Navigating the complexities of hospital outpatient billing can be challenging, especially with the evolving landscape of healthcare reimbursement. Ambulatory Payment Classifications (APCs) serve as a cornerstone for how outpatient services are financed under Medicare, influencing hospital operations and patient billing alike. This guide aims to clarify the fundamentals of APCs, their operational mechanisms, and their significance within the broader healthcare system.
APCs are a method employed by the federal government to reimburse hospitals for outpatient services provided to Medicare beneficiaries. Initiated by the Federal Balanced Budget Act of 1997, the system was designed to streamline payments and promote efficiency. The Centers for Medicare & Medicaid Services (CMS) established the Outpatient Prospective Payment System (OPPS) on August 1, 2000, which categorizes outpatient services into distinct payment groups based on clinical similarity and resource utilization. Unlike physician fee schedules, APCs specifically affect hospital reimbursements and are used when a Medicare outpatient is discharged from emergency departments or clinics, or transferred to another facility. If a patient is admitted as an inpatient, different payment methodologies, such as Diagnosis Related Groups (DRGs), come into play.
How Do APCs Operate?
APCs group outpatient services that share comparable clinical intensity, resource demands, and costs. These include services identified through CMS’s Healthcare Common Procedure Coding System (HCPCS), which often originate from the American Medical Association’s Current Procedural Terminology (CPT). When hospitals submit claims using HCPCS codes on the UB 04 form, each code is associated with a specific APC.
Payments under the APC system are prospective and fixed, meaning the hospital receives a predetermined rate regardless of the actual cost incurred. The calculation involves multiplying the relative weight assigned to each APC by the national conversion factor, which is updated annually—$87.382 for 2024. Adjustments are made for geographic wage differences, acknowledging regional variations in labor costs. The total payment is split into Medicare’s share and the patient’s co-pay, typically around 20% of the APC rate. Certain HCPCS codes, such as those for corneal tissue acquisition or hepatitis B vaccines, are not paid under OPPS but on a reasonable cost basis, as indicated by specific status indicators like SI “F.”
Rationale Behind the Creation of APCs
CMS developed the APC system to shift some financial risks from the federal government directly onto hospitals. This approach encourages hospitals to deliver outpatient services more efficiently and economically, aiming to reduce overall Medicare expenditure. By incentivizing cost-effective practices, APCs foster a healthcare environment where hospitals can innovate and optimize resource utilization, ultimately benefiting patients through better services and sustainability.
Scope of Hospital Outpatient Services Covered by APCs
APCs primarily cover outpatient surgeries, clinic visits, emergency department encounters, observation services, and outpatient diagnostics such as radiology or nuclear medicine imaging. They also encompass therapies including intravenous medications, blood products, and certain drug administrations. The system is designed to bundle many ancillary services, although some services like durable medical equipment or certain laboratory tests may be paid separately. For instance, routine lab tests ordered in the emergency department are often bundled into the APC payment, whereas diagnostic radiology studies or bedside ultrasounds are typically billed separately.
Special Medicare Provider Categories: Rural Emergency Hospitals
Addressing the issue of rural hospital closures, Section 125 of the Consolidated Appropriations Act, 2021, introduced a new provider type called Rural Emergency Hospitals (REHs), effective from January 1, 2023. This designation supports communities with limited access to hospital services by providing additional payments for certain outpatient services covered under APCs. The goal is to maintain critical access in rural areas where sustaining traditional hospitals may be financially unfeasible. To learn more about this initiative, review the Rural Emergency Hospital fact sheet.
Services Not Covered Under APCs
While APCs cover a broad range of outpatient services, some are excluded or bundled into other payments. For example, durable medical equipment is reimbursed through separate processes. Many laboratory tests, including those ordered in emergency settings, are bundled into the APCs. However, specific services like diagnostic radiology, bedside ultrasounds, and electrocardiograms (EKGs) are billed separately. Add-on services such as IV infusions and medications administered via IV push are generally not bundled, reflecting their distinct resource utilization.
Payment for Drugs and Supplies
Most drugs and supplies used in outpatient settings are incorporated into the APC payment for the relevant service or procedure, especially when their costs are minimal. However, high-cost medications, such as chemotherapy agents, are billed separately. Similarly, drug administration services like IV infusions and injections are often reimbursed independently to account for their resource intensity.
APCs for Emergency Department (ED) Visits in 2024
A significant portion of ED-related services are reimbursed through specific APCs, predominantly Evaluation and Management (E/M) codes. For 2024, the following APCs are standard for various ED visit levels:
| APC | CPT Code | Description | SI | Relative Weight | Payment Rate |
|——-|————|————————|——-|——————-|————–|
| 5021 | 99281 | Level 1 ED Visit | V | 0.9691 | $84.68 |
| 5022 | 99282 | Level 2 ED Visit | V | 1.7852 | $155.99 |
| 5023 | 99283 | Level 3 ED Visit | V | 3.1144 | $272.14 |
| 5024 | 99284 | Level 4 ED Visit | V | 4.8344 | $422.44 |
| 5025 | 99285 | Level 5 ED Visit | V | 7.0109 | $612.63 |
| 5041 | 99291 | Critical Care | S | 9.6858 | $846.36 |
| 5043 | G0390 | Trauma Activation | X | — | $1305.84 |
Additional common APCs include services such as simple repair, abscess drainage, and emergency airway insertion, which are assigned specific HCPCS codes, relative weights, and payment rates. These codes reflect the diverse range of services encountered in emergency settings.
How Are APC Payments Calculated?
The calculation relies on multiplying the relative weight assigned to each APC by the current year’s conversion factor. For example, in 2024, the conversion factor is set at $87.382. To compute the payment for a specific service, such as an abscess drainage (CPT 10060), you multiply the relative weight (2.1851) by the conversion factor:
2.1851 x $87.382 = $190.94
This amount represents the base Medicare payment for that service at an average U.S. hospital. Regional wage differences are factored in by adjusting approximately 60% of the payment, recognizing the variation in labor costs across different geographic areas. The final reimbursement rate also includes adjustments for quality reporting, with hospitals meeting certain standards eligible for a 3.1% increase in reimbursements for 2024.
How Do Hospitals Assign Evaluation and Management (E/M) Service Levels?
For outpatient services, including ED visits, hospitals determine the appropriate E/M level based on their internal coding protocols. Since CMS has not issued strict national standards for 2024, hospitals are encouraged to develop consistent, reproducible methods that reflect the resources used and the medical necessity of services. These practices must align with coding guidelines and accurately represent the care provided. CMS observes that higher acuity levels, such as Level 4 and 5 visits, are becoming more common due to increasing patient complexity and diagnostic needs.
Is HCPCS Code Matching Required Between Hospitals and Physicians?
No. CMS clarifies that a perfect match between hospital outpatient and physician billing codes is not required. The coding systems serve different purposes: hospital codes capture hospital resource utilization, while CPT codes reflect physician services. Discrepancies are expected and acceptable, as they are designed to accurately depict the respective provider’s role during the outpatient encounter.
Can Patients Leave Before Being Seen in the ED?
Yes. CMS permits billing for the lowest level ED visits even if a patient is triaged but leaves before physician evaluation. However, such visits must be appropriately documented, and services provided by non-physician staff, like nurses, do not meet the incident-to requirements for billing. Diagnostic services can still be billed if they meet the necessary documentation standards, even if the patient departs prematurely.
Role of Diagnosis Codes in APC Payments
ICD-10-CM codes primarily serve to justify medical necessity rather than directly influence APC reimbursements. Since 2007, observation services have not required diagnosis codes for billing. Nonetheless, specific ICD-10-CM codes can impact coverage decisions and billing edits, especially for services where documentation of medical necessity is critical. CMS’s coverage policies and local coverage decisions (LCDs) guide the use of diagnosis codes in this context.
Impact of APCs on Hospital Coding Practices
The shift from cost-based reimbursement to the APC system has emphasized the importance of meticulous documentation. Accurate coding ensures appropriate reimbursement and reflects hospital efficiency. Physicians play a vital role by thoroughly documenting procedures and services, such as central line insertions (CPT 36556), which directly influence coding and payment. Enhanced collaboration between clinicians and coders supports financial sustainability and quality reporting.
Reporting Procedures and E/M Services
Hospitals bill for procedures and E/M services separately. Surgical codes cover the resources used to perform procedures, while E/M codes reflect the level of outpatient care provided. Supplies and medications are typically included in the procedure payment, but they can be billed separately if resource use exceeds typical levels. Hospitals may use proxy measures, such as the complexity of procedures performed, to estimate E/M service levels, especially in emergency settings.
Critical Care Billing Differences: Hospital vs. Physician
While physicians count non-face-to-face time for billing, hospitals must only document face-to-face patient time when billing for Critical Care services under APCs. This distinction prevents double-counting and underscores the importance of detailed documentation to accurately reflect the hospital’s resource utilization.
What is a Comprehensive APC?
A comprehensive APC encompasses a primary service along with all supportive or adjunct services necessary for delivering that service. This classification allows for a single prospective payment covering all related components. For instance, heart rhythm pacing procedures include associated services packaged into one payment under the comprehensive APC model (Status Indicator J1). This approach streamlines reimbursement and encourages integrated care delivery.
Updated January 2024
Disclaimer
The American College of Emergency Physicians (ACEP) provides this Reimbursement & Coding FAQ for informational purposes only. For detailed and current guidance, consult official CMS resources and relevant authorities. The information has been reviewed by experts but is not guaranteed to be complete or up-to-date. All payment policies vary by payer, and users should verify specifics applicable to their circumstances. ACEP assumes no liability for any damages arising from reliance on this information. For questions or feedback, contact Jessica Adams at (469) 499-0222 or jadams@acep.org.