Payment transformation

What is payment transformation?

With health care reform and insurance exchanges on the horizon, we have a unique opportunity to provide affordable care to a growing number of people through payment transformation.

Blue Cross is committed to payment transformation that will improve quality and outcomes, better coordinate care and control spending. As a result, we will be implementing new payment methodologies for all critical access and acute care hospitals and ambulatory surgery centers (ASCs) beginning in Fall 2012 and continuing in a phased approach.

What is the change?
Our new payment methodology will focus on reducing payment variation for similar services to allow for better payment predictability for both providers and payers. This new methodology will reimburse providers for the severity of illness and corresponding resources provided to patients for both inpatient and outpatient care. This change applies to both the commercial and Medicaid populations.

Learn more

Get the latest news and information

See FAQs

All-Patient Refined DRGs

All-Patient Refined DRGs (APR-DRGsTM) offer a more precise measurement with respect to hospital severity of illness adjustment than Medicare DRGs (CMS-DRGs) or All Patient DRGs (AP-DRGs). APR-DRGs expand the basic DRG structure by adding four (4) subclasses to each DRG which address patient differences relating to severity of illness (SOI) and risk of mortality (ROM). 

APR-DRGs address current deficiencies in CMS-DRG and AP-DRG methodology for:

  • Severity of illness
  • Patient age
  • Significant pediatric and adult conditions have separate APR-DRG assignments

Key highlights of APR-DRGs:

  • Eliminates the need for carve-out categories such as maternity and newborn not appropriately addressed in CMS-weighted CMS-DRGs.
  • Outlier payment is the differential between cost threshold and cost of the case, added to the base APR-DRG payment. A cost threshold is developed for each APR-DRG.

APR Training Document (PDF)

APR Webinar Training

Enhanced Ambulatory Patient Groups

Enhanced Ambulatory Patient Groups (EAPGsTM) is a visit-based patient classification system used to organize and pay for services with similar resource consumption across multiple settings. In contrast to Ambulatory Payment Classification (APCsTM) or Fee for Service (FFS) methodologies, which provide no incentive to increase value, EAPGs more appropriately reimburse for the significance of outpatient services.

  • Key highlights of EAPGs:
  • Constructed around one set of relative weights based upon costs. Relative weights reflect the average resource consumption for a specific EAPG and are applied to a base rate to determine service payments.
  • Consider patients with similar clinical characteristics.
  • Encompass approximately 95 percent of ambulatory care settings including ambulatory surgery centers (ASCs), hospital emergency departments and outpatient clinics.
  • Use administrative data readily available on claim forms in the classification logic.
  • Represent ambulatory patients across all demographics.

EAPG Training Document (PDF)

EAPG Webinar Training

Weighting overview

Relative weights are used in prospective and case-based payment systems to align reimbursement with the consumption of resources used by a particular group of patients. For example, Medicare’s method of payment for inpatient hospital services (prospective payment system-PPS) is based on categories of payment called “diagnosis related groups” (DRGs). Each DRG categorizes patients who are homogeneous in terms of clinical profiles and requisite resources. Thus, patients classified to the same group have similar diagnoses and treatments, consumption of resources, and lengths of stay. Each DRG has a payment rate called a “weight.” Weights are relative to one another. Higher weights are associated with groups in which patients require more resources for care and treatment. Higher resource consumption is related to higher intensity of services due to the severity of illness or the types of services needed for care and treatment, such as expensive equipment or medications. Higher weights translate into higher payments—thus the use of appropriate weights and the updating of these weights is critically important.

Weight Development Training Document (PDF)

Weight Development Webinar Training


Outpatient Weighting
Ambulatory prospective payment is a means of organizing services and payments in outpatient hospital settings and other ambulatory facilities (such as free standing surgical, dialysis, and diagnostic service centers). Similar to Diagnostic Related Groups (DRGs) used for inpatient payment, ambulatory prospective payment uses Enhanced Ambulatory Patient Groups (EAPGs) to provide a product definition for outpatient services inclusive of incidental and frequent ancillary services routinely provided with those services.

While a payer’s outpatient payment policies will determine the specifics of the EAPG payment structure, there is a process for constructing the payment system that includes establishing relative weights.

The following documents provide additional detail on the Outpatient Weighting process:

Refining Cost to Charge Ratios for Calculating APC and DRG Pay Weights (PDF)

Determining payment in an EAPG payment system (PDF)

Outpatient Expected Calculations (PDF)

Outpatient Benchmark Methodology (PDF)


Inpatient Weighting
Under inpatient prospective payment systems, each patient is assigned to a group that includes patients expected to have similar resource use and clinical patterns of care. Payment for an inpatient stay is based on a standard payment rate adjusted for the relative weight of a DRG or similar grouping methodology. These weights indicate the relative costs for treating patients during the prior year.
For the Medicare Inpatient Prospective Payment System (IPPS), the national average charge for each DRG is compared to the overall average. This ratio is published annually in the Federal Register for each DRG. A DRG with a weight of 2.0000 means that charges were historically twice the average; a DRG with a weight of 0.5000 was half the average.

The following documents provide additional detail on the Inpatient Weighting process:

Refining Cost to Charge Ratios for Calculating APC and DRG Pay Weights (PDF)

Evaluation of Alternative Methods to Establish DRG Relative Weights (PDF)

Further Evidence MS-DRG Should not Be Used for All Payers (PDF)

FAQs about payment transformation

Click on a question to see the answer.

Questions

What are the 3M All Patient Refined Diagnosis Related Groups (APR-DRGs)?

The All Patient Refined Diagnosis Related Groups (APR-DRGs) are a hospital inpatient services classification system developed by the National Association of Children's Hospitals and Related Institutions (NACHRI), and 3MTM Health Information Systems. APR-DRGs are designed to account for severity of illness and risk of mortality.

Why were APR-DRGs chosen? Why not the same DRG system as Medicare uses?

  • All-Patient Refined DRGs (APR-DRGsTM) offer a more precise measurement with respect to hospital severity of illness adjustment than Medicare DRGs (CMS-DRGs) or All Patient DRGs (AP-DRGs). APR-DRGs expand the basic DRG structure by adding four (4) subclasses to each DRG which address patient differences relating to severity of illness (SOI) and risk of mortality (ROM).

APR-DRGs address current deficiencies in CMS-DRG and AP-DRG methodology for:

  • Severity of illness
  • Patient age
  • Significant pediatric and adult conditions have separate APR-DRG assignments

MS-DRGs—the algorithm now used by Medicare—were designed for the Medicare population only. They do not adequately address care for pediatric and young adult populations. Less than 1% of Medicare inpatient stays are for obstetrics, pediatrics, and newborn care.

What are the key characteristics of 3M APR-DRGs?

  • APR-DRGs eliminate the need for carve-out categories such as maternity and newborn which are not appropriately addressed in CMS-weighted CMS-DRGs.
  • Outlier payment is the differential between cost threshold and cost of the case, added to the base APR-DRG payment. A cost threshold is developed for each APR-DRG.
  • Significant pediatric and adult conditions have separate APR-DRGs.
  • Patient age is used in severity leveling.
  • Use of local data for weight development.

What providers and services will be affected by APR DRGs?

All claims for inpatient hospital services submitted by Critical Access and Acute Care hospitals will be processed using APR DRG methodology. Within these hospitals, inpatient payment methods will not change for Medicare crossover stays, Extended Care (swing bed) and Nursing Home stays.

What are the benefits of the 3M APR-DRGs for my hospital?

APR-DRG severity adjustment does a better job of aligning payment and resource use, removing artificial incentives that shift care between settings or pose a barrier to access. Severity adjustments that are inherent to APR-DRGs do a better job of aligning payment and resource use across services lines. In addition, APR-DRGs provide a foundation for the implementation of quality refinements such as potentially preventable complications and potentially preventable readmissions.

Will the 3M APR-DRGs work with my system?

Yes. The 3M APR-DRGs solution is designed to be compatible with most systems, and is available in a Microsoft® Windows® or a mainframe environment. Most major hospital billing system vendors already interface with the 3M APR-DRG Software.

How will the APR DRGs affect medical coding requirements?

APR DRGs and EAPGs require complete and accurate coding. Complete and accurate coding are requirements for all provider specialties. This should not be a change in the way that provider’s bill services to Blue Cross. Providers should be advised to code all acute and chronic diagnoses that apply to the patient, along with all ICD-9 procedure codes. APR-DRG assignment depends chiefly on the diagnosis fields and the ICD-9-CM procedure fields.

Will BCBSMN require submission of the present-on-admission (POA) indicator?

Yes.

Does the hospital have to submit the APR-DRG on the 837I electronic transaction?

No. The claims processing system assigns the APR-DRG based on the diagnoses, procedures, patient age, and patient discharge status, all as submitted by the hospital on the claim.

Will there be changes in the way bills are submitted for payment?

No.

What are EAPGs?

3M Enhanced Ambulatory Patient Groups (EAPGTM) is a visit-based patient classification system designed organize and pay for services with similar resource consumption across multiple settings. In contrast to Ambulatory Payment Classification (APCTM) or Fee for Service (FFS) methodologies, which provide no incentive to increase value, EAPGs more appropriately reimburse for the significance of outpatient services.

Why did the BCBSMN select EAPGs for outpatient hospital reimbursement?

The current payment system is an outdated cost-based reimbursement methodology. EAPGs promote and encourage efficiency in the hospital settings.

What providers and services are impacted by EAPG?

All claims for outpatient hospital services submitted by Critical Access and Acute Care hospitals and Ambulatory Surgery Centers (ASCs) will be processed using EAPG methodology.

Will the Cap at Charge adjustment be in effect?

Yes. This means that BCBSMN will pay the lesser of either billed charges on the claim or the calculated APR DRG or EAPG payment (including third-party or patient cost-sharing calculations).

What populations are impacted by APR DRGs and EAPGs?

The change applies to both commercial and Medicaid populations.

In order to be paid does my facility need to buy APR-DRG and/or EAPG software?

No, but facilities may decide to purchase the software for reimbursement planning and verification purposes.

Who can I contact to purchase the APR-DRG and/or EAPG software?

CAHs, please contact Ben Oberle, 3M, (651) 330-4119, boberle@mmm.com

ASCs, please contact Brian Martin, 3M, (816) 326-7063, bdmartin@mmm.com 

Who can I contact for questions or to get additional information on these new payment methodologies?

Questions or requests for additional information can be directed to your assigned contract manager. You may also contact Darci McIntosh at 651-662-1141 or email inquiries related to Payment Transformation to Payment_Reform@bluecrossmn.com.

Why is APR DRG and EAPG grouping information not included on the provider remittance advice we receive?

As required per HIPAA legislation Blue Cross is required to use the 5010 version of the 835 claim transaction. Blue Cross is unable to put the APR-DRG and EAPG on the provider remit at this time due to limitations in the 5010 version of the 835. The 6020 version of the 835 transaction has been updated to include the ability to report APR-DRG. Blue Cross has requested that X12 also update future versions to include EAPG. Until these new versions are adopted by CMS under HIPAA, the values will not be available as part of the remittance. Blue Cross is in compliance with current AUC and HIPAA requirements.