PBDs Should Not Expect to Receive Separate Medicare Payment for Every Procedure Performed

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Medical directors and department directors of hospital owned outpatient wound/ulcer management provider-based departments (PBDs) often provide incomplete reimbursement data, which causes hospital executives to miscalculate financial expectations pertaining to the revenue potential of the department. These inaccurate financial projections typically occur at the beginning of every year when the chief financial officer requests 1) a list of the service and procedure codes, which represent work that the PBD expects to perform that year, 2) the approximate number of times each code will be reported, and 3) the expected payer mix. The chief financial officer then uses each payer’s allowable payment rates to calculate the PBD’s expected revenue for the year.

If the PBD meets or exceeds the financial goal, the administration is pleased. If the PBD falls significantly short of the expected revenue, the medical director and the department director must scramble to explain the reason for the shortfall, especially if the volume of patient encounters, services, and procedures increased that year.

For the past couple of years, this consultant has been contracted by PBDs to identify reasons for such year-end shortfalls. In every situation, the reasons have been nearly identical. In fact, I just finished a consultation that I am sharing with you in hopes that you can prevent this from occurring in your PBD. 

Scenario

A medical director and department director of a large PBD contracted with me to help them identify why the actual 2022 revenue of the PBD fell significantly short of their chief financial officer’s projections. Both professionals were very upset because the number of actual patient encounters exceeded their 2022 projections by 30%. Before they contacted me, they verified that the codes for all the services and procedures performed in 2022 were reported on the claims. At that point, they needed assistance to identify the reason(s) that the revenue was much lower than projected by their chief financial officer.

Facts to Consider

• PBDs are paid for the services and procedures that are performed in the facility.
• Based on the similarity of resources required to perform the work, the Centers for Medicare & Medicaid Services (CMS) assign each service and procedure code to an Ambulatory Payment Classification (APC) group.
• Every year, CMS assigns each APC Group to an Outpatient Prospective Payment System (OPPS) national average allowable payment rate. That rate is then adjusted by the wage index for each individual hospital.
• CMS also assigns an OPPS status indicator (SI) to each service and procedure code. The SI determines if Medicare will pay the wage index adjusted OPPS allowable rate fully, partially, or not at all. The most common OPPS status indicators assigned to wound/ulcer management service and procedure codes, and some examples of codes assigned to the SIs are:

          * J1              Hospital Part B services and procedures reported on the same claim and paid through a comprehensive APC (C-APC) 
             Example:       11044 surgical debridement of bone
          * J2              Hospital Part B services and procedures reported on the same claims that may be paid through a C-APC
             Example:       G0463 hospital outpatient clinic visit
         *  N               Items, services, and procedures reported on the same claim and packaged into the APC payment of another service or procedure
             Examples:     All current add-on codes
                                   All current codes for cellular and/or tissue-based products (CTPs) for skin wounds
          * Q1             Services and procedures reported on the same claim and packaged into the APC payment of other services and procedures whose codes are assigned status indicator “S,” “T,” “V,” or “X”
             Examples:     97602 non-selective debridement
                                   97605 negative pressure wound therapy
         *  S               Significant procedure that is not discounted when reported on the same claim with other procedures
             Examples:     G0277 hyperbaric oxygen therapy, full body chamber
                                   99406  smoking behavioral change
         *  T                Significant procedure whose APC payment is reduced when reported on the same claim with another procedure whose code is assigned a “T” status indicator
             Examples:     11042 surgical debridement of subcutaneous tissue
                                   15271 application of CTP to anatomic locations such as the leg
                                   29581 application of multi-layer compression bandage system

• The CMS considers some procedures to be components of other procedures. These procedure code pairs can be found in the current quarter’s National Correct Coding Initiative (NCCI) Procedure-to-Procedure (PTP) payment edit files. These NCCI PTP edits take precedence over the OPPS status indicators. Following are some examples of typical NCCI PTP edits:

             Examples:     11042 surgical debridement of subcutaneous tissue performed at the same encounter with 15271 application of CTP to anatomic locations such as the leg
                                   29581 application of multi-layer compression bandage system performed at the same encounter with 15271 application of CTP to anatomic locations such as the leg
                                   97605 negative wound pressure therapy performed at the same encounter with 15271 application of CTP to anatomic location such as the leg

Consultation

First, I requested the list of service and procedure codes, and the estimated frequency of each code, that the PBD provided to the chief financial officer at the beginning of 2022. I quickly saw that the list was not adjusted for payment reductions that would be caused by OPPS status indicators and NCCI PTP edits.

Second, I requested the chief financial officer’s calculations of anticipated 2022 revenue. I quickly saw that the chief financial officer also did not adjust his calculations for payment reductions that would be made due to OPPS status indicators and NCCI PTP edits.

Third, I requested a report of claims that were submitted with codes assigned OPPS status indicators of J1, N, Q1, and T. As expected, the report showed a significant revenue decrease due to these OPPS status indicator payment reductions.

Fourth, I requested a report of claims that were submitted with typical NCCI PTP code pairs. As expected, this report also showed a significant revenue decrease due to these NCCI PTP edit reductions.

Fifth, I educated the PBD stakeholders about the specific OPPS status indicator payment reductions for certain common procedure codes reported together.

Sixth, I educated the PBD stakeholders about the specific NCCI PTP code pairs that cause APC payment reductions. Because the PTP edits are updated quarterly, I reminded the team to review each quarter’s updates and to inform the chief financial officer of any new edits that will negatively impact the PBDs revenue projections for the year.

Finally, we used the reports of claims, which were submitted with 1) codes with OPPS status indicators of J1, N, Q1, and T, and 2) typical NCCI PTP code pairs, to calculate approximately how much the 2022 revenue predictions were overstated because these reductions were not included in the calculations. The entire team then clearly saw that the 2022 revenue predictions were incorrectly calculated. To prevent this situation from reoccurring in 2023, the chief financial officer recalculated the 2023 revenue predictions by taking into consideration the OPPS Status Indicator and NCCI PTP edit reductions.

Summary

Because the Medicare payment system for PBDs is a prospective payment system, the medical director, department director, and chief financial officer should not expect to receive separate Medicare payment for every procedure performed and reported on the claim. At the beginning of the year, they should project their revenue by considering the service and procedure codes they expect to report on claims, the anticipated volume of each code, the payer mix, each payer’s allowable rate for each code, and payment reductions expected due to OPPS status indicator reductions and NCCI PTP edits. They should also update their revenue predictions on a quarterly basis if any new NCCI PTP edits pertain to procedures typically performed together. This will prevent unnecessary research pertaining to revenue reductions when the year ends.

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@gmail.com.

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