Government

Future is uncertain for surgery center Medicare payment

A reimbursement freeze will be followed by the switch to a still-to-be-determined pay system.

By Markian Hawryluk — Posted Jan. 12, 2004

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Washington -- After seeing a 60% increase in the volume of Medicare services provided in ambulatory surgery centers from 1998 to 2002, Congress decided it had to do something. Lawmakers just weren't sure what.

The Medicare bill signed into law last month freezes Medicare payment rates for ASCs from late 2005 through 2009 and directs the Dept. of Health and Human Services to implement a new payment system by 2008. But ASCs and the physicians who work in them have few clues to deduce what new payment methodology will replace the current fee-schedule system.

Pay for the centers covers such costs as nursing, recovery care, anesthetics and supplies. Reimbursement for doctors working at ASCs is determined using a different fee schedule.

Congress usually provides at least a general framework when making Medicare payment changes for different types of health practitioners, but this time lawmakers provided little direction. ASC representatives have been supportive of reforming the payment system but are wary of the blank slate Congress provided HHS.

"This could, in the long run, offer an improved mechanism for expanding seniors' access to ASCs," said Kathy Bryant, executive director of the Federated Ambulatory Surgery Assn. "However, whether or not it is a better mechanism depends on the details of its design. We are concerned that the law does not require congressional review of CMS' proposal prior to its implementation."

Meanwhile, this year centers will face a 1% pay reduction, which will drop payment levels to roughly the 2002 rates. After that, the 2005-09 payment freeze will kick in. Bryant said that could lead to access problems.

"It is hard to understand how ASCs can be expected to provide services in 2009 for 2002 payment rates," she said. "The liability insurance crisis impacts ASCs like all other health care providers, and rates have skyrocketed in many states."

The new Medicare law requires HHS to take into account a General Accounting Office study of ASCs to be completed this year. That study will examine the costs of providing the same service in the centers versus hospital outpatient departments, the accuracy of ASC payment levels and whether the outpatient prospective payment system would be a good basis for a new ASC payment system.

Currently, services at the centers are grouped into nine payment levels, compared with more than 500 payment groups in the outpatient prospective payment system, under which hospitals are paid a predetermined amount for each outpatient encounter.

Such broad categories mean that Medicare could be overpaying ASCs for some services and underpaying for others. Lawmakers and health policy experts worry that could influence where services are provided.

Seeking payment consistency

Traditionally, the Medicare Payment Advisory Commission, which advises Congress on Medicare issues, has tried to promote consistency in payment levels across different sites of service so that financial incentives do not drive decisions about where procedures are performed.

Last year, the panel recommended that no ASC rate should exceed the hospital outpatient payment rate for the same service, on the presumption that centers' costs are lower because they do not have to meet the same regulatory requirements as hospital outpatient departments and treat less-complex cases. A report by the HHS Office of Inspector General concluded that Medicare could save $1.1 billion annually by paying only the lower of the ASC or hospital outpatient rates.

But at MedPAC's December meeting, commissioners were split over whether Medicare should adjust rates only for services for which ASC relative costs are lower than in outpatient departments or also those for which relative costs are higher.

Randy Fenniger, a Washington, D.C., lobbyist representing surgery center interests, said that for the approximately 300 procedures for which ASCs receive higher payments than outpatient departments, the gap will close in the next few years.

"Our industry is frozen until 2009. Hospital outpatient got 4.5% this year," he said. "Any difference in payment, even without changing the payment systems, will vanish while we stay at zero and they keep growing."

Fenniger also said the growth in the volume of services provided in ASCs is not related solely to differences in payment. Physicians like the centers because they give them greater control over their work schedule. Some physicians also have invested in centers.

"ASCs work for patients, and they work for physicians and the staff," Fenniger said. "The growth is a very positive thing. I don't think it's going to stop."

ASCs, which typically charge less for services, also can reduce out-of-pocket costs for Medicare beneficiaries, according to MedPAC Commissioner Ray Stowers, DO, a family physician who now heads the Division of Rural Health at Oklahoma State University's College of Osteopathic Medicine in Tulsa, Okla.

"Even if a physician is not involved in the ambulatory surgical center and they're getting ready to refer a patient, especially if the patient has limited resources, it can make a big difference," Dr. Stowers said.

MedPAC is debating whether to weigh in on a new ASC payment system now or wait until the GAO has completed its research.

In addition to the payment issue, commissioners considered a draft recommendation that would ease the introduction of new types of services and procedures in ASCs. Physicians now can perform in the centers only those procedures listed by the Centers for Medicare & Medicaid Services as appropriate. MedPAC's draft recommendation would suggest moving to a list of excluded procedures.

"Rather than have the agency try to figure out what is clinically appropriate, allow clinicians to figure that out," said MedPAC Commissioner Nancy-Ann DeParle. "And with the exception of some things that are specifically excluded, then things can get more quickly diffused into the ambulatory surgical center setting."

Fenniger called the migration of services out of the hospital inevitable.

"It's happening more rapidly now," he said. "It is happening to ASCs. It is moving to physician offices. It is moving to hospitals that specialize in certain kinds of care."

Doctors who want to see whether a new pay system will accelerate or slow that migration will have to wait to find out.

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ADDITIONAL INFORMATION

Growth industry

The number of ambulatory surgery center services provided to beneficiaries strongly outpaced Medicare payments, which rose about 1% a year.

Increase
in services
1999 6.0%
2000 6.6%
2001 30.9%
2002 18.2%

Source: MedPAC preliminary analysis of Medicare claims data

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