Understanding the EAPG transition and its impact on payment

June 22, 2018 / By Shannon Garrison, MBA, MJ

How hospitals and physicians get paid is changing as the U.S. healthcare system transitions from volume-based to value-based care. Reimbursement methodologies need to allow for a plan to control costs, manage utilization and reduce variation. Outpatient services traditionally reimbursed as fee-for-service payments are now being replaced by methodologies that bundle ancillary services and provide more comprehensive reimbursement.

New York was one of first states to reform the way providers are reimbursed for outpatient services when it implemented the 3M Enhanced Ambulatory Patient Grouping (EAPG) methodology in 2008. Payment based on EAPGs promotes fairness by providing greater reimbursement for high-intensity services and relatively lower reimbursement for low-intensity services.

The EAPG payment methodology also allows for greater payment homogeneity for comparable services across all ambulatory care settings (i.e. outpatient department, ambulatory surgery, emergency department and diagnostic and treatment centers). By linking payments to the specific array of services rendered, the EAPG system makes Medicaid reimbursement more transparent and rational. Traditional ambulatory care service payments are based on fee schedules or a rate code mix that do not get updated to realistically reflect the cost of providing care. This can incent providers to regularly increase charges, as well as increase the number and intensity of services. It also promotes the use of unnecessary expensive diagnostic procedures, which can lead to a skyrocketing trend in the cost of care.

In New York, Managed Care Plans (MCO) followed the state Medicaid plan by aligning their Medicaid managed care population reimbursement with the state’s. A number of MCO contracts are now based on percent of Medicaid.

Mental health, substance abuse and other service categories were added to traditional outpatient services in the New York EAPG reimbursement methodology between 2010 and 2011 to expand the breadth of services covered. As the New York Medicaid program shifts more recipients to MCOs, the EAPG methodology used by plans is expanding.

MCOs and providers will need to understand the EAPG logic to make informed decisions on the delivery of appropriate services. The impact of the changes on reimbursement will depend on a number of factors, including current vs. EAPG reimbursement methodology, types of services provided, setting where services are provided and the types of facilities providing the services, since base rates differ by these parameters. Understanding the financial impact will also provide leverage for MCOs in contract negotiations. 

When comparing current reimbursement to services priced using the EAPG payment methodology, plans should consider the following:

• Understand services provided under new methodology – Determine if any services should be carved out of the impact analysis due to reimbursement under a different methodology. For example, some oncology drugs or durable medical equipment (DME) could be on fee schedules.
• Understand the impact of different payment levels – Some providers have transitioned to an elevated payment level above Medicaid for selected services and 100 percent for other services. This would skew the overall relative percentage of Medicaid reimbursement for the facility when the impact report is used to make a blanket directive statement.
• Understand the impact of where the service is delivered – Similar services may be reimbursed differently in hospital-based vs. free standing facilities, since there is a setting component within the base rate.
• Understand the impact of patient visit level vs. service line level reimbursement – Traditional payment systems often reimbursed at the service line level rather than patient visit level, which guarantees payment for services. EAPG methodology bundles service lines and does not reimburse for each service if they are delivered with other procedures. A service line level comparison would be misleading since some service lines in the EAPG system would not be paid separately.
• Identify “commodity services” – A shift to providing services such as lab tests and diagnostic imaging in the physician office compared to a facility setting will reduce reimbursement to providers.

As the shift from volume to value continues, healthcare payers and providers need to understand the impact the new payment systems will have on their revenue and changes they will need to implement to be successful.

Shannon Garrison consultant for populations and payment solutions at 3M Health Information Systems.