Inside MedPAC's Proposed Cuts

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What the federal government may do to your ASC's reimbursements for Medicare patients.


Next month, a federal commission called MedPAC will deliver a one-two punch to ambulatory surgery centers. MedPAC will recommend to the U.S. Congress that it eliminate annual inflationary updates to ASCs and lower the roughly 300 ASC rates that are higher than hospital outpatient department (HOPD) rates so that no ASC rate is greater than an HOPD rate. If Congress follows MedPAC's advice (history suggests that it will), all ASCs would feel the pinch:

  • Overall, ASC payments would decrease by 7% (based on current HOPD and ASC reimbursements).
  • Reimbursements would drop for about half of the Medicare-reimbursed cases that ASCs perform.
  • For the roughly 300 CPT codes that would be capped at current HOPD rates, the average payment reduction would be 20 percent.
  • Single-specialty ophthalmology and endoscopy centers that do the high-volume procedures that MedPAC has targeted for the deepest cuts would be hit the hardest.

Here's what you need to know about what's going on in Washington, how it could affect your ASC and what you can do to help yourself.

What is MedPAC?
All you need to know about MedPAC (Medicare Payment Advisory Commission) is that this independent federal body that advises the U.S. Congress on issues affecting the Medicare program feels that Medicare payments to ASCs are too high.

What if Congress approves MedPAC's recommendations?
By MedPAC's estimation, rates would be lowered for half of the volume of ASC services reimbursed by Medicare. For the 300 or so CPT codes that would be capped at the current HOPD rates (if Congress were to pass legislation this year based on the 2003 HOPD), the average payment reduction would be 20 percent. Overall, ASC payments would decrease by 7%. If Congress votes in favor of the cuts, all ASCs will feel the pinch, if only because they won't get a cost-of-living adjustment in their Medicare payments. The ASCs that will be affected the most are those that do ophthalmology, GI (especially GI endoscopy) and minor musculoskeletal procedures. The bulk of the CPTs targeted for cuts are the high-volume procedures most likely to be performed in a single-specialty ASC.

Estimated Average Cuts for ASC Procedures*

Procedure Category

2003 ASC Rate

2003 HOPD Rate

% Cut to Match 2003 HOPD

 Cataract Removal/IOL Insertion

 $973

 $1,159.73

 0%

 After cataract laser surgery

 $446

 $245.59

 44.8%

 Diagnostic colonoscopy

 $446

 $412.85

 7.4%

 Colonoscopy w/ removal of lesion

 $446

 $386.57

 13.3%

 Inject spine I/s (cd)

 $333

 $249.63

 25.0%

 Lesion removal colonoscopy

 $446

 $412.85

 7.4%

 Colonoscopy and biopsy

 $446

 $412.85

 7.4%

 Lesion remove colonoscopy

 $446

 $412.85

 7.4%

 Cystoscopy

 $333

 $328.97

 1.2%

 Inj paravertebral I/s add-on

 $333

 $300.67

 9.7%

 Inj foramen epidural I/s

 $333

 $300.67

 9.7%

 Inj paravertebral I/s

 $333

 $300.67

 9.7%

 Upper gi endoscopy/guide wire

 $446

 $386.57

 13.3%

 Colorectal scrn; hi risk ind

 $446

 $368.38

 17.4%

 Inject spine c/t

 $333

 $249.63

 25.0%

 Biopsy of prostate

 $446

 $192.53

 56.8%

 Dilate esophagus

 $333

 $317.85

 4.5%

SOURCE: MedPAC    * based on 2003 HOPD

For some facilities, the impact of the cuts could be devastating. Take the case of a physician-owned single-specialty GI center. Coupled with Medicare cuts in physician reimbursements (4% in 2003) and rising malpractice insurance costs, these physician-owners could also face significant facility fee reductions from Medicare on many of their bread-and-butter procedures. Likewise, ophthalmic ASCs would have to swallow some significant cuts for high-demand procedures. While cataract surgery/IOL insertion would not be affected because the ASC reimbursement is lower than the HOPD rate, other ASC procedures, such as after-cataract YAG laser surgery would be subject to major cuts. "Ophthalmic ASCs may be in for a difficult period," warns Jerry Levy, MD, president of the Outpatient Ophthalmic Surgery Society (OOSS).

What recommendations will MedPAC make to Congress in March?

  • CMS should expedite the collection of recent ASC charge and cost data for the purpose of analyzing and revising the ASC payment system.
  • Congress should eliminate the annual inflationary adjustment to ASC rates.
  • Until CMS implements a revised ASC payment system, Congress should ensure that ASC Medicare reimbursements do not exceed the HOPD rate. Any ASC rate higher than the current hospital rate at the time the legislation is passed would be reduced and "capped" at the HOPD. Since the HOPD rates change each year (see "Variability of HOPD Rates"), CMS would have to re-evaluate annually which ASC rates fall higher than the HOPD and reduce them accordingly.

Why has MedPAC specifically targeted ASCs?
MedPAC contends that many ASC Medicare payments have been too generous, citing about 300 CPT codes (primarily related to GI and ophthalmic procedures) for which reimbursements for ASCs are higher than HOPD rates, the rapid rise in the number of Medicare-certified ASCs (2,265 in 1996 to 3,371 in 2001), the expansion of for-profit centers and the heavy ASC case volume of Medicare-reimbursable procedures.

ASCs argue that they've been successful despite Medicare, not because of it. Only one-fifth (20.69%) of ASCs generate half or more of their revenue from Medicare, according to the Federated Ambulatory Surgery Association (FASA).

"Reducing the access Medicare beneficiaries have to ASCs is not what patients want, nor is what the physicians or the facilities want," says Craig Jeffries, executive director of the American Association of Ambulatory Surgery Centers (AAASC).

MedPAC's Ariel Winter declined comment, saying that it is up to Congress and CMS to act on the recommendations and set rates.

Does MedPAC want CMS to do a new cost survey?
Yes. MedPAC wants CMS to obtain better data upon which to re-base all ASC rates. It's not clear, however, how or when this data will be obtained. The existing Medicare statute requires that CMS conduct a cost survey every five years and that payments reflect the costs determined by these surveys. The last completed survey was in 1995.

MedPAC also wants CMS to determine the extent to which ASC and HOPD rates compare for the same items and services. But the ASC reimbursement figure is derived in a manner quite different from the hospital rate (see "ASC vs. Hospital Reimbursements"). To compare apples to apples, CMS must find a way to convert the ASC rate to a "hospital" figure before it can adjust the scales accordingly.

CMS is considering adopting a new ASC payment system tied to the HOPD, although the mechanisms for doing so have not been established. For one, Congress would need to pass a law eliminating the cost survey and officially linking the ASC rate to the hospital rate.

ASC vs. Hospital Reimbursements

One of the major difficulties in comparing ASC rates to hospital outpatient rates (HOPD) is that they are derived by different formulas. The ASC rate is calculated based on cost survey data and then rates are assigned into one of nine different payment groups (APCs), which are then adjusted to reflect local wages.

The HOPD system, which was adopted three years ago to replace cost surveys, pays by a much more complicated formula. Hospital APCs are an estimate of not only cost data but also changes in medical practice, technology, the addition of other services during a procedure (radiology, for example) and many other factors. There are many more hospital payment classifications than ASC classifications.

Didn't ASCs just regain inflation adjustments?
Yes. Beginning on Oct. 1, 2002, ASCs regained their full CPI-based adjustments. Federal law calls for an adjustment equal to the Consumer Price Index (CPI). As part of the Balanced Budget Act of 1996, the government cut inflationary increases in ASC payments to the CPI minus 2 percent. The net effect was a minimal annual adjustment over a five-year period, beginning in fiscal year 1998 (see "ASC Inflation Updates). Congress let this provision lapse for fiscal year 2003.

Could the proposed cuts affect third-party payer reimbursements for non-Medicare patients?
This depends on the company, but the answer is yes. Many third-party payers use Medicare trends as a guide when they negotiate reimbursement contracts with facilities, says Barbara Harmer, RN, senior clinical analyst at Florida Hospital and an accreditation surveyor for the AAAHC. Ms. Harmer says at least one factor works in your benefit. Many third-party payers understand that financially viable ASCs are driven by their case volumes, reduced costs relative to hospitals and their diverse payment mixes (encompassing HMOs and third party payers as well as Medicare).

ASC Inflation Updates

Year

ASC Inflation Update

1997

2.6%

1998

0.6%

1999

0.0%

2000

0.8%

2001

1.0%

2002

0.9%

2003

3.1%

What can you do to prevent the cuts?
Mr. Jeffries recommends inviting your legislator to tour your facility on an average surgical day. The tactic can be effective if you supplement it by contacting local print and television media outlets. Patricia Clark, the former director of speech and media training services for the American Medical Association, says that there is tremendous potential for savvy ASCs to influence public opinion by being proactive in reaching out to the media. "The media loves a good story. If you present them with a dramatic story, they'll bring your message right to their audience," she says.

While you may not have the ability or inclination to do something that drastic, Ms. Clark says that there are smaller steps that you can take to get your story out there and influence public opinion. This can be something as simple as calling up the health or community beat writer at the local newspaper or inviting a local TV station to come to your facility and see why there's a buzz (even if you are the one creating the buzz) about the federal government potentially "shutting out" senior citizens from getting potentially life-saving procedures, such as diagnostic colonoscopy, at your ASC.

What The Experts Are Saying

"If Medicare wants one payment rate regardless of where the service is performed, then it should use one system for determining rates. If the system needs reform, MedPAC should recommend reform."
FASA's Kathy Bryant

"Invite your Congressman to tour the facility on an average surgical day. Have him talk to the administrator, the staff, the physicians and the patients who are there that day. Ask him if he has ever walked around a hospital to get a means of comparison of how a freestanding center differs from a hospital."
AAASC's Craig Jeffries

"The know-how and the resources aren't there for CMS to do an effective cost survey of ASCs. And most ASCs, which are often small single-specialty centers, typically don't know how to calculate their per-procedure costs accurately."
AAASC Legal Counsel Eric Zimmerman, Esq.

"Ophthalmic ASCs may be in for a difficult period."
OOSS's Jerry Levy, MD

Variability in HOPD Rates, 2000-2003

One of the major difficulties in capping specific ASC reimbursements at the HOPD is that the HOPD rates change every year, sometimes going up or down by significant degrees. This chart compares the current ASC rates for selected CPT codes to the HOPD and shows the annual variance of the hospital rates for the same CPTs over the last three years. If Congress were to enact legislation according to MedPAC's third recommendation, CMS would have a chore on their hands to stay in compliance.

When adjusting the annual HOPD, CMS would also have to assess which ASC reimbursements fall higher than the revised HOPD and reduce them accordingly in the ASC update. Another difficulty is that ASC rates for the following year take effect on Oct. 1, while the new hospital rates go into effect on Jan. 1 of the next calendar year.

"I know from dealing with CMS that their staffers are extremely busy when they are working on the HOPD. If they also have to look at ASC codes at the same time as the HOPD, there will be an even bigger resource drain. This could further delay re-basing ASC rates in their entirety," says FASA executive director Kathy Bryant.

- Bill Meltzer

CPT Code

DESCRIPTION

2003 ASC Rate

2003 HOPD Rate

% Change HOPD From 02-03

% Change HOPD From 01-02

% Change HOPD From 00-01

 66984

 Cataract surg w/iol, i stage

 $973

 $1,159.73

 9.90%

 -19.86%

 2.29%

 66821

 After cataract laser surgery

 $446

 $245.59

 10.91%

 -8.70%

 2.29%

 45378

 Diagnostic colonoscopy

 $446

 $412.85

 10.95%

 -5.98%

 2.29%

 43239

 Upper GI endoscopy, biopsy

 $446

 $386.57

 4.75%

 4.07%

 2.29%

 62311

 Inject spine I/s (cd)

 $333

 $249.63

 29.39%

 6.87%

 2.29%

 45385

 Lesion removal colonoscopy

 $446

 $412.85

 10.95%

 -5.98%

 2.29%

 45380

 Colonoscopy and biopsy

 $446

 $412.85

 10.95%

 -5.98%

 2.29%

 45384

 Lesion remove colonoscopy

 $446

 $412.85

 10.95%

 -5.98%

 2.29%

 43235

 Upper GI endoscopy, diagnosis

 $333

 $386.57

 4.75%

 4.07%

 2.29%

 52000

 Cystoscopy

 $333

 $328.97

 25.25%

 -2.47%

 2.29%

 64476

 Inj paravertebral I/s add-on

 $333

 $300.67

 9.38%

 66.94%

 2.29%

 64483

 Inj foramen epidural I/s

 $333

 $300.67

 9.38%

 66.94%

 2.29%

 64475

 Inj paravertebral I/s

 $333

 $300.67

 9.38%

 66.94%

 2.29%

 64721

 Carpal tunnel surgery

 $446

 $824.70

 18.43%

 0.58%

 2.29%

 43248

 Upper gi endoscopy/guide wire

 $446

 $386.57

 4.75%

 4.07%

 2.29%

 28285

 Repair of hammertoe

 $510

 $921.72

 16.67%

 2.97%

 2.29%

 G0105

 Colorectal scrn; hi risk ind

 $446

 $368.38

 9.81%

 -15.24%

 188.43%

 62310

 Inject spine c/t

 $333

 $249.63

 29.39%

 6.87%

 2.29%

 55700

 Biopsy of prostate

 $446

 $192.53

 -22.18%

 0.97%

 2.29%

 43450

 Dilate esophagus

 $333

 $317.85

 9.93%

 22.99%

 2.29%

 29881

 Knee arthroscopy/surgery

 $630

 $1,362.36

 12.74%

 -0.83%

 2.29%

 67904

 Repair eyelid defect

 $630

 $850.47

 20.11%

 5.99%

 2.29%

 45383

 Lesion removal colonoscopy

 $446

 $412.85

 10.95%

 -5.98%

 2.29%

 29877

 Knee arthroscopy/surgery

 $630

 $1,362.36

 12.74%

 -0.83%

 2.29%

 66170

 Glaucoma surgery

 $630

 $1,065.23

 8.99%

 -4.52%

 2.29%

SOURCE: FASA

If Congress approves the recommendations, when will they take effect?
Assuming Congress passes legislation this year, the inflationary adjustments will end on Oct. 1 of this year. MedPAC's recommendations do not include a specific implementation date for the affected 300 or so CPT codes to be capped at the hospital rate; this will be up to Congress to determine, but they may also be timed to take effect in the next fiscal year. Mr. Jeffries says it's unlikely the cuts would be made retroactive to 2003.

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