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ASCs must brace for possible 1% reduction and no increase until 2010
The news is mostly good for hospital outpatient surgery departments
Beginning April 1, 2004, ambulatory surgery center (ASC) payment rates will be frozen until 2010. And the news may be worse: The payments may be frozen at a rate that is 1% below current rates.
The exact amount at which the rates will be frozen hasn't been determined. The reason is that there may be some discrepancy on what consumer price index (CPI) numbers the Centers for Medicare & Medicaid Services (CMS) used to calculate the update. It’s possible that ASCs will not receive a reduction on April 1, but will stay at the current rate with a freeze until 2010. The Health and Human Services (HHS) general counsel is reviewing this discrepancy to tell CMS how to interpret it, according to the Alexandria, VA-based Federated Ambulatory Surgery Association (FASA).
Technically, ASCs may receive a CPI adjustment, minus 1%, but the net effect may be a 1% decrease in payments, with no increase until the end of the decade, under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003.
"The very negative impact on CPI updates over the next six years has a painful impact on the ability to keep pace with rising costs," says Craig Jeffries, executive director of the American Association of Ambulatory Surgery Centers (AAASC) in Johnson City, TN.
The Washington, DC-based Congressional Budget Office estimates it will cut ASC reimbursement by $3.1 billion over 10 years. "With regard to the cut and freeze, it would appear that some ASCs are going to decide that they can’t provide services at less than today’s rate until the end of the decade," says Kathy Bryant, executive director of FASA.
The system of ASC reimbursement also is likely to be changed, with no more cost surveys. The bill requires the Washington, DC-based General Accounting Office (GAO) to conduct a study that compares the costs of procedures in ASCs to the cost of procedures performed in hospital outpatient departments (HOPDs). The study findings will include a recommendation on whether the HOPD system is appropriate as a basis for the ASC payment rates. The study is to be submitted to CMS by Jan. 1, 2005.
CMS has discretion to design the payment system, although the agency must take into account the GAO’s recommendations, Jeffries says. CMS is to develop an ASC payment system based upon the HOPD system that will be effective between Jan. 1, 2006, and Jan. 1, 2008.
Jerry W. Henderson, RN, CNOR, CASC, executive director of the SurgiCenter of Baltimore in Owings Mills, MD, says that while "it could have been worse," the recent congressional action still is a blow to the industry. "As our expenses continue to go up every year, we can’t afford to have any cuts or freezes in our reimbursements," he says. "When expenses exceed reimbursement at some point in the future, it may come down to a business decision to not do Medicare patients."
Despite his concerns about the rate freeze, Jeffries says his organization’s initial assessment is that overall the changes will be a net positive for ASCs. The move away from cost surveys and toward a new system for re-basing ASC payments is a "clear victory," he points out.
"Importantly, the legislation requires CMS to implement the new rates in a budget-neutral manner, which effectively prohibits CMS from lowering overall ASC spending when implementing the new payment rates," Jeffries wrote in comments e-mailed to AAASC members.1
In his e-mail, Jeffries offered several important advantages to ASCs, including the following:
• ASC rates usually are lower than hospital rates. "As such, while a hospital-ASC rate linkage might mean rate reductions for some ASC procedures where ASC rates are presently higher, it likely would mean important increases for the majority of ASC procedures," Jeffries said.
• CMS has access to more and better data from hospitals than from ASCs, and it recollects that data each year.
• CMS is required to update hospital outpatient service rates annually. "While CMS is required to revise ASC rates every five years, it has ignored this obligation, because the ASC program is a low priority compared to the demands of developing and annually updating hospital outpatient service rates," Jeffries wrote. If ASC and hospital outpatient rates were linked, CMS likely would update ASC rates annually, he explained.
• The hospital community is a stronger lobbying force and more effectively can persuade Congress and CMS to address reimbursement problems, Jeffries said. "If ASC and hospital outpatient rates were linked, ASCs could, to some extent, ride the coattails of hospital industry efforts to improve payments," he said.
• Hospitals are entitled to payment add-ons and adjustments that are not available to ASCs. "If ASC and hospital outpatient rates were linked, ASCs might likewise benefit from some of these beneficial payment rules, including medical device pass-through and outlier payment opportunities," said Jeffries.
Bryant is more conservative in her outlook. "With regard to the tie to HOPD, whether this is a good thing or not depends on how it is implemented," she says. "By Congress simply directing CMS to do so with little guidance, it is impossible to determine even the major outlines of such a proposal."
In the meantime, surgery centers and surgeons who work in them should write their congressional representatives explaining the impact of freezing the ASC rates, Bryant recommends.
"It was made clear to us that we were absorbing a larger than our fair share of cuts because ASCs were not politically active," she says. "The only way to stop such draconian cuts is to have members of Congress understand the consequences."
Secondly, look at your costs for performing Medicare procedures and determine if you can cover your costs if you are providing them at 3% less than today’s rates, Bryant says. "Prior to this bill passing, at least small annual increases were promised," she says. "Now we’ve been told no increases."
Focus on restraining the growth in costs with emphasis on more efficient purchasing and materials management, Jeffries suggests .
The freeze is especially upsetting considering that ASCs are paying increased salaries for some employees, Bryant says. In the 2003 Same-Day Surgery Salary Survey, almost 67% of respondents experienced an increase that ranged between 1% and 6%.
"With FASA’s salary survey showing increases of 20% for salaries for some employees, I think many ASCs will have difficulty providing services to Medicare beneficiaries under this scenario," Bryant says.
For hospital outpatient surgery departments, the news was good overall. The "hold-harmless" provision of the outpatient prospective payment system (OPPS) was extended for two years (calendar year 2004 and 2005) for rural hospitals of less than 100 beds and sole community hospitals (SCHs) in rural areas. The bill asks HHS to determine if rural hospitals experience higher costs than urban providers under OPPS.
The bill also provides payment for outpatient drugs at 95% average wholesale price (AWP) or a transition percentage for two years from 2004-2005. The transition period payments follow.
The 2006 rates will be based on a GAO survey on hospital costs. For 2007 and beyond, rates will be drafted by the HHS secretary, as needed.
The bill limits the "functional equivalence standard" used to determine whether facilities are eligible for pass-through payments. Also, the bill requires the GAO to study hospital costs for drugs greater than $50 by 2006.
For fiscal year 2005, the Medicare Payment Advisory Commission (MedPAC) has recommended an update of market basket minus 0.9% for hospital outpatient services. The recommendation came at the group's Jan. 14-15 meeting.
1. Jeffries C. Medicare Legislation Update. E-mail: Dec. 4, 2003.
For more information on the Medicare prescription bill, contact:
The American Association of Ambulatory Surgery Centers will hold its annual meeting March 3-6 in Orlando, FL. The pre-conference on March 3 will cover "Business Planning for Development of a New Ambulatory Surgery Center" and "Improving Performance: Materials Management Purchasing."