Congress has been dictating the climate for ambulatory surgery center growth and development through reductions to Medicare payment updates for more than a decade. Despite the fiscal pressure placed on the industry, the volume of ASC procedures has grown tremendously. However, 2006 marked the slowest rate of growth in the number of new ASCs entering the market in nearly a decade.

The power to influence the future viability of ASCs now rests in the hands of the CMS, as it finalizes a new payment system. The agency's proposal to move from ASC groupers to hospital outpatient department ambulatory payment classification categories adds tremendous variation to the rates ASCs will receive for their services. The percentage of HOPD rates the agency sets in the final rule this spring will determine which procedures will be "winners" and "losers" under the revised payment system.

62, 75 or 84 percent of HOPD?
Will the new payment rates spark interest in development by physician specialties largely under-represented in the ASC market? Will the system force existing facilities to rethink their service mix?

The table on page 26 shows how various rate-setting options discussed by industry stakeholders will affect payments for the 20 most common ASC procedures. Here are some fallout scenarios:

• 62 percent. If CMS holds firm on its proposal to base ASC rates on 62 percent of hospital outpatient rates in 2008, payments for the most common ASC procedures would fall across the board. On the other hand, rates for many of 2,500 procedures rarely performed in ASCs would increase dramatically, which could compensate for the cuts. At least 360 procedures would see at least a 200 percent increase in payment. And CMS would begin increasing payment rates by some measure of inflation when the freeze imposed by the Medicare Modernization Act of 2003 expires.
• 75 percent. At 75 percent, the rate proposed rate reductions would, by and large, be reduced or eliminated. Seventy-five percent of the hospital rate also provides a significant increase for many less common ASC procedures. For example, HCPCS 23515 (treat clavicle fracture) would jump from an ASC grouper rate of $510 to $2,638 under 75 percent of HOPD. HCPCS 66225 (repair/graft eye lesion) would jump from $630 to $1,746.
• 84 percent. At 84 percent, the most aggressive assumption, most ASC payment rates would rise (16 out of 20 in our example).

New opportunities
In addition to the 2,500 procedures on the current ASC list, CMS proposed to make 750 other procedures eligible for ASC payment and establish rates for these services. The expanded procedure list for ASCs creates new opportunities for physicians to provide services outside the hospital. If CMS implements a payment system based on 75 percent of the hospital rates, as suggested by ASC industry groups, the migration of orthopedic, general surgery, urology, vascular, and ophthalmology procedures into the ASC settings is likely to accelerate.

Congress and CMS will be watching the industry's response to the new payment system closely. As with other new payment systems, CMS uses fairly blunt measurements to assess whether they set payment rates too high or too low. For example, they look to see whether

• the number of new ASCs increases or decreases each year,
• the mix of procedures performed in the ASC changes significantly, and
• the volume of Medicare patients seen by ASCs rises or falls.

Depending on their perception of the industry's response, the agency will likely propose incremental changes in the first few years after implementation. If CMS observes an increase in predominantly office-based procedures appearing in the ASC or ASCs focusing on the least complex Medi-care services, CMS is likely to reduce the rates for certain types of services or impose other restrictions. On the other hand, if CMS sees a sharp decrease in the number of typically high-volume procedures, it will likely provide relief through future rulemaking, rate increases or other policy changes. The agency and Congress are cognizant of the cost to taxpayers and beneficiaries of services migrating back to more expensive hospital outpatient departments.

CMS will react to the industry's response to the new payment system, expected to be published this spring and implemented Jan. 1. The challenge for ASCs is that the changes they implement to adapt to the rule will ultimately guide the agency's future payment system adjustments. In the interim, ASC representatives are working feverishly with Congress and CMS to ensure the industry's continued vitality.