Mastering the APG Grouping Process

By Erin Poto-Dill, RRA, CCA
President, Optimal Coding and Reimbursement, Inc.
Cave City, KY

A complex new payment mechanism for outpatient care is being implemented, and both providers and payers are looking to coding software for help in billing and paying for outpatient services. Since the APG (Ambulatory Patient Groups) system "consolidates", "packages" and "discounts" a facility's payment for outpatient services, providers may experience decreased reimbursement for the same services when compared with the existing outpatient payment methodologies. As a result, APGs, like DRGs, will force providers to carefully examine coding practices to ensure that they receive adequate reimbursement to cover their costs. 

The Health Care Financing Administration (HCFA) commissioned the development of APGs as the potential basis of a new outpatient prospective payment system for Medicare beneficiaries.  APGs are similar in design to DRGs, the treatment classification system currently used by Medicare and many other payers for inpatient payment.  APG Version 1.0 was originally developed in 1989.  HCFA recently released a proposed Version 2.0 with sample weights but has yet to finish testing the system or to assign final reimbursement levels for the 290 APGs.  Nevertheless, several states' Medicaid systems and private insurance companies have already implemented APGs, while other payers are in the implementation stage.

On July 1, 1994 Iowa Medicaid became the first program to officially adopt the APG classification system.  This program affects all hospitals in Iowa and in neighboring states treating Iowa Medicaid outpatients.  The basic payment calculation for APGs is the same as with DRGs: Reimbursement = Payment Rate X Payment Weight/Relative Value. APG reimbursement covers only the facility cost for rendering outpatient services, not the professional or physician component. APGs cover a wide range of outpatient services including those rendered in the ER, Same Day Surgery Unit, hospital clinics, and ancillary service departments, but do not cover phone contacts, home visits, or nursing home services.

Since APGs were designed to cover the amount and type of resources used in an ambulatory encounter, services within a given APG have similar resource use and costs. Although the classification's structure places emphasis on resource utilization, not on principal diagnoses as with DRGs, services within a given version 1.0 APG do have similar clinical diagnoses. For example, a simple hemorrhoidectomy and a D & C are not in the same APG, regardless of their similar resource utilization, due to dissimilar clinical characteristics.  The unit of service or pay chosen for APGs is based on the coded services occurring during a "visit".  For Iowa Medicaid reimbursement, a visit is defined as "all services provided by a hospital to a patient within three days for the same or a related diagnosis." Therefore, multiple visits over a three-day period for the same or a related diagnosis are to be billed on the same UB-92, as they are all considered one payment calculation. However, multiple visits within the 72-hour window for an unrelated diagnosis must be reported on separate UB-92s to earn the full APG reimbursement for each visit.

For Iowa Medicaid, the exceptions to the 72-hour window are batch bills (chemotherapy, speech therapy, occupational therapy, physical therapy, radiation therapy and dialysis), emergency psychiatric evaluation, lab-only claims, nutritional counseling and certified non-inpatient programs. Visits consisting of lab procedures only are considered part of any other visit for a significant procedure or medical encounter that occurs within the 72 hours.

While reimbursement under in-patient DRG Prospective Payment System (PPS) is based upon one DRG assignment per discharge resulting from ICD-9-CM coding, multiple APGs can be assigned to an outpatient during a single visit. Under APGs, ICD-9-CM diagnosis codes drive the assignment of a medical APG while CPT-4/HCPCS procedure codes drive procedural and ancillary APGs.

 If a patient receives only medical services, it is necessary to assign the appropriate CPT E/M visit code for the case to be properly grouped in a medical APG. Without the E/M visit code, the case will be grouped based upon ancillary services provided to the patient. If a case is assigned to a significant procedure APG, then a medical APG will not be assigned even if a separate identifiable medical service is provided. The appropriate E/M code should still be assigned for medical visits as this information may be essential in future payment calculations. If multiple services are provided during an encounter, then multiple APGs will result as one APG is assigned per service provided to the patient during the encounter.

In all the following case examples, we will be using APG Version 1.0.  The following case illustrates the basic APG grouping concepts.

 A patient comes into the ER after dropping a claw hammer on her hand while on the job. A PA and lateral view x-ray is taken of the right hand. The x-ray shows no fractures. A 3.0 cm simple laceration on the hand is repaired. With the patient's consent, a urine drug screen is performed per the employer's policy. Based on the above, the following APGs are assigned (Figure 1): 10 Simple Skin Repairs; 351 Plain Films; 429 Simple Toxicology. Each service is mapped to a separate APG, but only APGs 10 will be used in the final payment calculation as payment for APGs 429 and 351 are packaged into payment for APG 10.

Although each service provided to a patient is mapped to an APG, separate reimbursement for each APG is not always received due to the grouping process for APGs version 1.0,  which includes significant procedure consolidation, ancillary packaging and discounting.  (Note: HCFA's model for APG version 2.0 does not currently include significant procedure consolidations; however, SP consolidation is not obsolete as various payers are still using version 1.0, and Blue Cross of Washington and Alaska has adopted APG version 2.0 with SP consolidation.)

Significant procedures (SP), the largest category of APGs, are defined as procedures that are "normally scheduled, constitute the reason for the visit and dominate the time and resources expended for the visit." The majority of CPT codes are mapped to an SP APG, with the balance of CPT codes assigned to either incidental or ancillary procedure APGs. Examples of SPs include repair of lacerations, diagnostic and therapeutic endoscopies, cardiac catheterizations, and chemotherapy administration, as well as stress tests and phonocardiograms.

Initial APG partitioning or grouping is based upon the presence or absence of a significant procedure. If SP services have been provided, then an APG will be assigned for each significant procedure performed, as illustrated in the following case scenario.

A patient is seen in the ER after cutting himself while installing new glass in a storm door. Repair of the injuries include layer closure of a 2.5 cm hand laceration and a 1.8 cm complex repair for a laceration of the right arm. CPT code 12041 is assigned for the intermediate repair of the hand, with 13120 assigned for the complex repair. As the APG/Calculator screen in Figure 2 indicates, each procedure is assigned a SP APG. However, the facility will not be reimbursed twice for APG 10, as the process of significant procedure consolidation only recognizes one procedure when more than one procedure is assigned to the same APG.

If significant procedures are assigned to different APGs, as in Figure 3, then SP consolidation may also occur depending on the assigned APGs. In this example, payment for the diagnostic proctosigmoidoscopy (CPT code 45330) is included (consolidated) in the payment for the hemorrhoidectomy (CPT code 46945), APG 169, therefore, the facility would only receive payment for APG 169.

To determine if SP consolidation will be a factor in the APG grouping process, the APG/Calculator compares the assigned APGs to the SP consolidation list. This list indicates which APGs, if any, are consolidated within a given APG. For example, APGs 3, 4, 6, 7, 8, 10 and 58 are consolidated within APG 11.

Ancillary packaging applies to ancillary APGs that are assigned to a visit. Most frequently, ancillary APGs encompass laboratory or radiological procedures such as plain film x-rays, fluoroscopy, multichannel chemistry tests and urinalysis. In Iowa, the assigned ancillary APGs are checked against an ancillary packaging list; if the APG is on this list, then separate payment for the ancillary service is not made when the packaged ancillary services are provided during the same 72-hour Visit Window as the SP.

The following case scenario provides an example of ancillary packaging. The patient is seen in the ER complaining of lower back pain after being accidentally hit in the back with a golf club by his five year old. The patient is evaluated by a physician. Urinalysis and lumbar spine are ordered. The following CPT codes and APGs are assigned to the visit (See APG/Calculator screen in Figure 4):

After the significant procedure consolidation and ancillary packaging processes, a visit can still result in more than one non-consolidated significant procedure or non-packaged ancillary service. When this occurs, discounting (reduction of APG rates) is utilized. Discounting, like ancillary packaging policies, can vary by payor, but Iowa's policy is:

a. For Multiple, Nonconsolidated Significant Procedures:

b. For Multiple, Nonpackaged Laboratory Tests within the same APG

c. For Multiple, Nonpackaged Nonlaboratory Ancillaries within the same APG:

First Test:                                     100%
Second Test:                                  60%
Additional Tests (for each test)         40%

For multiple non-packaged laboratory tests or non-laboratory ancillaries in different APGs, 100% of the relative weight for each APG is used in the payment calculation.

Mercy Hospital, a 300 bed facility serving Southwestern Iowa, found that automation was the key to successfully implementing the new methodology. Medical records staff utilizes the APG/Calculator PC program from IRP Systems, Inc. Woburn, Massachusetts. The APG/Calculator analyzes hospital outpatient cases and assigns the correct APG groupings to the case. The process begins when a staff person reviews the patient's medical record and obtains the appropriate ICD-9-CM or CPT-4 codes from a coding book or an encoder software package already in place at Mercy. The user enters the code numbers, and the grouper evaluates the set of codes and assigns APGs. The APG/Calculator computes up to 13 APGs, displaying titles and weights, for each CPT-4/HCPCS code entered. Staff see how existing cases will be impacted for Iowa Medicaid payment, and possibly in the future for any Medicare or commercial insurer implementation.

As an example of the way Mercy Hospital determines APGs for Medicaid claims, consider a case in which a patient receives emergency room treatment for a hand laceration. Medical records staff reviews the procedures performed and codes suturing as CPT-12001. The grouper software examines which APGs are relevant and assigns a relative weight. The assigned relative weight is then multiplied by a blended hospital rate previously derived from an average of the hospital's specific cost-based rate and the statewide APG payment rate. The Iowa APG rate is $112.87. Hospital blended rates vary from $82 to $137. Assuming a laceration APG (APG 10) rate is .89070, and if Mercy Hospital's blended rate is $115, the total reimbursement would be $102.43. Medical records staff have the ability to keep the individual weights for each APG on the claim which is useful since APG weights will change as the new classification system is recalibrated.

APGs represent the latest outpatient cost containment resource available, but implementation of APGs is a complex process. Do not wait to begin planning for the policy, payment, coding, cost control, and information system implications of APGs.

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