"In the absence of a compelling reason for a payment differential," says HHS Inspector General Janet Rehnquist, "the amount Medicare pays for a procedure should be based on the service and not the setting."

Hmmm. Get paid based on what you do rather than where you do it. Healthcare is the only industry where you don't know if or what you'll be paid before performing a service, but this service vs. setting idea makes sense, doesn't it? No, not quite.

Unfortunately, what Ms. Rehnquist so eloquently endorses is the flawed logic and bad math that led MedPAC (Medicare Payment Advisory Commission) to propose across-the-board cuts to ensure that, until the government implements a revised ASC payment system, no ASC is paid more for a procedure than a hospital in 2004.

Medicare would save $1.1 billion annually if it set uniform rates for hospital-based ambulatory surgery and freestanding surgery centers. Hospitals would suffer the bulk of the payment reduction; bringing certain hospital outpatient payments into parity with the surgery center rates would save $1 billion. Reducing certain surgery center rates would account for the remaining $100 million.

Thankfully, the MedPACmen replaced their cudgel with a scalpel. In their final report to Congress earlier this month, MedPAC recommends that CMS first determine the extent to which ASC and hospital payment amounts reimburse for comparable items and services before any cuts are made. This could simply delay the inevitable, but at least it's not rushed and rash. This much we already know: A review of 453 procedure codes for services that could be performed in either setting found reimbursement discrepancies of more than 200 percent. About $466 million and $233 million in Medicare savings would come from revising reimbursement for eye procedures and endoscopies, respectively.

The final MedPAC report is available at writeOutLink("www.medpac.gov","1"). As you'll see, MedPAC is intent on pumping the brakes on outpatient surgery. In addition to equalizing ASC and hospital outpatient payment rates, it recommends that Congress eliminate the update to payment rates for ASC services for fiscal year 2004.

"For ambulatory surgical centers," the MedPACmen say, "the growth in service volume and number of providers suggests payment is more than adequate."

That's quite an indictment. And quite a reach.

Or maybe it's just bad math.