ASC Adviser

Medicare's New Payment System for Ambulatory Surgery Centers

By Kevin J. Corcoran, COE, CPC, FNAO

In November, the Centers for Medicare and Medicaid Services (CMS) published its final rule including copious commentary, along with definitive payment rates, for a new payment system for ambulatory surgery centers (ASCs). The new payment system, which is due to take effect in January, will dramatically alter how Medicare pays ASCs.

Under the current methodology, which began in 1982, Medicare pays ASCs on the basis of a fee schedule consisting of nine payment groups that range from $333 to $1,339. Although Medicare payments have not changed in recent years, there has been much discussion among policymakers about revising payment rates and methodology, but it literally took an act of Congress to make any headway. In the Medicare Modernization Act of 2003 (MMA), Congress directed CMS to develop and implement a new payment methodology by Jan. 1, 2008.

Updating the ASC List

At present, there are approximately 2,500 procedures approved for reimbursement in the ASC setting. CMS will add about 800 new procedures to the list and remove about 250 procedures due to safety concerns.

Significantly, CMS will pay an ASC facility fee for surgical procedures commonly performed in an office setting, but the amount of the payment will be capped at the lesser of 1) the amount it pays a physician for the inoffice practice expense component of the procedure, or 2) 65% of the hospital Outpatient Prospective Payment System (OPPS) facility payment. Going forward, CMS will exclude payment for an ASC facility fee for those procedures that pose a significant safety risk or require an overnight stay. Unlisted procedure codes (xxx99) remain ineligible for ASC reimbursement. Procedures described by a category III CPT code will be evaluated on a case-by-case basis.

New Payment Rates

CMS' new ASC payment system replaces the current procedure classification and payment system with a new system that links ASC facility payments to Medicare payments to hospital outpatient departments for the same procedure. Specifically, CMS will use the ambulatory payment classifications (APCs) established in the hospital OPPS as the mechanism for grouping ASC procedures. The APC relative payment weights for hospitals become the basis for calculating ASC payment rates under the new payment system.

Under the MMA, CMS is obliged to implement the new payment system in a budget-neutral manner so that aggregate Medicare spending for ASC services remains unchanged. To satisfy that constraint, CMS calculated future ASC payment rates at 65% of the hospital APC rates. It is important to note that the relationship between payments to hospitals and ASCs will not be constant and will likely change in the future. Under the proposed methodology, CMS will revise payment rates annually.

Phase In

As with most dramatic regulatory changes, there is a phase-in period; this one will take 4 years. In 2008, ASC payments will be a 75/25 blend of the 2007 ASC payment rate and the new rate determined under the revised payment methodology. In 2009, a 50/50 blend applies; in 2010, a 25/75 blend applies; in 2011, the new payment system will be fully implemented. Table 1 illustrates how the blend calculation works for cataract surgery with implantation of an IOL in 2008.

Any procedures that were not formerly eligible for reimbursement in an ASC will not be subject to a blended payment, but will be paid solely on the basis of the new methodology.

Geographic Differences

Reimbursement rates vary throughout the country due to adjustments in ASC payments for geographic differences in labor costs. Specifically, labor rates in large metropolitan areas are higher than those in rural areas. Historically, CMS adjusted 34.45% of the total payment amount by the wage index, but in 2008 that amount will increase to 50% based on information garnered from a Government Accounting Office 2006 study. As a result, next year there will be greater variability in payments around the country: a pay increase for big cities and a pay cut for the hinterlands.

Payment for Ancillary Items and Services

In general, CMS will continue its policy of treating all supplies as part of the ASC facility fee for the purpose of reimbursement. This includes:

► anesthesia supplies/materials

► blood, blood plasma and platelets, except for those to which the blood deductible applies

► conventional IOLs

► drugs, biologicals, surgical dressings, surgical trays, supplies, splints, screws, casts, postop shoes, appliances and equipment

Within ophthalmology, CMS classifies supplies as:

► capsular tension ring

► conformer

► Crawford intubation set

► eyelid springs

► glass tubing (as stent)

► Medpor channel implant

► Medpor implant (Titan)

► perfluorocarbon

► scleral buckle

► silicone oil

► silicone tubing (as stent)

However, CMS will stop making separate payment to ASCs for implantable prosthetic devices and implantable durable medical equipment. Instead, CMS will treat these items as part of the facility fee, as it presently does in the hospital OPPS. Specifically, within ophthalmology, the following formerly reimbursed items will no longer be paid separately, and ASCs may not balance bill beneficiaries:

► artificial cornea or keratoprosthesis (L8609)

► ocular implant (L8610)

► aqueous shunt (L8612)

► prosthetic implant, not otherwise specified (L8699)

► amniotic membrane (V2790)

Nevertheless, CMS will make separate reimbursement to ASCs for some existing and new items, particularly:

► corneal tissue

► new technology IOLs

► devices that receive pass-through status under the OPPS

► drugs and biologicals that are separately paid under the OPPS when they are provided in association with a covered surgical procedure that is billed by the ASC to Medicare

► brachytherapy sources

Non-covered items, such as the deluxe component of a presbyopiacorrecting IOL, or toric IOL, are not affected by CMS' new ASC payment system.

Radiology Services

The overarching governing rule for ASC operations is one of exclusivity; the ASC must use its space exclusively for ambulatory surgery. So, when surgical procedures combine with radiological services, a conflict arises. Some ASCs, under a CMS exception, enrolled as an Independent Diagnostic Testing Facility (IDTF) so they could bill for concurrent surgical and radiology services. Under this new rule, that exception is ended, and ASCs that previously enrolled as IDTFs should revisit that subject. Instead, CMS will pay for certain ancillary radiology services when they are integral to the performance of a covered surgical procedure billed by the ASC on the same day, provided that separate payment for the radiology service would be made under the OPPS. CMS will treat a radiology service as integral to the performance of a covered surgical procedure if it is required for the successful performance of the surgery, and it is performed in the ASC immediately before, during or after the covered surgical procedure. The separate ASC payments for these radiology services will be made at the lesser of: 1) the new ASC payment rate, or 2) the Medicare Physician Fee Schedule nonfacility practice expense amount for the service. For A- and B-scans, the MPFS rates will likely apply, but those values will not be certain until we know if Congress intervenes to stop the Medicare physician pay cut.

Implications for Ophthalmic ASCs

In the long run, the new ASC Medicare payment methodology incorporates many improvements over the existing payment system. In the short run, brace yourself for some speed bumps. As seen in Table 2, while cataract surgery is flat, Nd:YAG capsulotomy is down 8%. Aqueous shunt procedures take a big knock due to the loss of separate payment for L8612, the prosthetic device. The much-anticipated addition of several ophthalmic laser procedures to the ASC list is underwhelming since the facility payment is never higher than the comparable physician in-office payment, so there will not be any big rush to move the laser(s) into the ASC.

Finally, CMS' new regulation has a wider impact beyond the Medicare system. Remember that most managed care contracts use Medicare payment rates as a benchmark for contracting. OM