Ambulatory Patient Groups Definitions Manual Version 2.0
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You can read through the entire manual by using the [PgDn] key to go through 
  each section. Or, you skip directly to the section of interest by picking from 
  the list below. 
 
  
 APG Acknowledgements


    Characteristics of an APG System

    Overview of APGs

    Selection of the Initial Classification Variable

    Development of Significant Procedure APGs

    Development of the Medical APGs

    Development of Ancillary Services APGs


    Error APG

    Overview of APG Assignment Logic

    Summary of APG Development

    Overview of the APG Payment System

    Ancillary Packaging

    Discounting


    Conclusions

    Organization of APG Definitions Manual

    Identifying Medical Visits

  



 
APG Acknowledgements
This report was prepared with the support of the Health Care Financing Administration, 
  Office of Research and Demonstrations, under cooperative agreement No. 17-C-90057/5-01 
  to 3M Health Information Systems. The opinions expressed are solely those of 
  the authors, and do not necessarily represent those of the Health Care Financing 
  Administration.

Physician's Current Procedural Terminology, Fourth Edition, Copyright 1988 
  by the American Medical Association ("CPT-4") is a listing of descriptive terms 
  and numeric identifying codes and modifiers for reporting medical services and 
  procedures performed by physicians. The Ambulatory Patient Groups defined in 
  this Definitions Manual make use of CPT-4 codes and other material contained 
  in CPT-4 which are copyrighted by the American Medical Association.
Richard F. Averill, M.S., Principal Investigator
Norbert I. Goldfield, M.D., Medical Director
Laurence W. Gregg, B.S.
Thelma Grant, R.R.A.
Project Consultants:
Robert L. Mullin, M.D.
Gerard M. Doherty, M.D.
Donn G. Duncan, M.D.

Barbara A. Steinbeck, A.R.T.
The development of version 2.0 of the APGs was performed in collaboration with 
  the Health Care Financing Administration (HCFA). The staff of HCFA provided 
  ongoing review and evaluation of the APGs: Mark Wynn (Team Leader), Joseph Cramer 
  (Project Officer), Vivian Braxton, Patricia Brooks, William Goeller, Michael 
  Hupfer, Mel Ingber, Barton McCann, Janet Wellham, Mark Krause, Carolyn Mullen, 
  Katherine Ahem, James Matthews, and Marc Stone. Data analysis support for the 
  project was provided by Boris Shafir and Enes Elia. The software used to produce 
  the APG Definitions Manual was developed by Keith Boucher and Steve Siperas. 
  Assistance in the design and production of the APG Definitions Manual was provided 
  by Linda Zukauskas, Marilyn Marino, and Brian Kenney.
Introduction
In the Omnibus Budget Reconciliation Act (OBRA) of 1986, Congress directed 
  the Health Care Financing Administration to develop a Prospective Payment System 
  (PPS) for the facility cost of hospital based outpatient care. The Act called 
  for the design and modeling of a PPS for all hospital outpatient services (e.g., 
  same day surgery units, emergency rooms, outpatient clinics, etc.). The facility 
  cost refers to the hospital cost for providing care (e.g., room charges, medical 
  and surgical supplies, etc.) and excludes the physician's professional service.
In April of 1983, Congress enacted legislation to create the Medicare Inpatient 
  Prospective Payment System. The unit of payment for the inpatient system was 
  established as the discharge. Hospital casemix was quantified using the Diagnosis 
  Related Group (DRG) patient classification scheme. Predetermined payment rates 
  were established for patients in each DRG. The DRG payment rates were developed 
  on a base year actual cost, and were trended forward by a hospital market basket 
  price index.
The basic unit of payment for outpatients is a visit. A visit represents a 
  contact between the patient and a health care professional. The visit could 
  be for a procedure, for a medical evaluation or simply for an ancillary service 
  such as a chest x-ray. For each type of visit a prospective price could be established 
  that includes all the routine services (e.g., blood tests, chest x-rays, etc.) 
  associated with the visit. Since the cost of the routine services rendered during 
  a visit is included in the payment for the visit, hospitals would have the financial 
  incentive to control the amount of services rendered.


 

Characteristics of an Ambulatory Patient Classification System
In order to have a visit based outpatient prospective payment system, it is 
  necessary to develop a patient classification system. An outpatient classification 
  system would serve the same function as the DRGs in the inpatient PPS. The patient 
  classification system provides the basic product definition for the outpatient 
  setting and will have important secondary effects. For example, the DRGs have 
  brought about fundamental changes in management, communications, cost accounting 
  and planning within hospitals. These changes have resulted in improved efficiency 
  in the delivery of inpatient care. The benefits to hospital management that 
  resulted from the adoption of the DRGs would similarly be expected to occur 
  in the outpatient setting. Thus, the selection of an appropriate patient classification 
  system is critical to the success of an outpatient prospective payment system 
  and the achievement of the associated secondary benefits. An ambulatory patient 
  classification system should have the following characteristics.
Comprehensive
The patient classification system must be able to describe every type of patient 
  seen in an outpatient setting. This includes medical patients, patients with 
  a procedure and patients who receive ancillary services only.
Administrative Simplicity
The patient classification system should be administratively straightforward 
  to implement. The number of patient classes should be kept to a reasonable number. 
  A patient classification system containing relatively few patient classes (e.g., 
  fewer than the number of DRGs) will be more easily understood by providers and 
  will ease the administrative burden on both facilities and payors. In addition, 
  the data used to define the patient classes should be compatible with existing 
  billing, data collection, coding, storage and processing practices. Such compatibility 
  will decrease implementation costs, data errors and other administrative problems.
Homogeneous Resource Use
The amount and type of resources (e.g., operating room time, medical surgical 
  supplies, etc.) used to treat patients in each patient class should be homogeneous. 
  If resources used varied widely within a patient class, it would be difficult 
  to develop equitable payment rates. If a facility treated a disproportionate 
  share of either the expensive or inexpensive cases within a patient class then 
  the aggregate payments to that facility might not be appropriate. Further, the 
  facility might be encouraged to treat only the less costly patients within the 
  patient class causing a potential access problem for the complex cases. Thus, 
  a homogeneous pattern of resource use is a critical characteristic of any patient 
  classification system used in a prospective payment system.
Clinically Meaningful

The definition of each patient class should be clinically meaningful. For example, 
  a patient class involving a procedure should, in general, contain only procedures 
  on the same body system, of the same degree of extensiveness and utilizing the 
  same method (e.g., surgical, endoscopic, percutaneous, etc.). The underlying 
  assumption in a prospective payment system is that hospitals will respond to 
  the financial incentives in the system and become more efficient. Clinical meaningfulness 
  is critical since in order to respond effectively, hospitals must communicate 
  the incentives to their medical staffs. A clinically meaningful patient classification 
  system will be more readily accepted by provider's and will be more useful as 
  a communications and management tool.
Minimal Opportunities for Upcoding
In the patient classification system, there should be minimal opportunities 
  for providers to assign a patient to a higher paying class through upcoding. 
  A patient classification system with many classes that are based on subtle distinctions 
  would tend to be highly susceptible to upcoding. In general, the patient classes 
  should be as broad and inclusive as possible without sacrificing resource homogeneity 
  or clinical meaningfulness. In addition, there should be minimal opportunities 
  for increasing payment by separately reporting the constituent parts of a procedure.
Flexibility 
In a visit based payment system, there are a wide array of options in terms 
  of which ancillary services should be included in the visit payment. The extent 
  to which ancillary services are included in the visit payment is a policy decision. 
  The patient classification system must be flexible enough to accommodate the 
  full range of options for incorporating ancillary services into the visit payment. 
  In addition, the patient classification system should be structured to allow 
  changes in technology and practice patterns to be easily incorporated. The patient 
  classification system should provide a flexible framework that can adapt to 
  such change without requiring a major restructuring of the classification system.
Due to the fundamental role that the patient classification system plays in 
  a prospective payment system, it is essential that the patient classification 
  system possess substantially all of the above characteristics. The Ambulatory 
  Patient Groups (APGs) were designed specifically for use as the basis of payment 
  in an ambulatory prospective payment system and possess all of the above characteristics.


 

Overview of APGs
APGs are a patient classification system designed to explain the amount and 
  type of resources used in an ambulatory visit. Patients in each APG have similar 
  clinical characteristic and similar resource use and cost. Similar resource 
  use means that the resources used are relatively constant across the patients 
  within each APG. However, some variation in resource use will remain among the 
  patients in each APG. In other words, the definition of the APG will not be 
  so specific that every patient is identical, but the level of variation in resource 
  use is known and predictable. Thus, while the precise resource use of a particular 
  patient cannot be predicted by knowing the APG of the patient, the average pattern 
  of resource use of a group of patients in an APG can be accurately predicted.
Patients in each APG also have similar clinical characteristics. Similar clinical 
  characteristics mean that the patient characteristics included in the definition 
  of the APG should relate to a common organ system or etiology and that a specific 
  medical specialty should typically provide care to the patient in the APG. In 
  addition, all available patient characteristics which medically would be expected 
  to consistently affect resource use should be included in the definition of 
  the APGs. For example, patients with a chronic stomach ulcer may or may not 
  be hemorrhaging. Although these patients are the same from organ system, etiology 
  and medical specialist perspectives, the APGs will assign these patients to 
  different patient classes, since the presence of hemorrhage would be expected 
  to consistently increase the resource use of chronic stomach ulcer patients. 
  On the other hand, sets of unrelated surgical procedures would not be used to 
  define an APG since there is no medical rationale to substantiate that resource 
  use would be expected to be similar.
The definition of similar clinical characteristics is, of course, dependent 
  on the goal of the classification system. For APGs, the definition of clinical 
  similarity relates to the medical rationale for differences in resource use. 
  If, on the other hand, the classification goal was related to patient prognosis, 
  then the definition of patient characteristics which were clinically similar 
  might be different. The requirement that APGs be clinically homogeneous caused 
  more patient classes to be formed than would be necessary for explaining resource 
  use alone. For example, patients with a D&C or a simple hemorrhoid procedure 
  are quite similar in terms of most measures of resource use. However, different 
  organ systems and different medical specialties are involved. Thus, the requirement 
  that APGs have similar clinical characteristics precludes the possibility of 
  these types of patients being in the same APG. 
APGs were developed to encompass the full range of ambulatory settings including 
  same day surgery units, hospital emergency rooms, and outpatient clinics. APGs, 
  however, do not address phone contacts, home visits, nursing home services or 
  inpatient services. While the anticipated initial application of APGs focuses 
  on Medicare patents, APGs were developed to represent ambulatory patients across 
  the entire patient population. For example, APGs relating to pregnancy were 
  developed even though pregnancy is not usually encountered in the Medicare population.
APGs were developed to differentiate facility costs and not professional costs. 
  However, professional costs relate primarily to professional time and, therefore, 
  directly relate to facility time. Professional time can serve as a proxy for 
  the amount of time a patient used the resources of the facility. During the 
  development of APGs, facility costs such as supplies and equipment as well as 
  professional time were taken into consideration. 
The data elements used to define APGs were limited to the information routinely 
  collected on the Medicare claim form and consist of the diagnoses coded in ICD-9-CM 
  and procedures coded in CPT. The patient characteristics used in the definition 
  of the APGs were restricted to those readily available in order to insure that 
  the APGs could be readily implemented.



 
Selection of the Initial Classification Variable
The first step in developing a patient classification system is to choose the 
  initial classification variable. In the DRGS, the principal diagnosis is used 
  to classify patients into a set of mutually exclusive Major Diagnostic Categories 
  (MDCs). Within each MDC, procedure, age and complication and comorbidites are 
  used to complete the DRG classification system. APGs use procedure instead of 
  diagnosis as the initial classification variable. The decision to use procedure 
  as the initial classification variable was based on the following considerations:

  
When a significant procedure is performed in an ambulatory setting, it is 
    normally the reason for the visit. The procedure will normally be scheduled 
    in advance and will consume the vast majority of resources associated with 
    the visit. 
  
With procedure as the initial classification variable, each procedure will 
    be assigned to only one APG. With principal diagnosis as the initial classification 
    variable, the same procedure could be assigned to many different APGs depending 
    on the MDC of the principal diagnosis. Having each procedure in only one APG 
    also reduces the number of APGs and simplifies the establishment of prospective 
    prices. 
  
There are several Relative Value Unit (RVU) scales available for CPT procedures. 
    With procedure as the primary classification variable, the RVU scales can 
    be used directly in the formation of the initial procedure classes. 

Once the decision to use procedure as the initial classification variable was 
  made, it was then necessary to partition all procedures into a set of mutually 
  exclusive and exhaustive procedure groups. The first step in the process was 
  to identify all procedures which could be done only on an inpatient basis. An 
  inpatient procedure was defined as a procedure which requires at least 24 hours 
  of post operative recovery time or monitoring before a patient can be safely 
  discharged. Some procedures, such as craniotomies, are clearly inpatient procedures. 
  However, there are other procedures such as the treatment of an open fracture 
  which would normally be done on an inpatient basis but could sometimes be done 
  on an ambulatory basis. Further, patients with the same CPT procedure code can 
  have a great deal of variation in the complexity of the procedure performed. 
  For example, the treatment of an open humeral fracture can vary considerably 
  in complexity.
Only the simplest cases of procedures normally done on an inpatient basis are 
  done on an ambulatory basis. Thus, an open humeral fracture treated on an ambulatory 
  basis will have minimal bone displacement and tissue damage. Such procedures 
  are included in the APG procedure classification. When grouping procedures together 
  to form homogeneous procedure subclasses, it is important to recognize the variation 
  within a CPT code and that only the simplest cases of complex procedures are 
  treated on an ambulatory basis.
The procedures which could be performed on an ambulatory basis were then assigned 
  to one of the following three classes:

Significant Procedure or Therapy
A significant procedure or therapy is a procedure which is normally scheduled, 
  constitutes the reason for the visit and dominates the time and resources expended 
  during the visit. An example of a significant procedure is the excision of a 
  skin lesion. Also included in significant procedures are significant therapies 
  such as physical therapy and significant tests such as a stress test.
Ancillary Tests and Procedures
An ancillary test is a procedure which is ordered by the primary physician 
  to assist in patient diagnosis or treatment. Radiology, laboratory and pathology 
  constitute ancillary tests. An ancillary procedure is a procedure that does 
  increase the time and resources expended during a visit, but does not dominate 
  the time and resources expended during the visit. Examples of ancillary procedures 
  are immunizations, and an insertion of an IUD. The term ancillary services is 
  used to refer to both ancillary tests and ancillary procedures.
Incidental Procedure
An incidental procedure is an integral part of a medical visit and is usually 
  associated with professional services.
Only patients with a significant procedure are assigned to significant procedure 
  APGs. All medical services provided to the patient are assumed to be an integral 
  part of the procedure. Patients with no significant ambulatory procedures but 
  with only incidental and ancillary procedures are assigned to medical APGs. 
  The tree diagram in Figure 1 illustrates the initial APG partition based on 
  the presence of a significant procedure. For example, if a patient has a skin 
  lesion and has a skin excision performed, the patient will be assigned to a 
  significant procedure APG based on the CPT code that describes the precise procedure. 
  Conversely, if a patient has a skin lesion but does not have a procedure performed, 
  then the patient will be assigned to a medical APG based on the ICD-9-CM diagnosis 
  code.



 
Development of Significant Procedure APGs
Significant ambulatory procedures are subdivided into groups of CPT codes based 
  on the body systems shown in Table 1. Body systems were formed as the first 
  step toward ensuring that the procedures in each APG were clinically similar. 
  The significant procedures in each body system generally correspond to a single 
  organ system and are associated with a particular medical specialty. The body 
  systems used in the procedure APGs are similar to the MDCs in the DRGs. However, 
  there are some significant differences. For example, the integumentary system 
  includes muscle, whereas muscle is in the musculoskeletal MDC. Muscle was included 
  in the integumentary body system since most procedures involving the fascia 
  (connective tissue) are clinically similar to dermal procedures and have similar 
  pattern of resource use. If fascia or muscle procedures were included within 
  the musculoskeletal body system then it would have been necessary to form separate 
  APGs for muscle procedures. Thus, the inclusion of muscle in the integumentary 
  body system reduced the overall number of APGs.
 Table 1 - Body Systems

  
Integumentary 
  
Musculoskeletal 
  
Respiratory 
  
Cardiovascular 
  
Hematology, Lymphatic and Endocrine 
  
Digestive 
  
Urinary 
  
Male Genital 
  
Female Genital 
  
Nervous 
  
Eye 
  
Facial, Ear, Nose, Mouth and Throat 


Some body systems had few procedures performed on an ambulatory basis. For 
  example, except for biopsies or excisions of the thyroid, there are no endocrine 
  procedures performed on an ambulatory basis. Thyroid procedures were included 
  with lymph node biopsies and excisions since they are clinically quite similar.
Once each significant procedure was assigned to a body system, the procedures 
  in each body system were subdivided into clinically similar classes. The variables 
  used to determine the subclassifications are found in Table 2. In general, method 
  was used as the primary classification variable. Different methods such as surgery, 
  endoscopy, manipulation, dilation, catheterization, laser and needle often require 
  different types of rooms, equipment and supplies as well as different amounts 
  of time. For example, procedures in the respiratory body system are initially 
  divided by method into endoscopic, needle or catheter and noninvasive test subgroups. 
  On the other hand, most male reproductive procedures are surgical and, therefore, 
  the male reproductive body system was initially subdivided on site and not method. 
  Surgical procedures were usually subdivided based on type (i.e., an incision, 
  excision, or repair). The time required to perform a procedure depends on the 
  type of procedure, with repairs generally taking the most time. Thus, surgical 
  skin procedures were divided into separateincision, excision and repair groups.
Table 2 - Variables in Subclassification of Procedures

   Variable            Example
   Site                Face, Hand, etc.
   Extent              Excision Size: 2 cm Versus 20 cm
   Purpose             Diagnostic or Therapeutic
   Type                Incision, Excision or Repair
   Method              Surgical, Endoscopic, etc.
   Device              Insertion or Removal
   Medical Specialty   Urology, Gynecology, etc.
   Complexity          Time Needed to Perform Procedure


Endoscopic procedures were often divided into separate classes depending on 
  purpose (i.e., diagnostic or therapeutic). Therapeutic endoscopic procedures 
  generally require more time. The extent of a procedure was often taken into 
  consideration. Thus, skin excisions of 2 cm and 20 cm are assigned different 
  APGs. 
Another aspect of extent is the complexity of the procedure. Complexity basically 
  refers to the amount of time normally required to perform a procedure. For example, 
  the excision of a pressure ulcer will generally require more time than the excision 
  of a skin lesion. Thus, the excision of the pressure ulcer was viewed as more 
  complex, and therefore, assigned to a different APG. Anatomical site (e.g., 
  face, hand, etc.) within a body system was used in order to ensure medical similarity 
  and was also used to implicitly reflect complexity (e.g., treatment of a closed 
  fracture of a finger is usually less complex than treatment of a closed fracture 
  of other sites).
If a procedure involved the insertion of a device (e.g., neurostimulator), 
  then a separate APG was formed in order to recognize the cost of the device. 
  Medical specialty was never explicitly used in the significant procedure APG 
  formation, but procedures normally done by different medical specialties were 
  usually put in different APGs.

During the formation of DRGs, charge data was, in general, found to reflect 
  the relative needs of patients. The number of bed days and ancillary services 
  consumed by patients depended on their needs. However, ambulatory charge data 
  is highly influenced by Relative Value Unit (RVU) scales. The RVU scales are 
  published and generally provide a relative measure of resource use, physician 
  time and cognitive effort. Thus, ambulatory charges for a procedure do not necessarily 
  reflect the actual needs or complexity of an individual patient but are based 
  on the established RVU for the procedure. Thus, statistical results from charge 
  data often simply reflect the established RVU scales. Although charge data was 
  used extensively in the APG development, it was necessary for the clinical team 
  to make judgments on whether observed charge differences across different procedures 
  reflect real differences in the resources required to perform the procedure 
  or the bias of the established RVU scales. 
For example, there are different CPT codes for excisions of benign and malignant 
  skin lesions. RVU and charge data implied that excisions of malignant skin lesions 
  of the same site and size used significantly more resources than benign skin 
  lesions. However, the histology of the lesion is usually not known at the time 
  of the procedure, but is established when a pathology report is returned. Further, 
  the excision of a malignant and benign skin lesion of the same site and size 
  are fundamentally the same procedure except that a wider margin is excised for 
  lesions which are suspected to be malignant. Thus, the significant procedure 
  APGs do not differentiate between malignant and benign skin excisions. In addition, 
  procedure APGs avoid assigning procedures to different APGs based on subtle 
  or easily gameable distinctions in the CPT codes. For example, deep and superficial 
  muscle biopsies are in the same APG because the distinction between deep and 
  superficial lacks a precise definition in the CPT coding system.
The process of forming the significant procedure APGs resulted in 139 significant 
  procedure APGs. A list of the significant procedure APGs is contained in Appendix 
  C.


 
Development of the Medical APGs
Medical APGs describe patients who receive medical treatment but do not have 
  a significant procedure performed during the visit. The fact that a patient 
  had a specific significant procedure performed provides a great deal of precise 
  information regarding the amount and type of resources typically used during 
  the visit. Patients without a significant procedure (i.e., medical patients) 
  can use a wide range of resources depending on the condition of the patient 
  at the time of the visit. Medical patients can be described using the diagnoses 
  of the patient coded in the International Classification of Diseases, 9th Revision, 
  Clinical Modification (ICD-9-CM). ICD-9-CM allows both specific diseases (e.g., 
  pneumonia) as well as signs, symptoms and findings (e.g., chest pain, melena, 
  elevated sedimentation rate, etc.) to be coded. The term diagnosis will be used 
  to refer generically to diseases, signs, symptoms and findings. The standard 
  Medicare claims form and the ICD-9-CM ambulatory coding guidelines require that 
  the diagnosis that was the primary reason for the visit be indicated. Further, 
  any additional diagnoses that are present may be listed on the claim as secondary 
  diagnoses. The primary variable used to form the medical APGs was the diagnosis 
  coded as the reason for the visit.
There are several ICD-9-CM coding conventions that influenced the use of the 
  ICD-9-CM diagnosis code in forming the medical APGs:


  
Diagnoses are coded to the highest degree of certainty known at the time 
    of the visit. Thus, if a disease is suspected but not established, then the 
    disease is not coded. Instead, the most specific sign, symptom or finding 
    (SSF) that is present is coded. 
  
SSFs that are an integral part of an established disease are not coded as 
    secondary diagnoses (e.g., nausea with gastroenteritis). 
  
SSFs that are not routinely associated with an established disease may be 
    coded as additional diagnoses (e.g., hemiparesis with a stroke). 
  
Acute diseases are coded until there is no evidence of disease (e.g., pneumonia 
    is coded at every visit until there is no longer any evidence of the presence 
    of pneumonia). 
  
Chronic diseases treated on an ongoing basis are coded as many times as 
    the patient received treatment for the disease. 

The rules for coding SSFs are especially important since the treatment of a 
  medical patient is often highly influenced by the SSFs present at the time of 
  the visit. In general, the coding of a disease simply indicates that the disease 
  was present but gives no indication of how extensive or severe the disease was 
  at the time of the visit. The coding of the nonroutine SSFs in addition to the 
  underlying disease provides some indication of the extensiveness of the disease. 
  The use of nonroutine SSFs in the definition of the medical APGs was very limited 
  because of limitations in the ICD-9-CM codes for SSFs:

  
Many of the ICD-9-CM codes for SSFs are not precise. For example, abdominal 
    rigidity (7894) has no precise clinical significance. In contrast, abdominal 
    rebound would have precise clinical significance but there is no code for 
    abdominal rebound in ICD-9-CM. 
  
There are a large number of SSF codes that refer to abnormal laboratory 
    results that are imprecise. For example, a diagnosis of hypokalemia does not 
    convey useful information since the range of potassium levels associated with 
    hypokalemia can vary significantly in terms of clinical significance. 

In addition to the imprecision of many of the SSF codes, the use of SSFs as 
  a primary variable in the medical APGs could create opportunities for upcoding. 
  If the APGs defined based on SSFs had a high payment weight then there would 
  be a financial motivation to code the SSFs instead of the underlying disease. 
  The fact that only nonroutine SSFs are coded also limited the applicability 
  of SSFs in the definition of the medical APGs. As a result of the above problems 
  associated with SSFs, the SSFs used in the definition of the medical APGs were 
  restricted to SSFs with the following characteristics:


  
SSFs with a relatively precise clinical meaning 
  
 SSFs that were significant enough not to be a routine part of most diseases 
  
 SSFs that were significant enough to tend to dominate the resources used 
    during the visit. Thus, upcoding would not be an issue since assignment to 
    the SSF APG would be appropriate irrespective of the underlying disease. 

Thus, a single major SSF APG for medical patients was formed. Examples of SSFs 
  included in the major SSF APG are meningismus and coma. In addition to the SSF 
  codes, there were also ICD-9-CM codes included in the major SSF APG that specify 
  both the underlying disease and the SSF (e.g., diabetic ketoacidosis). A patient 
  is assigned to the major SSF APG whether the major SSF is coded as the reason 
  for the visit or as a secondary diagnosis. The major SSF APG identifies the 
  medical patients with extensive diseases who require significant amounts of 
  resources. Patients who have non-major SSFs coded as the reason for the visit, 
  are assigned to the medical APG which is usually associated with the SSF (e.g., 
  nausea is assigned to the GI APG). The process of forming the medical APGs begins 
  with the identification of patients who had a major SSF.
The classification variables considered in the formation of the medical classes 
  are shown in Table 3.
Table 3 - Medical Classes Classification Variables
Variable - Example 

  
Etiology - Trauma, Malignancy, etc. 
  
Body System - Respiratory, Digestive, etc. 
  
Type of Disease - Acute or Chronic 
  
Medical Specialty - Dental, Gynecology, etc. 
  
Patient Age - Pediatric, Adult, etc. 
  
Patient Type - New or Old 
  
Complexity - Time Needed to Treat the Patient 


The initial variable used to form the medical APGs was the etiology of the 
  diagnosis that was the reason for the visit. The etiology subgroups are shown 
  in Table 4.
 Table 4 - Etiologies

  
Well Care and Administrative 
  
Malignancy 
  
Trauma 
  
Poisoning 
  
Pregnancy 
  
Neonate 
  
Other Etiology 

As a first step in the formulation of the medical APGs each ICD-9-CM diagnosis 
  code was assigned to one of the etiology subgroups. Malignancies and trauma 
  were assigned to separate subgroups since they had unique resources associated 
  with the care provided (e.g., frequent radiology and laboratory services). The 
  other etiology group encompasses a broad spectrum of diseases from acute infectious 
  diseases to chronic diseases such as hypertension. The other etiology group 
  was then divided into subgroups based on the body system of the diagnosis that 
  was the reason for the visit. The body systems are shown in Table 5. Once all 
  the subclasses based on the etiology and the body system were formed, then the 
  other classification variables in Table 3 were used to further subdivide each 
  etiology and body system.

Whether a diagnosis was acute or chronic was not explicitly used in the formation 
  of the medical APGs. There are medical APGs which contain only diagnoses that 
  are acute or chronic, but a medical APG was never formed for the explicit purpose 
  of identifying acute or chronic diseases. Medical specialty was never explicitly 
  used in the medical APG formation, but diseases normally treated by different 
  medical specialties were usually put in different APGs. Age was not used in 
  the definition of the APGs.
Table 5 - Body Systems

  
Nervous Diseases 
  
Eye Diseases 
  
Ear, Nose, Throat and Mouth Diseases 
  
Respiratory Diseases 
  
Cardiovascular Diseases 
  
Digestive Diseases 
  
Musculoskeletal Diseases 
  
Skin and Breast Diseases 
  
Endocrine, Nutritional and Metabolic Diseases 
  
Kidney and Urinary Tract Diseases 
  
Male Genital System Diseases 
  
Female Genital System Diseases 
  
Immunologic and Hematologic Diseases 
  
Infectious Diseases 


Whether a patient was a new patient or an old patient was considered as a possible 
  variable in the formation of the medical APGs. However, the new patient old 
  patient distinction was not used for the following reasons:

  
There is difficulty in establishing a precise definition of a new patient. 
    New can refer to either the physician or the facility. Thus, a patient may 
    be considered new only the first time the patient is treated as an outpatient 
    at the hospital. Alternatively, the patient may be considered new for each 
    visit in which the patient is treated by a different physician. From a resource 
    use perspective, the presence of new diagnoses or problems is just as important 
    as whether the patient is new to the facility or physician. The only definition 
    of new that would not be prone to upcoding would be new to the facility. 
  
The impact on resources of whether a patient was a new patient would be 
    expected to vary by staffing. For emergency room and same day surgery units, 
    the fact that the patient was new would be expected to have little impact 
    on resource use. For an outpatient clinic a new patient would be expected 
    to tend to utilize more resources. 
  
The designation of whether a patient was a new or old patient is not present 
    on the current Medicare UB-92 claim form. Thus, a change in reporting requirements 
    would be necessary. 

Patient complexity basically refers to the amount of time normally required 
  to treat a patient. In a visit based payment system, visit time is an important 
  determinant of facility fixed cost since it directly affects both the number 
  of visits that can be provided and the amount of overhead c2IOosts that can 
  be allocated to each visit. To illustrate this point, consider the example in 
  which there are two hospital outpatient departments (OPDs), one which treats 
  only patients of type A and one which treats only patients of type B. Type A 
  patients have an average visit time of 30 minutes and type B patients have an 
  average visit time of 15 minutes. Suppose further, that the basic facility costs 
  (e.g., square footage, type of room, support staff, supplies, equipment and 
  other overhead costs) necessary to treat type A and type B patients are identical. 
  Thus, the only difference in the treatment of these two kinds of patients is 
  the visit time. Suppose the annual facility cost is the same at each hospital 
  and is $1,000,000 per year. Each OPD has two examining rooms and is run 10 hours 
  a day, 6 days a week and sees patients at full capacity. Thus, the OPD treating 
  type A patients is able to see 12,480 patients per year and the OPD treating 
  type B patients is able to see 24,960 patients per year. Thus, the facility 
  cost per visit for the OPD treating type A patients is $80.12 per visit, while 
  the facility cost per visit for the OPD treating type B patients is $40.06 per 
  visit. With the same annual cost, the type B patients have a shorter average 
  visit time and therefore, more patients can be seen. In forming the medical 
  APGs, visit time was considered an important factor in the determination of 
  resource use and the associated facility cost. Thus, separate medical APGs were 
  formed to recognize differences in visit time.
The final issue that was considered in the formation of the medical APGs was 
  the amount and type of ancillary services that would typically be provided to 
  a patient. Since the cost of some ancillary services will be included in the 
  base visit payment, patients with different profiles of ancillary service use 
  needed to be in different APGs. For example, suppose the cost of a simple blood 
  test is $20.00 and that cost of a simple blood test would be included in the 
  base visit payment. Further, assume that 90% of the patients of type A receive 
  a blood test and only 10% of the patients of type B receive a blood test. For 
  type A patients, $18.00 (i.e., 0.9 x $20) must be added to the visit cost in 
  order to allow an OPD to recover the cost of providing the blood tests, while 
  for type B patients only $2.00 (i.e., 0.1 x $20) must be added to the visit 
  cost. Thus, if the cost of ancillary services are included in the base visit 
  payment, then the amount and type of ancillaries used during a medical visit 
  must be taken into consideration when forming the medical APGs.
The process of forming the medical APGs resulted in 83 medical APGs. A list 
  of the medical APGs is contained in Appendix C.



 
Development of Ancillary Services APGs
Ancillary services refer to ancillary tests (i.e., laboratory, radiology and 
  pathology) and ancillary procedures (e.g., immunization, anesthesia, insertion 
  of an IUD, etc.). Ancillary APGs were formed for each type of ancillary service.
Laboratory APGs
The classification variables considered in the formation of the laboratory 
  APGs are shown in Table 6.
Table 6 - Laboratory Classification Variables
Classification Variable - Example

  
Laboratory Department or Type - Chemistry, Hematology 
  
Bodily Source of Specimen - Blood, Urine 
  
Complexity - Time, Skill Level and Equipment 


The laboratory department in which the laboratory test would typically be performed 
  was used as the primary variable in the formation of the laboratory APGs. Thus, 
  tests performed by the different laboratory departments (e.g., hematology, microbiology, 
  toxicology, etc.) were assigned to different APGs. Different methods of performing 
  the same test were placed in the same APG. A laboratory technician will typically 
  employ different methods depending on the precision of result which is needed. 
  However, different methods are also employed depending on the training of the 
  laboratory professional. For example, while there is a clear difference between 
  a fluorimetric versus chromatographic method in the determination of the calcium 
  level, there frequently are not precise indications on when to do one versus 
  the other. As a consequence, the different methods for performing the same test 
  were assigned to the same APG. The source of specimen (e.g., blood versus urine) 
  was sometimes used in order to account for the labor cost of collecting and 
  transporting the specimen. Finally, the same type of laboratory test was usually 
  differentiated based on the complexity of the test. Tests which required more 
  time, technicians with greater skill levels or expensive equipment were assigned 
  to different APGs. For example, multichannel chemistry tests were assigned to 
  a separate APG from other chemistry tests due to the cost of the equipment used 
  to perform a multichannel chemistry test. Laboratory tests which required no 
  equipment and would typically be performed during a visit (e.g., blood or urine 
  dipstick tests) were assigned to a single APG as a result of their very low 
  level of complexity. During the development of the laboratory APGs, physicians 
  who either headed or worked in hospital laboratory departments and technicians 
  who perform the test were consulted. In addition, the laboratory relative value 
  units developed by the American College of Pathology were utilized. There are 
  a total of 20 laboratory APGs.
Radiology APGs
The classification variables considered in the formation of the radiology APGs 
  are shown in Table 7.
Table 7 - Radiology Classification Variables
Classification Variable - Example

  
Type of Equipment - MRI, CAT 
  
Contrast Media - Used or Not Used 

The type of equipment (MRI, CAT, plain film, etc.) was the primary classification 
  variable for the radiology APGs since the cost of the radiology equipment varies 
  considerably across the different types of radiological procedures. Diagnostic 
  x-rays were distinguished based on whether a radio-opaque contrast media was 
  used since there are additional costs associated with the supply cost of the 
  contrast media and the injection of the contrast media. There are a total of 
  11 ancillary radiology APGs.

Pathology APGs
Pathology is divided into three APGs based on the complexity of the pathology 
  test. Pathology tests requiring more time or greater skill levels were assigned 
  to the complex pathology APG. PAP smears are a separate APG.
Anesthesia APG 
All of anesthesiology is assigned to a single APG. The CPT codes do not differentiate 
  between general and local anesthesia and it was therefore not possible to create 
  separate general and local anesthesia APGs. However, the procedures in each 
  significant procedure APG typically have the same type of anesthesia administered. 
  Thus, if the APG payment system included the cost of anesthesia in the payment 
  for a significant procedure the absence of a differentiation on the type of 
  anesthesia will not present a problem.
Ancillary Tests and Procedures
Other ancillary tests include tests such as cardiograms and pulmonary function 
  tests. Ancillary procedures are procedures that do not dominate the time and 
  resources expended during a visit, but do increase the time and resources expended 
  during a visit. Thus, ancillary procedures can be performed as part of a medical 
  visit and do increase the cost of the medical visit. Ancillary procedures include 
  procedures such as immunizations, introduction of needles and catheters, and 
  biofeedback. Immunizations are divided into three APGs based primarily on the 
  cost of the vaccine (e.g., rabies vaccination is considered a complex immunization). 
  There are a total of 16 ancillary test and procedure APGs.
Chemotherapy APGs
There are two significant procedure APGs for chemotherapy that are based on 
  the route of administration of the chemotherapy. These two significant procedure 
  APGs reflect the difference in supplies and the labor cost of monitoring the 
  administration of the chemotherapy drug. There is a second major cost component 
  associated with chemotherapy and that is the cost of the chemotherapy drug. 
  Chemotherapy drug costs can vary considerably and, therefore, five additional 
  chemotherapy APGs were formed to reflect the costs of chemotherapy drugs. Individual 
  chemotherapy drugs are assigned specific HCPCS codes. Thus, the payment for 
  a chemotherapy visit is composed of two APGs, one for the route of administration 
  and one for the chemotherapy drug.
Incidental APGs

There are two incidental APGs.
 421 Incidental to medical, significant procedure or therapy visit
 422 Medical visit indicator
APG 421 contains minor procedures such as range of motion measurements which 
  are integral to a medical, significant procedure or therapy visit. Evaluation 
  and management codes are APG codes used to describe a medical visit. APG 422 
  contains the evaluation and management codes that identify an ambulatory visit.


 
Error APGs

There are eight situations in which an APG number is assigned to indicate an 
  error or inconsistency was present. In these cases the APG does not result in 
  a payment but simply classifies the type of error. Invalid CPT codes are assigned 
  to APG 992. Any CPT code that represents an inpatient procedure (e.g., CPT code 
  61304 for craniotomy) is considered an error and assigned to APG 993. CPT codes 
  associated with autopsy services are assigned to APG 994. CPT codes associated 
  with other care setting (e.g., home healthcare) are assigned to APG 995. An 
  invalid ICD-9-CM code as the reason for visit is assigned to APG 996. An E code 
  as the reason for visit is assigned to APG 997. There are some ICD-9-CM codes 
  that indicate that a procedure was performed (e.g., ICD-9-CM code V252 sterilization). 
  If no procedure is recorded on the claim and the patient has as the reason for 
  the visit an ICD-9-CM code indicating a procedure, then the claim is considered 
  an error and assigned to APG 998. If there are no valid CPT codes on the claim, 
  then no APGs can be assigned and the claim is considered ungroupable and assigned 
  to APG 999.
Process of Forming the APGs
The process of forming the APGs required a balance between the number of APGs, 
  clinical consistency and homogeneity in charge and visit time. Clinical consistency 
  was required in order for any procedures or diagnoses to be grouped into an 
  APG. However, in general, an APG would not be formed solely on clinical grounds. 
  Verification of consistent differences in charges or visit time was required 
  in order to form an APG. In general, infrequent APGs were not formed unless 
  there was strong clinical justification and a large charge difference. For example, 
  pacemaker replacements are infrequent on an outpatient basis, but pacemaker 
  replacements do represent a very clinically distinct group of patients with 
  a very high cost. Thus, a pacemaker replacement APG was formed. The end result 
  of the process of forming the APGs is a clinically consistent group of patient 
  classes that are homogeneous in terms of resource use.


 
Overview of APG Assignment Logic
In the APGs, visits are categorized into one of three types: significant procedure 
  or therapy, medical or ancillary only. If a significant procedure or therapy 
  CPT is present, then one or more significant procedure APGs are assigned and 
  no medical visit APG is assigned. If ancillary tests or procedures are also 
  present then additional APGs are assigned for the ancillary tests or procedures. 
  If there is no significant procedure or therapy present, but an evaluation and 
  management CPT code indicating a medical visit (i.e., a CPT code from APG 422) 
  is present, then a medical APG is assigned based on the ICD-9-CM diagnosis codes. 
  If ancillary tests or procedures are also present, then additional APGs are 
  assigned for the ancillary tests or procedures. If there are no significant 
  procedures or therapies, no medical visit evaluation and management codes and 
  if there are ancillary tests or procedures present then only ancillary tests 
  or procedure APGs are assigned. If there are no significant procedures or therapies, 
  no medical visit evaluation and management code and no ancillary tests or procedures 
  present then the error APG 999 is assigned.



 
Summary of APG Development
The process of forming the APGs resulted in a total of 282 plus eight error 
  APGs. The APGs are composed of the different types shown in Table 8.
Table 8 Types of APGs
Significant Procedure and Therapy - 139

Medical - 83

Laboratory - 20

Radiology - 11

Pathology - 3


Anesthesia - 1

Ancillary Tests and Procedures - 16

Ancillary Mental Illness and Substance Abuse Svcs - 2

Incidental Procedures - 2

Chemotherapy Drugs - 5

Errors - 8 
 Total - 290 
 
A complete list of APGs is contained in Appendix C. Version 2.0 of the APGs 
  utilized the calendar year 1995 version of CPT and Fiscal Year 1995 version 
  of the ICD-9-CM diagnosis codes. Appendix B contains a list of CPT procedure 
  codes and the APG to which they are assigned. Appendix A contains a list of 
  ICD-9-CM diagnosis codes and the APGs to which they are assigned.
The APGs as currently constructed describe the complete range of services provided 
  in the outpatient setting. The APGs can form the basic building blocks for the 
  development of a visit based outpatient prospective payment system and can provide 
  a flexible structure for configuring the payment system to meet specific policy 
  objectives.



 
Overview of the APG Payment System
In the APG system a patient is described by a list of APGs that correspond 
  to each service provided to the patient. The assignment of multiple APGs to 
  a patient is in contrast to the DRGs which always assign a patient to a single 
  DRG. If a patient has multiple procedures then the DRGs use a procedure hierarchy 
  to select the most appropriate DRG. The DRG payment includes the cost of all 
  ancillary services provided to the patient. In the outpatient setting, the diversity 
  of sites of service (i.e., same day surgery units, ERs and outpatient clinics), 
  the wide variation in the reasons patients require outpatient care (e.g., well 
  care to critical trauma care) and the high percentage of cost associated with 
  ancillary services (i.e., the cost of ancillary services can often exceed the 
  cost of the base visit) necessitates a patient classification scheme that can 
  precisely reflect the services rendered to the patient. The APGs address the 
  diversity within the outpatient setting by assigning patients to multiple APGs. 
  For example, if a patient had two procedures performed plus a chest x-ray and 
  a blood test, then there would be four APGs assigned to the patient (i.e., one 
  APG for each procedure plus the APGs for the chest x-ray and the blood test). 
  In a prospective payment system, each APG would have a standard payment rate, 
  and the payment for a patient would be computed by summing the payment rates 
  across all the APGs assigned to the patient. However, in order to provide incentives 
  for cost control and to minimize opportunities for upcoding of APGs, not all 
  the APGs assigned to a patient are used in the computation of the payment. In 
  the APG system different services provided during the same visit may be grouped 
  into a single payment unit or discounted.
 Ancillary Packaging
 A patient with a significant procedure or a medical visit may have ancillary 
  services performed as part of the visit. Ancillary packaging refers to the inclusion 
  of certain ancillary services into the APG payment rate for a significant procedure 
  or medical visit. For example, a chest x-ray would be packaged into the payment 
  for a pneumonia visit. 
 Multiple Significant Procedure and Ancillary Discounting

 When multiple unrelated significant procedures are performed or when the same 
  ancillary service is performed multiple times, a discounting of the APG payment 
  rates is applied. Discounting refers to a reduction in the standard payment 
  rate for an APG. Discounting recognizes that the marginal cost of providing 
  a second procedure to a patient during a single visit is less than the cost 
  of providing the procedure by itself.
In general, a per visit prospective payment system has three components: the 
  patient classification scheme (i.e., APGs), an ancillary packaging process and 
  a payment computation.
As part of the APG payment model, ancillary packaging routines and discounting 
  strategies were developed.


 
Ancillary Packaging
In the context of a per visit payment system, packaging refers to the inclusion 
  of certain ancillary services into the payment for the visit. The significant 
  procedure or medical visit combined with the packaged ancillary services would 
  be considered as a single unit for purposes of payment. In the case of ambulatory 
  surgery, for example, a packaged visit would combine the significant procedure 
  with the related ancillary services into a single payment amount. Packaging 
  is done to give providers the incentive to use the packaged ancillary services 
  efficiently.
Under Medicare's DRG-based prospective payment system for hospital inpatient 
  care, all ancillary services provided to a patient are packaged into the payment 
  for the DRG to which the patient is assigned. Due to the nature of outpatient 
  care, it is not clear that all services provided or ordered during a visit can 
  be packaged into one payment rate. Medicare's current payment system for ambulatory 
  care involves separate payments for ancillary services provided in conjunction 
  with a visit. Payments for laboratory services are based on a fee schedule, 
  while radiology services are reimbursed based on a blend of a hospital's reasonable 
  costs and a radiology fee schedule. This payment method is designed to contain 
  the cost per unit of service; however, it provides no incentive for provider's 
  to control the volume of services. Packaging ancillary services into the payment 
  rate for a visit provides that incentive by including the cost of the packaged 
  ancillaries in the payment for the visit.

Ancillary packaging will allow the Medicare program to make a single payment 
  for a well defined package of ambulatory services, thereby creating a consistent 
  definition of services across providers. Further, packaging facilitates comparisons 
  across providers and may encourage continuity of care by making providers financially 
  responsible for ancillary services. Consequently, the providers may be more 
  likely to incorporate the findings of tests into patient treatment plans. Finally, 
  packaging will give providers the incentive to improve their efficiency by avoiding 
  unnecessary ancillaries and by substituting less expensive but equally effective 
  ancillary services for more costly options.
There are also some potential difficulties in the packaging of ancillaries. 
  Packaging places providers at financial risk. If expensive ancillaries that 
  are not usually performed for a particular type of visit are included in the 
  packaged payment then the financial risk may be excessive. Since initially only 
  hospital outpatient departments will be paid on a prospective basis ancillary 
  packaging may encourage hospitals to set up freestanding clinic centers so that 
  they would not be covered under the PPS. This is more likely to occur if the 
  payment rates attached to the APGs do not adequately account for the cost of 
  the packaged services. In addition, although the Medicare's payment per visit 
  will be controlled by the packaging, there is no control over the number of 
  visits. Thus, there may be an incentive to increase the number of visits and 
  spread the costs of packaged ancillary services across the visits. However, 
  this incentive is not different than incentives under the current unpackaged 
  payment system. In addition, though a similar incentive was provided by the 
  DRG system, hospital admissions fell after the DRGs were enacted.
Despite any potential difficulties with the packaging of ancillaries, it is 
  clear that in a visit based payment system, some degree of ancillary packaging 
  must occur in order to introduce the incentive to use ancillary services efficiently. 
  If there were no packaging of ancillary services then the system would be similar 
  to Medicare's current payment method for outpatient care in that it involves 
  additional payments for each ancillary service. This approach is risk free for 
  providers and it encourages ancillary utilization and discourages comparisons 
  of cost across providers.
There are basically two alternative approaches to packaging: partial packaging 
  or all inclusive packaging. Under partial packaging, ancillary services that 
  are inexpensive or frequently provided, are packaged into the payment for the 
  significant procedure or medical visit. However, other ancillary services, particularly 
  those that are expensive or infrequently performed, are paid as separate ancillary 
  APGs. Partial packaging limits the providers' risk. Under an all inclusive packaging, 
  all services (including expensive ancillaries) that are provided during a visit 
  are packaged into the visit payment. Thus, under an all inclusive approach if 
  there were a $500 test that occurs on average once in one hundred visits, then 
  the packaged payment for each visit would include $5 for this test. The partial 
  packaging option was selected as the most appropriate option since it is feasible 
  and would not impose a high level of risk for hospitals.
Given that partial packaging would be utilized in the APG payment system, it 
  was then necessary to select the ancillary services that would be packaged into 
  a procedure or medical visit. There are two alternative approaches to selecting 
  the ancillaries to be packaged: clinical or uniform.
A clinical packaging approach would select the ancillaries to be packaged on 
  an APG specific basis. The ancillaries to be packaged would be selected primarily 
  on clinical grounds. Thus, only ancillaries that would clinically be expected 
  to be a routine part of the specific procedure or medical visit would be packaged. 
  The clinical approach has the benefit that the resulting package visit would 
  be clinically meaningful. Further, since only routine ancillaries would be packaged 
  into each APG the distribution of ancillary costs within the APG should be relatively 
  homogeneous.
The alternative to clinical packaging would be to develop a uniform list of 
  ancillaries that would always be packaged into every procedure or medical visit. 
  There are several advantages associated with a uniform packaging of ancillaries. 
  A uniform packaging is administratively simple. Once the uniform list of ancillaries 
  was developed, both the Medicare fiscal intermediaries and hospitals would know 
  with certainty that every ancillary of a particular type was always packaged. 
  Thus, the tracking of the exact ancillaries that were packaged would be straightforward. 
  Further, a uniform list of packaged ancillaries would be simple for hospitals 
  to explain to their, medical staff and thus, the incentive to efficiently utilize 
  the packaged ancillaries could be effectively communicated. A uniform list of 
  ancillaries would be less prone to manipulation by hospitals. With a clinical 
  packaging of ancillaries, procedure or medical visits would have different levels 
  of ancillaries packaged across the different APGs. Thus, there would be an incentive 
  to code the patient into the procedure or medical APG with the fewest packaged 
  ancillaries. This would present a particular problem for medical visits in which 
  multiple diagnoses were present. For medical visits with multiple diagnoses, 
  the ancillary tests may be performed for the secondary diagnoses. The uniform 
  packaging of ancillaries also removes the incentive to perform nonroutine tests. 
  Under a clinical packaging, low cost nonroutine tests would not be packaged 
  into the visit payment. This would provide a financial incentive for providers 
  to perform such nonroutine tests. A uniform packaging would include in the packaging 
  for each APG a wider army of ancillaries and thus, there would be less opportunity 
  for additional payments from nonroutine ancillaries. 
A uniform packaging of ancillaries was selected for use in the APG payment 
  model. An attempt to develop a clinical packaging of ancillaries proved difficult. 
  There were relatively few ancillaries that are truly routine for particular 
  APGs. Thus, the scope of the clinical packaging would have been fairly limited. 
  The administrative simplicity, the relative freedom from manipulation and the 
  wider scope of a uniform packaging of ancillaries led to its adoption.

The ancillary APGs included in the uniform packaging are contained in Table 
  9. The APGs included in the uniform packaging were primarily simple laboratory 
  tests (e.g., basic chemistry), simple pathology, anesthesia, simple radiology 
  (e.g., plain films), other minor tests (e.g., EKGs) and minor procedures and 
  therapies (e.g., simple pulmonary function tests). In general, the ancillaries 
  in the uniform packaging included ancillaries that are performed for a wide 
  range of different types of visits and were relatively low cost compared to 
  the average cost of the procedure and medical APGs. Only relatively low cost 
  ancillaries were included in the uniform packaging since if high cost ancillaries 
  were packaged into the visit payment, the patients who required such ancillaries 
  would cause a substantial financial loss for the hospital. Hospitals would have 
  a financial incentive to avoid treating those patients, causing a potential 
  access problem for Medicare beneficiaries. In addition to the ancillary APGs, 
  the cost of any incidental procedure APGs are always included in the payment 
  for a significant procedure or medical visit. The cost of medical surgical supplies, 
  drugs and all other facility related costs are included in the payment for a 
  significant procedure or medical visit. The only exception is the cost of chemotherapy 
  medication.


 
Discounting
In addition to ancillary packaging the visit payment computation could also 
  include discounting. Discounting refers to a reduction in the standard payment 
  rate for an APG. The need for discounting occurs when multiple procedures or 
  ancillaries are performed. For example, discounting could compensate for the 
  reduced cost per procedure of doing multiple significant procedures at the same 
  time. When multiple significant procedures are performed, in general, the patient 
  preparation, use of the operating room and recovery time is shared between the 
  two procedures. Thus, the cost of doing two procedures at the same time is less 
  than the cost of doing the two procedures at two different times. Discounting 
  can also be used to provide a financial incentive not to repeat the same ancillary 
  service multiple times. Each nonpackaged ancillary in the same APG will result 
  in an additional payment. However, in order to provide some financial incentive 
  not to repeat ancillary tests, multiple ancillaries in the same APG could be 
  discounted. The level of any discounting is a policy decision and would be determined 
  during system implementation.
Table 9 - Ancillary APGs included in uniform packaging

  
310 - Plain Film 
  
321 - Anesthesia 
  
332 - Simple Pathology 
  
343 - Simple Immunology Tests 
  
345 - Simple Microbiology Tests 
  
347 - Simple Endocrinology Tests 
  
349 - Simple Chemistry Tests 
  
350 - Basic Chemistry Tests 
  
351 - Multichannel Chemistry Tests 
  
356 - Simple Clotting Tests 
  
358 - Simple Hematology Tests 
  
359 - Urinalysis 
  
360 - Blood and Urine Dipstick Tests 
  
371 - Simple Pulmonary function Tests 
  
373 - Cardiogram 
  
383 - Introduction of Needle and Catheter 
  
384 - Dressing and other Minor Procedures 
  
385 - Other Miscellaneous Ancillary Procedures 
  
386 - Biofeedback and Other Training 
  
411 - Psychotropic Medication Management 




 
Conclusions
Figure 5 provides an overview of the APG payment model. A visit based APG prospective 
  payment system with uniform ancillary packaging and multiple APG discounting 
  can provide an effective system for the payment of the facility component of 
  hospital based outpatient care. The structure of the APG payment model provides 
  considerable flexibility. The level of ancillary packaging and discounting can 
  be altered in order to change the incentives in the system and achieve specific 
  policy objectives.
The APGs form a manageable, clinically meaningful set of patient classes that 
  relate the attributes of patients to the resource demands and associated costs 
  experienced by a hospital outpatient department. Like the DRGs, the APGs will 
  evolve over time. As coding rules change, as more accurate and comprehensive 
  data is collected, or as medical technology or practice changes, the APG definitions 
  can be modified to reflect these changes. Together the APG patient classification 
  and the APG payment model constitute a flexible framework for establishing an 
  outpatient prospective payment system.


 

Organization of APG Definitions Manual
Each of the APGs is defined by a particular set of patient attributes which 
  include the diagnosis that was the reason for the encounter, specific secondary 
  diagnoses, and procedures. The purpose of the APG Definitions Manual is to specify 
  the patient attributes that define each APG. In order to provide a specification 
  of each APG, a tree diagram depicting the APG structure is provided, as well 
  as a detailed description of patient attributes which define each APG. The tree 
  diagrams describing the APG structure utilize several symbols to describe the 
  different types of decision made when determining APG assignment. Within each 
  tree diagram symbol, text will appear indicating the precise decision being 
  made.
 A diamond indicates that a decision is being made on a single variable as 
  opposed to a search of several variables. This symbol is used when the decision 
  variable in the APG structure is reason for the encounter.
 A circle indicates a decision is being made by searching the reason for the 
  encounter as well as all listed secondary diagnoses to determine if a major 
  sign, symptom, or finding is present.
 A square indicates that APG assignment has been completed.
 A pointer indicates that the tree diagram structure is continued on another 
  page.
The description of the patient attributes which define each APG begins with 
  a one line description of the following APG. This description includes the APG 
  number and a brief description of the APG. Following the APG description is 
  a series of headings which indicate the patient characteristics used to define 
  the APG. These headings indicate how the patient's diagnoses and procedures 
  are used in determining APG assignment. Following each heading is a complete 
  list of all the ICD-9-CM diagnosis or HCPCS/CPT procedure codes which are included 
  in the APG. The following headings appear in the APG definitions:

Reason for Encounter Diagnosis
 Indicates that a specific set of diagnoses are used in the definitions of 
  the APG.
CPT Procedures
 Indicates that a specific set of procedures are used in the definition of 
  the APG.


 
Identifying Medical visits

There are three different types of patients:
 * Patients with a significant procedure or therapy
 * Patients with no significant procedure or therapy but with a medical visit
 * Patients with neither a significant procedure or therapy nor a medical visit 
  who received ancillary services only
In order to differentiate patients who have a medical visit from patients who 
  have only ancillary services, it is necessary to specify explicitly that a medical 
  visit occurred. A medical visit is identified by the presence of a CPT code 
  from APG 422. The APG software requires that a CPT code from APG 422 be present 
  in addition to the diagnosis code in order for a medical APG to be assigned 
  to a claim.