Ambulatory Surgery Center Payment Changes Proposed

On August 8, the Centers for Medicare and Medicaid Services (CMS) posted a long-anticipated proposal to revamp the way Medicare pays ambulatory surgery centers (ASCs) for the facility component of surgical services furnished to program beneficiaries. The new payment system, once implemented, will profoundly change how and how much Medicare pays ASCs.

Background
Under CMS’s current ASC payment methodology, Medicare pays ASCs on the basis of a fee schedule. All surgical procedures approved for the ASC setting are assigned to one of nine payment groups that range from $333 to $1,339 based on the resource "costs" associated with the procedure.

This payment system has been only minimally updated since the inception of the Medicare ASC payment benefit in 1982. In recent years, it has come under considerable criticism from policymakers and the ASC community for being out-of-step with current ASC costs and practices. Responding to these concerns, Congress set a course for a new ASC payment system with provisions included in the Medicare Modernization Act of 2003 that directed CMS to develop and implement a new payment methodology by January 1, 2008.

Procedure Classification and Payment
Under the recently announced proposal, CMS would replace the current procedure classification and payment system with a new system that would base ASC facility payments on the amount Medicare pays a hospital for the same procedure. Specifically, CMS is proposing to use the ambulatory payment classifications, or APCs, as the mechanism for grouping ASC procedures. It plans to use the APC relative payment weights as the basis for calculating ASC payment rates under the revised payment system.

CMS is obliged by statute to implement the new payment system in a budget-neutral manner so that payments under the new payment methodology neither increase nor decrease aggregate Medicare spending for ASC services. As such, CMS proposes to use a conversion factor of $39.688 multiplied by the ASC relative weights to determine the payment for an individual procedure. By comparison, CMS’s proposed conversion factor for hospitals under the outpatient prospective payment system is $64.013. Consequently, CMS is proposing to pay ASCs approximately 62 percent of what it pays hospitals for corresponding procedures in 2008.

The final ASC conversion factor for 2008 likely will vary as other factors, such as the hospital outpatient relative weights and utilization data, change and as CMS revises its overall methodology in response to comments it receives.

It is important to note that the 62 percent relationship would not be permanent. Under the proposed methodology, CMS would recalculate the two conversion factors each year, and the hospital-ASC payment relationship would vary accordingly.

Payment "Packaging"
CMS would continue the current policy of packaging the ASC facility fee payment with all direct and indirect costs related to a surgical procedure, including payment for all drugs, biologicals, contrast agents, anesthesia materials and imaging services. However, CMS would cease making separate payment for implantable prosthetic devices and implantable durable medical equipment (DME) inserted surgically at an ASC. Instead, consistent with how Medicare pays hospitals, CMS would package these costs into the ASC facility fee payment when the devices are surgically inserted.

Transition
CMS proposes to transition in the revised ASC payment system in 2008 using a 50/50 blend of the payment rate applicable in 2007 under the existing methodology and the payment rate determined under the revised payment methodology. Procedures added for payment of an ASC facility fee beginning in 2008 would be paid the full amount calculated under the revised payment methodology for 2008 rather than a blended amount. The new payment rates would be fully implemented in 2009.

Updates to ASC List
CMS likewise is proposing to significantly change how it determines which procedures will be reimbursable when furnished in the ASC setting. CMS historically has determined which procedures are appropriate for the ASC setting using a complex—and some would say out-of-date—set of criteria. At present, there are approximately 2,500 procedures approved for the ASC setting on what is commonly referred to as the "ASC List."

The Medicare Payment Advisory Commission (MedPAC), a non-partisan panel that advises Congress on Medicare payment matters, has been recommending CMS to replace the current "inclusive" approach to identifying procedures with an "exclusionary" approach. That is, rather than limiting payment of an ASC facility fee to a list of procedures that CMS specifies, Medicare would instead allow payment to an ASC facility for any surgical procedure, except those that CMS explicitly excludes from payment.

CMS is now embracing these recommendations and proposing that, under the revised ASC payment system to be implemented January 1, 2008, Medicare would allow payment of an ASC facility fee for any surgical procedure performed at an ASC, except those surgical procedures that CMS determines are either not safe when furnished in an ASC or that require an overnight stay. CMS is proposing to expand the ASC List by more than 760 procedures but to exclude nearly 270 procedures because of perceived safety-related concerns.

Office-Based Procedures
However, CMS remains concerned about paying a facility for procedures that either require very limited facility resources or are primarily performed in physician offices. CMS is proposed to cap payment for "office-based" surgical procedures for which payment of an ASC facility fee would be allowed under the revised payment system as of January 1, 2008, at the lesser of the Medicare physician fee schedule non-facility practice expense payment or the ASC rate under the revised ASC payment system. For example, CMS is proposing to add to the ASC List CPT code 51736, a Urine Flow Measurement procedure. The proposed national unadjusted Medicare hospital payment for this procedure for 2007 is $66.75. Under CMS’s proposed new payment methodology, Medicare would pay an ASC $41.39 for this same procedure ($66.75*0.62). However, because CMS regards this procedure as "office-based," CMS would cap payment for this procedure at the amount it pays a physician when performed in the office setting, $25.28. CMS would exempt procedures that are on the ASC List as of January 1, 2007.

Overall, CMS’s proposed new payment methodology is a substantial improvement over the existing payment system. In fact, the major ASC trade associations have been urging CMS to base ASC payments on hospital rates for nearly a decade. ASC payment groups would increase from the current 9 to 221, while payment rates would range from $3.68 to $16,146.03, making for a much more accurate relationship between ASC costs and payment, in most instances.

Nonetheless, the impact is clear for most ASCs. ASCs specializing in orthopedic or ophthalmology procedures would benefit substantially under the proposed new system, while those facilities specializing in gastroenterology, urology and pain management would likely see dramatic (more than 30 percent) revenue decreases under the new system. Following is a chart illustrating the current and new payments for five high-volume ASC procedures.

The proposed changes to the ASC List are also welcome news for ASCs because they would greatly expand the number and range of services ASCs can furnish. However, CMS’s proposal to cap payment for "office-based" procedures could greatly reduce the ability of many ASCs to furnish these services. Nearly 360 procedures could be subject to this payment cap. Worse yet, CMS suggested that it might instead simply exclude procedures that it regards as "office-based" from the ASC List. Fewer than 400 procedures would be added if CMS excludes procedures based on site-of-service or resource-utilization-related criteria.

Changes Effective January 2007
A final rule implementing the revised ASC payment system will be published sometime in the spring of 2007, and the changes, once finalized, will become effective January 1, 2008.

In the meantime, CMS intends to make a several changes effective January 1, 2007. First, CMS is required by the recently enacted Deficit Reduction Act of 2005 to cap ASC payment at the corresponding amount paid to a hospital for the same procedure. In other words, effective next year, Medicare cannot pay an ASC more than it pays a hospital for a procedure. Additionally, CMS is proposing to add 14 procedures to the ASC List effective January 1, 2007.

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