Section 419.31 - Ambulatory payment classification (APC) system and payment weights(a)APC groups.(1) CMS classifies outpatient services and procedures that are comparable clinically and in terms of resource use into APC groups. Except as specified in paragraph (a)(2) of this section, items and services within a group are not comparable with respect to the use of resources if the highest geometric mean cost for an item or service within the group is more than 2 times greater than the lowest geometric mean cost for an item or service within the group.(2) CMS may make exceptions to the requirements set forth in paragraph (a)(1) in unusual cases, such as low volume items and services, but may not make such an exception in the case of a drug or biological that has been designated as an orphan drug under section 526 of the Federal Food, Drug and Cosmetic Act.(3) The payment rate determined for an APC group in accordance with § 419.32 , and the copayment amount and program payment amount determined for an APC group in accordance with subpart D of this part, apply to(b)APC weighting factors.(1) Using hospital outpatient claims data from calendar year 1996 and data from the most recent available hospital cost reports, CMS determines the geometric mean costs for the services and procedures within each APC group.(2) CMS assigns to each APC group an appropriate weighting factor to reflect the relative geometric mean costs for the services within the APC group compared to the geometric mean costs for the services in all APC groups.(c)Standardizing amounts.(1) CMS determines the portion of costs determined in paragraph (b)(1) of this section that is labor-related. This is known as the "labor-related portion" of hospital outpatient costs.(2) CMS standardizes the geometric mean costs determined in paragraph (b)(1) of this section by adjusting for variations in hospital labor costs across geographic areas. 65 FR 18542 , Apr. 7, 2000, as amended at 77 FR 68558 , Nov. 15, 2012