CMS Pub. 100-04, ch. 4, § 10.3

The OPPS national unadjusted payment rates for APCs other than drugs and biologicals

are calculated as the products of the scaled relative weight for the APC and the OPPS

conversion factor. Hospital specific payments for these APCs are derived after

application of applicable adjustment factors (e.g., multiple surgery reduction, rural sole

community adjustment, etc.) and the post reclassification wage index that applies to the

hospital to which payment is being made. Payment rates for separately paid drugs and

biologicals are generally established based on a percentage of the average sales price of

the drug or biological.

An APC’s scaled relative weight is generally calculated based on the median cost

(operating and capital) of all of the services included in the APC group. Median costs are

developed from a database of the most currently available hospital outpatient claims

using “the most recently” filed cost report data.

The following is a simplified description of the process used to calculate the OPPS

payment rates for services for which the rate is based on the median cost.

• Hospital-specific, department-specific cost-to-charge ratios are used to convert

billed charges to costs for each HCPCS code;

• For most APCs, single procedure bills (claims that contain only one separately

paid procedure code) for all of the procedures within a particular APC are used to

calculate the median costs on which APC payment weights are based to ensure

that the median captures the full cost of the procedure when it is the only service

furnished. The costs on the bill are summed to add the costs of any packaged

services into the procedure with which the packaged services are packaged.

Composite APCs are an exception to this statement since the payment for them is

calculated only from multiple procedure claims that meet the criteria for

composite APC payment;

• 60 percent of the total cost is wage neutralized and the set of claims for each APC

is trimmed at +/- 3 standard deviations from the geometric mean;

• A median cost is calculated for each APC, using the claims for the procedures that

meet the criteria for being assigned to that APC and the array of costs determined

from those claims. In some cases, a subset of single procedure bills that meet

specified criteria are used to calculate the median cost for the APC. For example,

CMS uses only claims with correct device codes, no token charges for devices, no

interrupted procedures, and without “no cost” or “full credit” devices to set the

median cost for device-dependent APCs. Similarly, the median costs for

composite APCs are calculated using only claims that meet the criteria for the

composite APC.

• Median costs are converted to relative weights by dividing each APC’s median

cost by the median cost for the Level 3 Hospital Clinic Visit APC.

• Relative weights are scaled for budget neutrality.

• Scaled weights are converted to payment rates using a conversion factor which

takes into account pass-through payments to be made in the coming year, changes

to the wage index (see section 10.8.1), the cost of outlier payments (see section

10.7) and the annual market basket update factor.

CMS issues a proposed rule with a 60 day comment period in the summer of the year

before the year in which the proposed payment rates would be applicable. There is a 60

day comment period, after which CMS issues a final rule with comment period to

announce the forthcoming year’s payment policies and rates. The CMS OPPS Webpage

at http://www.cms.hhs.gov/HospitalOutpatientPPS/ is the best source for both rules and

the supporting files.