct and after this author educated these PBDs that APC status indicators and private payer contracts matter.   

Summary

PBDs should not assume that all services and procedures performed during the same encounter will be paid. Therefore, if PBDs are projecting revenue, they must consider their Medicare wage index-adjusted allowable rates, their private payer contracted rates, the NCCI edits, and the status indicators assigned to their service and procedure codes. If PBDs discover that their private payer rates are unreasonably low, the PBD program directors and medical directors should speak with their hospital contract manager about revising the PBD portion of their contracts at the next refinement opportunities.

Kathleen D. Schaum oversees her own consulting business and is a founding member of the Today’s Wound Clinic editorial advisory board. She can be reached for consultation and questions at kathleendschaum@bellsouth.net.

1. OPPS Addendum A & B Updates. Available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalOutpatientPPS/Addendum-A-and-Addendum-B-Updates.html. Last accessed September 2, 2019.