Offset Medicare losses with good coding practices
February 1, 2000 4 minutes read
Offset Medicare losses with good coding practices
Potential returns vary widely across hospitals
Are you certain to lose Medicare revenue under the new outpatient prospective payment system (PPS)? Maybe not, says a company’s recent analysis of reports published by the Health Care Financing Administration (HCFA) in Baltimore.
HCFA wants to adopt ambulatory payment classifications (APCs) as its outpatient PPS for hospital-based outpatient surgery services. HCFA estimates that hospitals will lose an average of 5.7% in covered Medicare revenue under the new system. However, an analysis conducted by HSS, a Hamden, CT, company specializing in the development and use of health care information and software systems, suggests that many hospitals can generate $500,000 or more annually from improved coding. In many instances, these gains are more than enough to offset the losses forecast by HCFA, HSS says.
An analysis by HSS (see box, below) shows that the impact of APCs and the potential financial returns to improved coding vary widely across hospitals. In almost all instances, though, hospitals that are originally forecasted to lose money as a direct result of APCs can compensate by adopting "Best Practice" coding standards.
How Best Practices are determined
HSS based its Best Practice figures on the number of APCs that hospitals include on each out-patient claim. "When HCFA published its last proposed rule, it put a data file out that explained how it derived its estimate of the financial impact of APCs on hospitals," explains Dean E. Farley, PhD, vice president of health policy and analysis at HSS and director of the study team involved in this work. "Part of that data file was information about the total APC weight per Medicare outpatient visit at each hospital in the United States. That’s a measure of how many APCs are actually getting onto the bill." HSS’ definition of Best Practice was derived from that information, not from looking at the actual coding process of any individual hospital.
In 1996, half of all hospitals in the United States recorded enough HCFA Common Procedural Classification System (HCPCS) codes — used to identify outpatient services provided to Medicare beneficiaries — to be reimbursed for 2.03 APCs per outpatient claim. Only 25% of all hospitals averaged 2.42 APCs or more per outpatient claim, and only 10% averaged 2.80 APCs or better. Based on an analysis of HCFA data, HSS estimated that the average hospital will lose $133,000 as a direct result of PPS. If that hospital improved its coding to a Best Practice standard (the 90th percentile of 2.80 APCs per visit), that same hospital could generate more than $502,000 in additional reimbursement.
"Hospitals are going to get essentially a fixed payment for every code that they put on the bill that maps into an APC," Farley says. "The more codes they have, the more revenue they will generate as long as those codes are supported by documentation in the medical record."
"Of course, hospitals can’t just add codes to bills," says Cheryl D’Amato, manager of health information management at HSS. "Hospitals will need to make sure that the HCPCS codes they put onto the bill are thoroughly supported by documentation in the medical record."
Since Medicare payments to hospitals are not currently based on HCPCS codes, however, hospitals have had few incentives to improve their coding. This will change this year, most likely in July, when Medicare implements PPS based on its APC system. APCs group related HCPCS codes into about 345 categories, and under PPS, hospitals will have strong incentives to code completely and accurately because they will receive the additional payments for each APC assigned to a claim.
"If hospitals continue to operate as if it’s business as usual, they can expect to lose money when the pending regulations are implemented," explains Renee S. Leary, president and COO of HSS. "However, hospitals that assess current outpatient coding mechanisms and initiate corrective measures to address weaknesses can realize significant returns on their investment. In almost all cases, hospitals that are forecasted to lose money as a direct result of APCs can compensate by adopting a Best Practice coding standard."
Recent legislation that provides relief from the Balanced Budget Act of 1997’s payment reductions won’t alter the analysis, Farley says. "[It won’t] change the basic fact that APCs will enable many hospitals to generate financial windfalls through better coding practices."
"Quality coding is the best way within the limits of the law to maximize your reimbursement and ensure that you as an organization are complying with rules, laws, and regulations regarding payment for medical services," agrees Jack Segal, media relations manager for the American Health Information Management Association in Chicago. However, he warns providers to be careful about thinking that one thing can make up a certain amount of money. "That creates the expectation that you will definitely get that money back. I don’t think anyone can guarantee that."
| APCs' Impact | |||
| Type of Hospital | Direct Impact of APCs | Effect of Best Practice Coding | Potential Net Impact of APCs |
| Large urban | ($218,917) | $756,326 | $537,409 |
| Other urban | ($117,868) | $568,418 | $450,550 |
| Rural | ($75,004) | $265,238 | $190,234 |
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