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Effective January 1, the Centers for Medicare and Medicaid Services (CMS) made dramatic changes through a new payment methodology that reimburses Ambulatory Surgery Centers (ASCs) for services provided to Medicare patients. In addition, on that same date CMS made significant revisions to the rules for payment under its hospital Outpatient Prospective Payment System (OPPS).

CMS representatives have stated that the revised systems take “… a major step toward eliminating financial incentives for choosing one care setting over another thereby placing patients’ needs first, increasing efficiencies, and leading to savings for both beneficiaries and the Medicare program.”

In August 2007, CMS released its final rule for the Revised Payment System Policies for Services Furnished in ASCs. Prior to the issuance of the final rule, the Government Accountability Office (GAO) issued its mandated report determining that adjusted Medicare outpatient Ambulatory Payment Classification (APC) groups could be used to accurately reflect the relative costs of surgical procedures performed in ASCs in much the same way that APCs reflect the costs of the same procedures performed in Hospital Outpatient Departments (HOPDs). As a result, the existing ASC payment groups upon which reimbursement had been based since 1990 could be eliminated.

In the ASC final rule, CMS formalized its adoption of GAO’s recommendations. The goal of the new payment system is to calculate the new ASC payments, using a budget neutrality factor, so that total Medicare payments under the revised system are budget neutral and approximate the total estimated Medicare payments that would have been made under the previous ASC payment system.

In establishing the budget neutrality factor for the revised ASC payment system, CMS considered that in the first two years a certain number of surgical procedures would migrate to ASCs from HOPDs and physician offices. CMS assumed in the first two years that approximately 25 percent of the new ASC surgical procedures will be performed in ASCs versus HOPDs and that 15 percent of the new procedures will be performed in ASCs versus physician offices.

The final rule reflects an estimated ASC CY 2008 budget neutrality adjustment factor of 67 percent that is used in calculating ASC payments. In addition, CMS has determined that approximately 50 percent of the ASC payment is labor-related and should therefore reflect a geographic adjustment factor. Therefore, CMS requires that 50 percent of the ASC payment be adjusted using the Inpatient Prospective Payment System (IPPS) pre-reclassified wage index values to accomplish this.

A four-year transition period will be used in calculating payments for those ASC procedures that are not considered “new” in 2008. The transition payment process for these procedures will consist of a blend of the FY 2007 payment methodology and the new payment system with full implementation of the new payment system scheduled for CY 2011.

For CY 2008 the blend will be 25/75 (25 percent new system and 75 percent previous payment system), 50/50 for CY 2009 and 75/25 in 2010. ASC surgical procedures that are considered “new” in 2008 will be paid fully under the new payment system and will not be subject to a transition period.

Special payment rules will apply to the payments of device-intensive procedures, i.e., those for which the cost of the device is greater than 50 percent of the APC’s median cost, as well as certain covered ancillary services such as drugs and biologicals, radiology procedures, brachytherapy sources and pass-through devices that are considered to be integral to the ASC covered procedure. Special billing rules apply under the new payment system; therefore, ASCs should become thoroughly familiar with them.

The final rule implementing the new ASC payment methodology was followed by the FY 2008 OPPS final rule released on November 1, 2007. This OPPS final rule included the final FY 2008 ASC payment rates that became applicable January 1.

Implementation of the new payment system will be complex and will take time for most ASCs to determine the actual impact upon their operations. Generally speaking, those ASCs that perform higher acuity procedures will benefit from the new payment system. Conversely, ASCs performing lower acuity procedures will generally experience decreases in reimbursement. It must be noted that provider-based ASCs are subject to the new ASC payment methodology, also.

ASCs that are materially impacted in a negative manner by the new ASC payment system may want to consider investigating provider-based joint venture arrangements with hospitals. It should be noted that only provider-based arrangements in which the surgery services are provided in a “department” of the hospital are eligible for reimbursement using the OPPS APC payment methodology. In this type of arrangement, the outpatient surgery services must be billed using the hospital’s Medicare provider number, not an ASC provider number.

While provider-based joint venture arrangements are possible, they are also subject to specific rules. Chief among these is the requirement that the joint venture entity be located on the main campus of the hospital provider entity that is a partial owner.

The rules governing provider-based status are stringent and should be investigated thoroughly before an entity pursues alternatives.



Roger Greenup, CPA, is a partner in HORNE LLP’s Nashville office. With 12 offices in five states and clients in 48 states. www.horne-llp.com.



February 2008

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