10 tips for avoiding APC traps: understanding common billing pitfalls can help protect your...

Reviews conducted by consulting organizations have shown that providers lose as much as one to four percentage points from their bottom lines to billing inaccuracies associated with outpatient services, such as coding errors, insufficient documentation of medical necessity, and poor charge description

To gain this understanding and avoid common APC pitfalls, providers need to be aware of the means used to detect billing inaccuracies, areas most often targeted for review, and steps they can take to initiate improvement. Hospitals that don't become savvy to the APC system and develop appropriate controls could pay a heavy price--significant underpayments or stiff fines and penalties imposed by the Office of Inspector General (OIG).

The following 10 points are suggested ways that providers can encourage compliance and optimize revenue.

1. Establish an Active Compliance Program

The Centers for Medicare and Medicaid Services (CMS) does not mandate corporate compliance programs as a condition of participating in Medicare. However, it has stated that having an effective corporate compliance program may reduce the risk of unlawful or improper conduct significantly and can mitigate penalties incurred if billing or coding infractions occur.

Providers would be wise to devote staff and resources to program development and maintenance. Having this infrastructure in place will support the internal controls and monitoring needed for effective management of APC compliance risk and payment accuracy.

2. Be Familiar with the OIG's Initiatives

Understanding the government's areas of focus can help providers direct compliance efforts. In the past, outpatient initiatives in the OIG work plan have emphasized adequate documentation, proper coding, and demonstration of medical necessity. Specific targets have included:

* Controls over transitional pass-through costs;

* Charges for self-administered drugs that originate from outpatient pharmacy services at acute care hospitals; and

* Undocumented, unnecessary, or noncovered charges for outpatient medical supplies.

Even though the latter two review items apply to claims that existed before August 1, 2000, when the APC prospective payment system was initiated, it is important to be vigilant about these areas because the OIG has the authority to audit claims up to six years after submission.

In 2002 and 2003, the scope of the OIG's interests widened. In addition to pursuing prior concerns, the work plan urged examination of APC outlier payments; payments for APC services delivered when patients are discharged, treated elsewhere, and then readmitted on the same day; and procedure coding of outpatient and physician services. The OIG is undertaking this last initiative because in a previous review it identified a 23 percent nationwide discrepancy between hospital and physician coding. (a)

Four new review areas will begin in 2003:

* Assessing the appropriateness of Medicare billing for diagnostic procedures performed in the emergency department, including X-rays, magnetic resonance imaging (MRI), and computed tomography scans;

* Determining whether outpatient hospital cardiac rehabilitation services meet Medicare coverage requirements, including the presence of a physician in the exercise program area while patients are exercising;

* Assessing the performance of accrediting organizations and state survey and certification agencies in providing hospital oversight of hospital outpatient departments; and

* Evaluating controls to detect potentially excessive Medicare payments for services.

The OIG will assess the adequacy and extent of actions taken as well as potentially excessive payments.

3. Recognize Data Likely to Be Flagged

Techniques the OIG uses to target providers include routine audits, medical review, qui tam (or whistleblower) cases, and data analysis. Areas likely to be flagged for outpatient billing inaccuracies through data analysis may include duplicate billing, APC distribution irregularities, and codes identifying inpatient-only services.

Duplicate billing. OIG estimated that Medicare carriers paid more than $89 million in duplicate bills in 1998. Outpatient service areas most prone to duplicate billing were nail debridements (APC 0009), MRI of the brain or lumbar region (APC 0337), and psychiatric diagnostic interview examination (APC0323). (b) Duplicate billing can have many causes, from undifferentiated information-technology processes to poor staff education. To address this concern, hospitals should closely analyze bills with these APCs to determine whether duplicate billing is occurring at the hospital level and identify possible origins of duplication.

APC distribution irregularities. High volumes of cases in APCs with higher weight, and therefore higher payment, than the norm could draw OIG attention. Sometimes a legitimate reason may explain the irregularity For example, a hospital designated as a trauma center can expect to generate high-level and critical care bills for emergency-department patients more frequently than a nontrauma facility To minimize compliance risks, providers should identify and examine high-level APC trends for billing accuracy

A large number of APCs falling in lower acuity levels is worth examining, too. Undercoding can sometimes be the cause. Hospitals should routinely examine their APC distributions to determine whether problems exist.

Codes identifying inpatient-only services. For some procedures, Medicare defines the outpatient setting as being a high risk to the patient and, therefore, inappropriate. To minimize outpatient billing for these services, providers should supply physicians with a list of inpatient-only procedures appropriate to their discipline. Also, hospitals should make sure that staff members who schedule operating-room procedures have software support that provides a quarterly update of Medicare's inpatient only list, so that they can alert physicians to the potential for payment denial.

4. Keep the CDM Accurate and Up to Date

CDM inaccuracies pose substantial APC compliance risk and can significantly affect revenue. The financial impact of incorrect codes on the CDM could be as much as 5 to 10 percent of total Medicare outpatient net revenues.

RELATED ARTICLE: Measuring Compliance

How is compliance determined? Considerations during Office of Inspector General reviews traditionally include:

* Clarity of the relevant rule;

* Complexity and novelty of the billing system at issue;

* Guidance issued by the Centers for Medicare and Medicaid Services or its agents;

* The extent to which the provider has attempted to ascertain an understanding of the relevant rule;

* The quality of the efforts of the provider to train personnel on the billing system; and

* The effectiveness of the compliance program in place.

6. Use Modifiers Appropriately

Inappropriate use of modifiers also is a concern, because many coders and ancillary staff still are not comfortable with their use in an outpatient setting. One frequent coder mistake is the overuse of certain modifiers. For example, modifier 59, which indicates a distinct procedural service, tends to be overused because coders often do not realize that documentation must clearly support a separate episode of care. Education is key to improving modifier accuracy and understanding appropriate use.

Another common problem with modifier use is that coders sometimes undercode modifiers because not enough supporting documentation is available. Providers that notice this problem should target educational efforts to physicians. Securing clinical commitment to successful billing is essential--the potential unrecouped dollars if modifiers are undercoded could represent as much as 3 percent of Medicare outpatient net revenue.

7. Supervise Inexperienced Coders

Not enough credentialed outpatient coders are available today to meet hospital needs. Hospitals often address the shortage by outsourcing this function, developing local training programs to recruit new staff, or cross-training other employees. Because staff inexperience is likely to result in errors, hospitals should ensure that only personnel trained in outpatient issues and coding guidelines perform the code assignment.

Part of staff training should entail continuing education. Staff should have access to all appropriate regulatory information and receive updates concerning compliance issues regularly Also, audits should be instituted frequently, particularly in areas that are high volume or high cost. Incorrect coding could represent an undercollection of 3 percent of total Medicare outpatient net revenues.

8. Reexamine E&M Code Assignments

In its final rule issued in the April 7, 2000, Federal Register, CMS mandated that hospitals develop a patient classification system for their emergency departments and clinics. The system typically organizes patients into specific groups based upon nursing tasks and patient-care activities. The activities are assigned facility-specific level E&M codes, which then are translated to mid- and high-level medical visit APCs. APC compliance risk may exist if an OIG auditor reviews the E&M coding assignment and does not feel the visit level assigned is appropriate. Therefore, hospitals should conduct periodic audits to determine the interrater reliability of their patient classification system. (c)

The accuracy of supporting documentation also should be examined. Insufficient documentation can result in undercoding. It is estimated that undercoded or inaccurate E&M codes could account for as much as 3 percent of total Medicare outpatient net revenues. Also, lack of documentation regarding the need for services can result in billing delays until adequate information is provided.

Comprehensive nursing and physician documentation is important to arrive at accurate E&M codes. Hospitals can help facilitate this documentation by providing enough space on emergency-department and clinic forms for clinicians to include additional documentation.

9. Accurately Document Transitional Pass-Through Costs

The billing accuracy of transitional pass-through drugs, devices, and biologicals should be a high priority not only because it is the subject of an OIG initiative, but also because rapid regulatory changes increase potential for billing error. Hospitals that bill for use of the pass-through service without being certain documentation is sufficient to support the service delivery face considerable compliance risk. They also assume significant risk by billing for devices without verifying that the devices qualify for passthrough payment. What's more, transitional pass-through codes that are not added to the CDM or are added in an untimely manner reduce revenue.

To encourage proper billing, providers should communicate quarterly changes involving transitional pass-through items to departments affected. Some hospitals put Medicare program memorandums on their intranet and inform staff via e-mail when new changes are posted. Although helping staff stay current can be a challenge, it is important for providers to take action. The financial impact if transitional passthrough items are not identified and billed could be as much as 4 percent of total Medicare outpatient net revenue.

10. Discuss Medical Necessity Requirements with Your Fiscal Intermediary

In FY 2001, Medicare claims audits disclosed that 43 percent of inappropriate payments were the result of medically unnecessary services. Because of this large percentage, the OIG will make medical necessity a priority.

Hospitals should give particular attention to coding of discontinued procedures. Hospitals that show a propensity to discontinue procedures are likely to be subject to scrutiny. Providers should prepare to counter charges of lack of medical necessity by thoroughly documenting reasons why a procedure is discontinued.

Another area of concern is outpatient mental health programs. In 1998, the OIG reviewed mental health claims in nine states and Washington, D.C., and found that 60 percent of claims submitted did not meet payment criteria. (d) Primary concerns were that delivery of services was not reasonable or necessary for the patient's condition and services were documented insufficiently. The OIG recommended, among other things, that CMS require Medicare fiscal intermediaries to increase post-payment review of psychiatric service claims.

In light of the OIG's emphasis, hospitals should carefully analyze mental health APC records and bills to ascertain that medical necessity and criteria for APC assignment are being met. They also should make sure they define medical necessity in the same way as their Medicare fiscal intermediary. This conversation is important because different payers may have different medical necessity policies, and policies may change over time.

Conclusion

Hospitals face many substantial APC challenges. They need to review critical areas and ensure appropriate measures are in place. In almost every case, internal audits should be performed, either by hospital staff or outside firms. Audits give the CFO and the organization assurance that the proper techniques are in place well before opportunity for OIG review. Improving CDM maintenance, coding, and accuracy of documentation not only reduces compliance risks, but also significantly increases the potential for capturing otherwise lost revenue.

EXHIBIT 1: IDENTIFYING A REVENUE MANAGEMENT COORDINATOR

Hospitals sometimes find it useful to dedicate an individual to revenue-management coordination, In this position, the staff member's responsibilities include:

* Being an on-site resource for coding and charging issues in relation to the charge description master (CDM);

* Serving to narrow the focus, accountability, and responsibility for implementation of additions, changes, or deactivations in the CDM;

* Being responsible for revenue-capture process review, implementation strategies, and periodic monitoring;

* Performing periodic departmental audits of charges as compared with the medical record to ensure that all charges are captured and billed appropriately;

* Helping to develop or modify formalized written charge protocols;

* Auditing billing practices to ensure compliance with established protocols and policies;

* Working with the information systems department to make certain that updated CDM information is transferring to claims;

* Participating on the Financial Performance/Denials Management task force, reviewing late charges, write-offs, days in accounts receivable, denials, rejections, suspensions, and departmental responsiveness to claims awaiting correction;

* Understanding and acting on information concerning potential outpatient prospective payment system-related compliance issues in relation to the CDM; and

* Managing communications regarding changes in HCFA Common procedure Coding System and Current Procedural Terminology coding in relation to governmental and other payer regulations.

(a.) Work Plan, Fiscal Year 2002, HHS Office of Inspector General, p. 7 (http://oig.hhs.gov/reading/workplan/2002/Work%20Plan%202002.pdf).

(b.) "Duplicate Medicare Payments by Individual Carriers," Office of Evaluation and Inspection report, HHS Office of Inspector General, June 2001 (http://oig.hhs.gov/oei/reports/oei.03.00-00091.pdf).

(c.) Because E&M codes were defined to reflect physician activity, they are not an accurate reflection of the range and mix of emergency department and clinic services. Therefore, in a proposed rule issued on August 9, 2002, CMS states its intention for hospitals to replace the codes with 10 outpatient prospective payment system G codes in 2004.

(d.) Semiannual Report, October 1, 2001, to March 31, 2001, HHS Office of Inspector General, p. 7, http://oig.hhs.gov/reading/semiannual/2001/01ssemi.pdf.

Hospitals should identify and correct systemic issues, paying particular attention to the following areas:

* The process to get new items and services on the CDM should be timely and organized;

* Appropriate modifiers should be in place; and

* Evaluation and management (E&M) codes on the CDM should link to the proper revenue codes.

To determine whether all codes are making it through the system appropriately, providers should compare out-patient medical records with associated bills. Some providers find it helpful to identify a revenue management coordinator to manage this function (see Exhibit 1).

5. Aggressively Manage OCE Rejections

Hospitals that have a high proportion of outpatient code editor (OCE) edit failures that get through to the fiscal intermediary may come under OIG scrutiny for sloppy billing practices and a lack of internal controls. Moreover, revenue is lost when claims that could have been corrected are written off because they failed the OCE. These missed revenue opportunities could represent as much as 4 percent of Medicare outpatient net revenues. Even when hospitals try to correct APC claims that have gone through the OCE before being sent to the fiscal intermediary, they still experience a negative financial impact in terms of the effect on accounts receivable and cash flow.

To minimize compliance risks and optimize revenue, providers need to manage OCE rejections aggressively Providers should hold regular meetings on front- and back-end OCE denials, rejections, and suspended claims. Staff should contact fiscal intermediaries to clarify reasons for rejections and keep copies of all documentation or communications. Also, rejections should be classified into categories by department and forwarded to the appropriate staff for reconciliation. To encourage prompt follow-up, the average time for a department to reconcile claims should be tracked.

ISSUES AND ACTIONS

To encourage proper payment and avoid imposition of penalties by the Office of Inspector General, providers need to prioritize outpatient compliance efforts.

* Departments should be accountable for reconciling outpatient code editor edit failures.

* Evaluation and management code assignment should be examined for inter-rater reliability.

* Transitional pass-through items should be audited routinely; associated coding should be kept current.

* Consideration should be given to meeting medical necessity requirements, particularly for mental health services.

ABOUT THE AUTHORS

Julie A. Micheletti, RN, is director, clinical product strategies, HSS, Inc., Hamden, Connecticut, and a member of HFMA's Maryland chapter.

Steven Berger, FHFMA, MS, CPA, CHE, is president, Healthcare Insights, LLC, Libertyville, Illinois, and a member of HFMA's First Illinois Chapter.

Louis Grujanac, DO, MA, is medical director, HP3 Healthcare Concepts, Inc., Bethlehem, Pennsylvania.

Questions or comments about this article can be sent to Julie A. Mitcheletti at jmich@hss-info.com.