How APC Payment Rates Are Set

by  Brittney Murdock, QCC CMCS CPC
Dec 30th, 2016

The payment rates for most separately payable medical and surgical services are determined by multiplying the prospectively established scaled relative weight for the service’s clinical APC by a conversion factor (CF) to arrive at a national unadjusted payment rate for the APC. The scaled relative weight for an APC measures the resource requirements of the service and is based on the geometric mean cost of services in that APC. The CF translates the scaled relative weights into dollar payment rates. National unadjusted payment rates and copayments for each HCPCS code, for which separate payment is made that applies to the date of service, are published in addendums located at https://www.cms.gov/Medicare/Medicare-Fee-forService-Payment/HospitalOutpatientPPS/HospitalOutpatient-Regulations-and-Notices.html on the CMS website.

To account for geographic differences in input prices, the labor portion of the national unadjusted payment rate (60 percent) is further adjusted by the hospital wage index for the area where payment is being made. The remaining 40 percent is not adjusted. You may also receive the following payments in addition to standard OPPS payments:

• Pass-through payments for specific drugs, biologicals, and devices used in the delivery of services that meet the criteria for pass-through status (these items are generally too new to be well represented in data used to set payment rates);
• Outlier payments for individual services that cost you much more than the payment rates for the services’ APC groups;
• Transitional outpatient payments for certain cancer hospitals and children’s hospitals;
• An adjustment for certain cancer hospitals; and
• A rural adjustment (currently an increased payment of 7.1 percent) for most services furnished by Sole Community Hospitals (SCHs), which includes Essential Access Community Hospitals located in rural areas (effective January 1, 2006).

The annual review of APCs and their relative weights considers:

• Changes in hospital and medical practices;
• Changes in technology;
• Addition of new services and cessation of obsolete services;
• New cost data;
• Advice furnished by the Hospital Outpatient Payment Panel; and
• Other relevant information.

The OPPS is a budget-neutral payment system in which the CF is also updated annually by the OPD Fee Schedule (FS) increase factor unless Congress stipulates otherwise. The OPD FS increase factor is calculated using the hospital market basket update. As required by the Affordable Care Act, the OPD FS increase factor is calculated by reducing the hospital market basket update by a multifactor productivity adjustment and an additional 0.5 percentage points. The CF update is further reduced by 2.0 percentage points for hospitals that fail to meet the requirements of the Hospital OQR Program for the update year, resulting in reduced payment for most of their services. Payment rates are established through alternative methodologies for certain other categories of items and services, such as:

• Separately payable drugs and biologicals;
• Brachytherapy sources;
• Therapeutic radiopharmaceuticals; and
• Services assigned to New Technology APCs.

The OPPS payment files are updated on a quarterly basis to account for mid-year changes, such as:

• Adding new pass-through drugs and/or devices;
• Adding new services and procedures to clinical and New Technology APCs;
• Recognizing new HCPCS codes added during the year; and
• Updating payment rates for separately payable drugs and biologicals based on the most recent available average sales price data.

However, the payments for items and services that are based on scaled relative weights are established annually and are generally not revised quarterly. Annual updates are made final through the publication of the OPPS final rules after review and response to public comments.