APC (Ambulatory Payment Classifications) FAQ

APCs, or "Ambulatory Payment Classifications," are the government's method of paying facilities for outpatient services for the Medicare program. The Federal Balanced Budget Act of 1997 required CMS to create a Medicare "Outpatient Prospective Payment System" (OPPS) for hospital outpatient services -analogous to the Medicare prospective payment system for hospital inpatients known as "Diagnosis Related Groups" or DRGs. This OPPS was implemented on August 1, 2000. APCs are an outpatient prospective payment system applicable only to hospitals and have no impact on physician payments under the Medicare Physician Fee Schedule. APC payments are made only to hospitals when the Medicare outpatient is discharged from the ED or clinic or transferred to another hospital (or other facility) not affiliated with the initial hospital where the patient received outpatient services. If the patient is admitted from a hospital clinic or ED, then there is no APC payment, and Medicare will pay the hospital under the inpatient DRG methodology.

Each APC comprises services similar in clinical intensity, resource utilization and cost. All services (identified by submission of CMS' Healthcare Common Procedure Coding System (HCPCS) codes on the hospital's UB 04 claim form) which are grouped under a specific APC result in an annually updated Medicare "prospective payment" for that particular APC. (Many HCPCS codes are derived directly from the AMA CPT.)  Since this payment is a prospective and "fixed" payment to the hospital, the hospital is at risk for potential "profit or loss" with each APC payment it receives. The payments are calculated by multiplying the APC relative weight by the OPPS conversion factor, and then there is a minor adjustment for geographic location. The payment is divided into Medicare's portion and patient co-pay. Co-pays are typically 20% of the APC payment rate.  A status indicator is assigned to each code to identify how the service is priced for payment.  For example, Status Indicator (SI) “F” - Corneal Tissue Acquisition; Certain CRNA Services and Hepatitis B Vaccines, is not paid under OPPS but is paid on a reasonable cost basis.

APCs were created to transfer some financial risks for providing outpatient services from the Federal government to individual hospitals, thereby achieving potential cost-savings for the Medicare program. By transferring financial risk to hospitals, APCs incentivize hospitals to provide outpatient services economically, efficiently, and profitably.

APC payments apply to outpatient surgery, outpatient clinics, emergency department, and observation services. APC payments also apply to outpatient testing (such as radiology and nuclear medicine imaging) and therapies (such as certain drugs, intravenous infusion therapies, and blood products).

Rural Emergency Hospitals: New Medicare Provider Type

There has been a growing concern that closures of rural hospitals and critical access hospitals (CAHs) are leading to a lack of services for people living in rural areas. Section 125 of the Consolidated Appropriations Act, 2021 (CAA) established a new Medicare provider type called Rural Emergency Hospitals (REHs), effective January 1, 2023. The REH designation is designed to maintain access to critical outpatient hospital services in communities that may not be able to support or sustain a Critical Access Hospital or small rural hospital. It provides a supplemental payment to hospitals for certain services covered by APCs. For information on the establishment of this new Medicare provider type, view the Rural Emergency Hospital fact sheet.

Yes, but bundling services into one payment remains an overarching theme. Durable Medical Equipment is paid for through non-APC methodology. However, most of the lab tests we order in the ED will now be bundled. Tests that are not bundled include diagnostic radiology studies, bedside ultrasounds, and EKGs. Add-ons that are not bundled include IV infusions and IV push dose medications. The OPPS bundles a lot of additional services, such as minor ancillary services with a geometric mean cost of less than or equal to $100 and assigned Status Indicator Q1 (Paid under OPPS); Addendum B displays APC assignments when services are separately payable:

• Packaged APC payment if billed on the same claim as an HCPCS code assigned status indicator “S,” “T,” or “V.”
• Composite APC payment if billed with specific combinations of services based on OPPS composite-specific payment criteria. Payment is packaged into a single payment for specific combinations of services.
• In other circumstances, payment is made through a separate APC payment. These include clinical laboratory services provided with other outpatient services, many add-on codes, and new device-intensive comprehensive APCs. These ancillaries will be paid separately when they are the only service provided, e.g., X-rays, EKGs, laboratory, blood bank and pathology services and specific respiratory tests and treatments.

Most drugs and supplies have costs included in the payment for specific visit levels or procedure APCs. This generally applies to drugs and supplies that have small associated cost. Drug administration services such as IVs and IM injections are paid for separately. More expensive medications, such as chemotherapy, may also be paid separately.

There are hundreds of HCPCS (Healthcare Common Procedure Coding System) codes pertinent to the ED, payable under various APCs. The most common are the Evaluation and Management APCs.

Other common APCs in the ED

APC payments are determined by multiplying an annually updated "relative weight" for a given service by an annually updated "Conversion Factor." The APC "conversion factor" for 2024 is $87.382. CMS publishes the annual updates to "relative weights" and the "conversion factor" in the November "Federal Register."

For example, to calculate the APC payment for APC 5051 (includes I & D of simple abscess—CPT 10060):

Relative Weight for APC 5051 =2.1851, the Conversion Factor for 2024 = $87.382. Multiply RW 2.1851 x CF $87.382 = $190.94 payment for APC 5051 for 2024 (for the "average US hospital").

The APC payment is modified according to adjustments for "Local Wage Indices." Medicare determined that 60% of the APC payment is due to employee wage costs. Since different areas of the country have widely divergent local wage scales, 60% of each APC payment is adjusted according to specific geographic locality.

The 2024 OPPS final rule increases reimbursement under the Medicare program by 3.1% for hospitals that meet quality reporting requirements. 

For 2024, Medicare has not published "national standards" for hospital assignment of E/M code levels for outpatient services in clinics and the ED. CMS did, however, in 2014 collapse clinic, outpatient and office visit service levels into one payment, combining new and established patient visits into one payment. Emergency medicine remained exempt from the collapse of the E/M levels for 2024.

CMS has stated that each hospital may utilize its unique system to assign E/M levels, provided that the services are medically necessary, the coding methodology is accurate, consistently reproducible, and correlates with institutional resources utilized to provide a given level of service.  CMS continued to monitor the E/M levels coded nationally and indicated that the 2010 claims data used for the 2013 review indicates the normal and relatively stable distribution of clinic and emergency department visit levels compared to 2009 data.  CMS has noted a slight shift toward higher numbers of level 4 and 5 visits relative to lower level visits for Type A emergency department visit levels as patient acuity, complexity, and facility resource use of diagnostics has increased. 

In 2007, CMS established a lower level of ED called a Type B ED for services offered in a facility-based ED that was not open 24/7. See the November 27, 2007, Federal Register for further discussion on Type A and B EDs.

While there are no specific CMS national guidelines, CMS has given providers direction in the form of general guidelines, including the following:

1. The coding guidelines should follow the intent of the associated CPT code descriptor, in that the guidelines should be designed to reasonably relate the intensity of hospital resources to the different levels of effort represented by the code.
2. The coding guidelines should be based on hospital facility resources. The guidelines should not be based on physician resources.
3. The coding guidelines should be clear to facilitate accurate payments and be usable for compliance purposes and audits.
4. The coding guidelines should meet the HIPAA requirements.
5. The coding guidelines should only require documentation that is clinically necessary for patient care.
6. The coding guidelines should not facilitate upcoding or gaming.
7. The coding guidelines should be written.
8. The coding guidelines should be applied consistently across patients in the clinic or emergency department to which they apply.
9. The coding guidelines should not change with great frequency.
10. The coding guidelines should be readily available for fiscal intermediary (or, if applicable, MAC) review.
11. The coding guidelines should result in coding decisions that could be verified.

No. CMS has stated that Medicare does not expect a "high degree of correlation" between the HCPCS codes submitted by hospitals vs. those submitted by physicians. The AMA developed CPT codes to capture physician cognitive and procedural services and were never intended for capturing the utilization of hospital resources; Medicare recognizes there may be significant differences in coding between the hospitals and physicians even though the patient received services from both entities during the same outpatient encounter. Consider this scenario; the ED resources include the support of the ED physician and any consultant who comes to the emergency department.  As the facility HCPCS reflects the support and assistance provided to both physicians, you could expect to see a higher level of care for the facility than for the emergency physician.  Conversely, the physician’s level of service may exceed the E/M coded by the facility. The key concept is that facility and professional coding and billing are two distinct systems.

In 2011 OPPS, CMS restated its position on "Triage-only" visits, confirming that it does not specify the type of staff who may provide services. "A hospital may bill a visit code based on the hospital's own coding guidelines, which must reasonably relate the intensity of hospital resources to different levels of HCPCS codes. Services furnished must be medically necessary and documented."

However, in 2012 CMS indicated in a Facility FAQ that Hospital outpatient therapeutic services and supplies (including visits) must be furnished incident to a physician's service and under the order of a physician or other qualified practitioner. CMS stated that an ED visit would not be paid if the patient encounter did not meet the incident to requirement (the patient would need to be seen by an ED physician or QHP). Services provided by a nurse in response to a standing order do not satisfy this requirement. Since diagnostic services do not need to meet the requirements for incident to services, they may be coded even if the patient were to leave without being seen by the physician.

No, ICD-10-CM codes do not determine ED facility reimbursement, and since 2007, they are no longer required for observation coding. ICD-10-CM codes can establish medical necessity for the level of services or procedures billed, and Medicare's edit system thus looks for specific ICD-10-CM codes for some services. For each procedure, these ICD-10s can be identified by looking up CMS's local and national coverage decision (LCDs and NCDs) documents. 

Before Aug. 1, 2000, Medicare reimbursed hospitals for outpatient services on a "cost-basis." CPT codes were not required on the UB-92 claim forms, and hospitals received reimbursement based on their reported "costs" for drugs, supplies, E&M services (such as ED visits), etc.

Under OPPS, it is essential to document and capture all services provided by the hospital, since its efficiency and resource utilization will determine whether the hospital incurs a "profit or loss" on each Medicare outpatient encounter. Thus, it is imperative that hospital staff wholly and accurately document all services provided to Medicare beneficiaries in the outpatient areas.

Physicians can significantly assist their hospitals by being as diligent as possible in their documentation. For example, physician documentation of such services as insertion of a central venous line (CPT 36556 (APC 5183) and 36557 (APC 5184) will assist the hospital coders in the assignment of these codes—with ultimate payment in 2024 by Medicare of 5183 $3,040.18) to the "average US hospital"). Increasing cooperation between physicians and hospitals in medical records documentation is critical to the economic survival of both members of the healthcare team.

Evaluation and Management Services and other procedures are distinct and separately billable services. By billing a surgical procedure code that describes the service, the facility is paid for the resources used to support the performance of the procedure. Facility charges include support for all providers; emergency physician, mid-level provider or consultant who provide services in the emergency department for a patient.

Most supplies and medications associated with the procedure will be paid as a combined payment for the surgical service. The E/M service is billed separately and includes the services related to the Evaluation and Management service. It is permissible for hospitals to reference surgical procedures in their E/M criteria as a proxy for the acuity and resources for the Evaluation and Management services prior to and following the procedure. In the 2008 OPPS final rule, CMS clarified, “In the absence of national visit guidelines, hospitals have the flexibility to determine whether to include separately payable services as a proxy to measure hospital resource use that is not associated with those separately payable services.” The 2011 ED Facility coding guidelines include interventions and procedures that may serve as a proxy for the level of service provided.

Although CMS instructs hospitals to follow the content of the CPT Critical Care descriptors, there is one significant difference when billing facility Critical Care services. Physician billing of Critical Care time allows the counting of non-face-to-face time spent working on the patient’s behalf; APC facility billing does not.  All time billed for Critical Care by hospitals under APCs must account for patient face-to-face time, and cannot duplicate time spent by more than one individual simultaneously at the bedside. Thus, hospitals need to be aware that Critical Care time for the facility is counted differently than physician time and should address separate documentation of this service.

CMS defines a comprehensive APC as a classification for providing a primary service and all adjunct services provided to support the delivery of the primary service. The comprehensive APC would treat most individually reported codes as components of the comprehensive service, resulting in a single prospective payment based on the cost of all individually reported codes on the claim representing the delivery of a primary service and all adjunct services provided to support that delivery.

CMS defines “adjunctive services” as any service that is integral, ancillary, supportive, and/or dependent to the primary service. These services are assigned Status Indicator J1. For example, HCPCS Code 93618, Heart rhythm pacing, assigned Status Indicator J1 as a Comprehensive APC under APC 5211, has a 2024 relative weight of 12.9904 for a total payment of $1,135.13. Thus, the APC payment for heart rhythm pacing would include any additional service associated with the pacing in the payment for the pacing service. As defined by Status Indicator J1, all covered Part B services on the claim are packaged with the primary “J1” service except for services with OPPS status indicators F, G, H, L and U, as well as ambulance services, diagnostic and screening mammography, and all preventive services.