Jordan Ellis
APC, or Ambulatory Payment Classifications, is the United States government's method of paying for facility outpatient services for the Medicare program. 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 to hospitals when a Medicare outpatient is discharged from the Emergency Department or clinic or is transferred to another hospital. APCs are calculated by multiplying an annually updated relative weight for a given service by an annually updated Conversion Factor.
| Characteristics | Values |
|---|---|
| Full Form | APC stands for Ambulatory Payment Classifications |
| Use | APCs are the United States government's method of paying for facility outpatient services for the Medicare program |
| Applicability | APCs are applicable only to hospitals and have no impact on physician payments under the Medicare Physician Fee Schedule |
| Payment | APC payments are made only to hospitals when the Medicare outpatient is discharged from the Emergency Department or clinic or is transferred to another hospital (or other facility) which is not affiliated with the initial hospital where the patient received outpatient services |
| Calculation | APC payments are determined by multiplying an annually updated "relative weight" for a given service by an annually updated "Conversion Factor." |
| Adjustments | APC payments are modified according to adjustments for "Local Wage Indices." 60% of the APC payment is adjusted according to specific geographic locality. |
| Coding Requirements | APC coding requires that procedural information, as coded and reported by the hospital on its claim, match both the attending physician description and the information contained in the beneficiary's medical record |
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What You'll Learn
APCs are an outpatient prospective payment system
APCs, or Ambulatory Payment Classifications, are the United States government's method of paying for facility outpatient services for the Medicare program. APCs are an outpatient prospective payment system applicable only to hospitals and have no impact on physician payments under the Medicare Physician Fee Schedule. APCs were established as part of the Federal Balanced Budget Act of 1997, which required the Centers for Medicare and Medicaid Services (CMS) to create a new Medicare "Outpatient Prospective Payment System" (OPPS) for hospital outpatient services. This system is analogous to the Medicare prospective payment system for hospital inpatients, known as Diagnosis-related groups or DRGs.
APCs enable payments based on individual services or procedures rather than the entire visit. Each APC comprises services similar in clinical intensity, resource utilization, and cost. The 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. For example, to calculate the APC payment for APC 5051 (which includes I & D of simple abscess—CPT 10060), you would multiply the relative weight of 2.1851 by the conversion factor of $87.382, resulting in a payment of $190.94 for APC 5051 for 2024.
APCs are used to standardize payments for specific categories of services, such as minor procedures or chronic disease follow-ups. For instance, APC 5072 covers Level II Excision/Biopsy/Incision and Drainage procedures, and hospitals receive a standardized payment for this category, which typically includes the costs of the surgical room, supplies, and staff. Similarly, APC 5012 covers the entire cost of a patient's routine follow-up visit for a chronic condition, including the healthcare provider's time, basic diagnostic tests, and other services.
It's important to note that APC payments are made only when the Medicare outpatient is discharged from the Emergency Department (ED) or clinic or transferred to another hospital or facility not affiliated with the initial hospital. If the patient is admitted from a hospital clinic or ED, there is no APC payment, and Medicare will pay the hospital under the inpatient DRG methodology. Additionally, APC coding requires that procedural information, as coded and reported by the hospital, matches both the attending physician's description and the information in the beneficiary's medical record.
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APCs are applicable only to hospitals
APCs, or Ambulatory Payment Classifications, are a system of payment for outpatient services in hospitals. APCs are applicable only to hospitals and do not impact physician payments under the Medicare Physician Fee Schedule. APCs are a way to bundle payments for services and procedures provided to outpatients during their visit.
APCs were established by the United States government as part of the Federal Balanced Budget Act of 1997. This act required the creation of a new Medicare "Outpatient Prospective Payment System" (OPPS) for hospital outpatient services. The OPPS for hospital outpatient services is analogous to the Medicare prospective payment system for hospital inpatients, known as Diagnosis-related groups or DRGs.
APCs are determined by multiplying an annually updated "relative weight" for a given service by an annually updated "Conversion Factor." The relative weight of an APC is determined by the clinical intensity, resource utilization, and cost of the services provided. The Conversion Factor for 2024 is $87.382. For example, to calculate the APC payment for APC 5051 (which includes I & D of a simple abscess), you would multiply the relative weight of 2.1851 by the conversion factor of $87.382, resulting in a payment of $190.94.
APCs are modified according to adjustments for "Local Wage Indices." Since different areas of the country have different local wage scales, 60% of each APC payment is adjusted according to geographic locality. APCs also provide outlier payments to hospitals to help mitigate the financial risk associated with high-cost and complex procedures.
APCs are an important part of hospital medical coding and billing, helping to standardize payments for outpatient services and procedures.
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APCs have no impact on physician payments
APCs, or Ambulatory Payment Classifications, are the United States government's method of paying for facility outpatient services for the Medicare program. APCs are an outpatient prospective payment system applicable only to hospitals and have no impact on physician payments under the Medicare Physician Fee Schedule. APCs enable payments based on individual services or procedures rather than the entire visit.
APCs 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 (which includes I & D of simple abscess—CPT 10060), use the following formula: Relative Weight for APC 5051 = 2.1851 x Conversion Factor for 2024 ($87.382) = $190.94 payment for APC 5051 for 2024 (for the "average US hospital").
APCs are adjusted for "Local Wage Indices" as Medicare has determined that 60% of the APC payment is due to employee wage costs. As 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.
Physicians are reimbursed via other methodologies for payment in the United States, such as Current Procedural Terminology or CPTs. APC payments are made only to hospitals when the Medicare outpatient is discharged from the Emergency Department or clinic or is transferred to another hospital (or other facility) which is not affiliated with the initial hospital where the patient received outpatient services. If the patient is admitted from a hospital clinic or Emergency Department, then there is no APC payment, and Medicare will pay the hospital under the inpatient Diagnosis-related group DRG methodology.
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APCs are determined by multiplying an annually updated relative weight
APC, or Ambulatory Payment Classification, is the United States government's method of paying for facility outpatient services for the Medicare program. APCs are an outpatient prospective payment system applicable only to hospitals and have no impact on physician payments under the Medicare Physician Fee Schedule. APCs are determined by multiplying an annually updated relative weight for a given service by an annually updated conversion factor. This conversion factor is adjusted for geographic differences in input prices, with 60% of the APC payment being due to employee wage costs.
The APC payment rates for most separately payable medical and surgical services are determined by multiplying the prospectively established scaled relative weight for the service’s clinical APC by a conversion factor (CF) to arrive at a national unadjusted payment rate for the APC. The scaled relative weight for an APC measures the resource requirements of the service and is based on the geometric mean cost of services in that APC. The CF translates the scaled relative weights into dollar payment rates.
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) are grouped under a specific APC, resulting in an annually updated Medicare "prospective payment" for that particular APC. APCs are also used by state programs such as Medicaid and other third-party private health insurers.
The annual review of APCs and their relative weights considers other relevant information. The OPPS is a budget-neutral payment system in which the CF is also updated annually by the OPD Fee Schedule (FS) increase factor unless Congress stipulates otherwise. The OPD FS increase factor is calculated using the hospital market basket update. As required by the Affordable Care Act, the OPD FS increase factor is calculated by reducing the hospital market basket update by a multifactor productivity adjustment and an additional 0.5 percentage points.
The APC payment is modified according to adjustments for "Local Wage Indices." Since different areas of the country have widely divergent local wage scales, 60% of each APC payment is adjusted according to specific geographic locality. For example, the APC payment for heart rhythm pacing would include any additional service associated with the pacing in the payment for the pacing service.
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APCs enable payments based on individual services or procedures rather than the entire visit
APC stands for Ambulatory Payment Classifications, which are the United States government's method of paying for facility outpatient services for the Medicare program. APCs are an outpatient prospective payment system applicable only to hospitals and have no impact on physician payments under the Medicare Physician Fee Schedule.
APCs 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 annual updates to "relative weights" and the "conversion factor" in the November "Federal Register." For instance, to calculate the APC payment for APC 5051 (which includes I & D of a simple abscess): Relative Weight for APC 5051 = 2.1851, the Conversion Factor for 2024 = $87.382. Thus, the payment for APC 5051 in 2024 is $190.94 (Relative Weight 2.1851 x Conversion Factor $87.382).
Additionally, APCs are adjusted for "Local Wage Indices" since different areas of the country have varying local wage scales. For 2024, Medicare determined that 60% of the APC payment is attributed to employee wage costs, and thus, 60% of each APC payment is adjusted according to specific geographic locality.
APCs are identified using the Healthcare Common Procedure Coding System (HCPCS) codes on the hospital's UB-04 claim form. These codes are essential for billing and reimbursement purposes, ensuring that hospitals receive appropriate compensation for the services provided.
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Frequently asked questions
APC stands for Ambulatory Payment Classifications.
APCs are a method of paying for facility outpatient services for the Medicare program.
APCs enable payments based on individual services or procedures rather than the entire visit.
APC payments are determined by multiplying an annually updated "relative weight" for a given service by an annually updated "Conversion Factor."
APC 5072: Level II Excision/ Biopsy/ Incision and Drainage. Hospitals receive a standardized payment for this category of minor procedures, which typically includes the costs of the surgical room, supplies, and staff.
