Prospective Payment System (PPS) Outpatient

Section 4523 of the Balanced Budget Act of 1997 (BBA) provides authority for HCFA to implement a prospective payment system (PPS) under Medicare for hospital outpatient services, certain Part B services furnished to hospital inpatients who have no Part A coverage, and partial hospitalization services furnished by community mental health centers.

WHA Contact

Brian Potter
Senior Vice President, Finance and Chief Operating Officer
EMAIL: Brian Potter

All services paid under the new PPS are classified into groups called Ambulatory Payment Classes or APCs. Services in each APC are similar clinically and in terms of the resources they require. A payment rate is established for each APC. Depending on the services provided, hospitals may be paid for more than one APC for an encounter.

Section 4523 of the BBA also changed the way beneficiary coinsurance is determined for the services included under the PPS. A coinsurance amount will initially be calculated for each APC based on 20 percent of the national median charge for services in the APC. The coinsurance amount for an APC will not change until such time as the amount becomes 20 percent of the total APC payment.

Both the total APC payment and the portion paid as coinsurance amounts will be adjusted to reflect geographic wage variations using the hospital wage index and assuming that the portion of the payment/coinsurance that is attributable to labor is 60 percent.

Proposed and Final Rules/Summaries