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Reimbursement Redux: Sifting Through the Final Rule Fall-out
Jennifer Schraag
10/05/2007 It’s been a quarter of a century since Centers for Medicare & Medicaid Services (CMS) enacted such an in-depth change to the way ambulatory surgery centers (ASCs) are reimbursed for treating Medicare beneficiaries. This summer’s final rule carries improvement from last year’s proposed rule, but it still falls short of industry expectations. The final rule, which establishes the policies for the revised payment system for ASCs, also includes a proposed rule combining proposals for the calendar year 2008 update to the hospital outpatient prospective payment system (OPPS) and to the calendar year 2008 ASC conversion factor and payment rates.¹ The final rule, issued on July 16, set ASC payment rates at no more than 67 percent of the corresponding OPPS rates for hospital outpatient department (HOPD) surgical procedures. However, the adoption of an annual update of OPPS rates will result in ASC payment rates of about 65 percent of the OPPS rates for the corresponding procedures, according to CMS estimates.² CMS states, “The rules are intended to more logically align payment rates across payment systems to eliminate payment incentives favoring one care setting over another.” Though pleased with a higher rate than last year’s proposal of 62 percent, many in the ASC industry disagree with CMS’ claim of fairness. A phase-in over four years will begin in 2008. Under the final rule, CMS decided that ASC payments in calendar year 2008 will be based 25 percent on HOPD rates and 75 percent on the current reimbursement rates for ASCs. In 2009, the ASC payment rate will be based 50 percent on 2007 rates and 50 percent on HOPD rates. In 2010, ASC payments will be 75 percent HOPD-based, and the full-100 percent HOPD rate basis kicks in for calendar year 2011. ASC reimbursement rates will not get an annual inflation update in 2009, but in 2010 and thereafter, the ASC conversion factor will increase at the level of inflation in the annual price index for urban consumers (CPI-U).² These phase-ins definitely help to weather the hit some specialties will take, but today’s approximate 4,600 Medicare-enrolled ASCs are scrambling to understand the intricate details of the rule and make the necessary changes needed in their respective centers before the Jan. 1, 2008 implementation date. On a brighter side, CMS was generous with the revised procedure list. Still sticking with its exclusion of procedures that would require an overnight stay, CMS was able to approve an additional 793 surgical procedures as eligible for Medicare reimbursement in ASCs. The expanded list will now total about 3,300 procedures.² Also, CMS will now be reimbursing ASCs for fluoroscopy services and certain implant devices will now be paid at 100 percent of the OPPS rate. The remaining portion of an ASC’s implant service cost still would be reimbursed at the 65 percent of HOPD rate formula.² Industry Reaction FASA president Kathy Bryant notes both the pros and cons of the final rule. “While we are pleased that CMS has increased ASC payment rates from its proposed rule, we don’t believe CMS has gone far enough,” she states in a press release.³ “To ensure that patient choice and patient access to top-quality surgical care are protected, we believe these payments need to be much higher and other provisions of the new rule need to be changed.” Bryant points out that in 2003, ASCs were paid approximately 86.5 percent of HOPD rates. Industry leaders countered last year’s proposed rule of 62 percent with a documented need of 75 percent of the HOPD rates. FASA did express satisfaction in its press release for the expansion of the list of procedures, the acceptance of Medicare payments for fluoroscopy services, the 100 percent coverage for implants and other devices, and the much needed phase-in period for the new payment system implementation. Craig Jeffries, executive director of the American Association of Ambulatory Surgery Centers (AAASC), embraces the highlights of the rule. “Structurally, CMS provided ASCs many of the elements requested in a new payment system,” he points out. Some of rule’s positive aspects will allow ASCs to:
Jeffries also offers a brief summary of the key issues the ASC industry still needs to address: Conversion Rate: The 65 percent conversion rate is simply not adequate to avoid a disruption of beneficiary access to colonoscopy and certain other high-volume ASC procedures. Procedures Covered: Although CMS proposed to significantly expand the ASC list, the agency continued to propose an arbitrary process to disallow payment for ASC services. Rather than using only the inpatient only list to exclude procedures from coverage and allow physicians to determine the appropriate site of service for procedures, the proposed rule applied many additional criteria to limit services available in the ASC. Inflation Update: CMS updates the HOPD conversion factor for annual changes in inflation using the hospital market basket. The agency proposes to update ASC payments using the consumer price index for all urban consumers. The agency maintains that they do not have the authority to apply the hospital market basket to the ASC payment system. Beginning in 2010, ASC rates will be updated using the CPI-U, which will result in a 2 percent to 3 percent increase in payments each year. “We need to be aligned with the hospital market basket update,” he asserts. Response to the Number Crunch Thoughts regarding the upcoming changes in reimbursement depend heavily upon a center’s demographics — most notably its specialty mix and accompanying top billed CPT codes. Centers with a higher case mix in orthopedics are more likely to be rejoicing right now as their centers will be positioned nicely for success. However, centers with a high caseload in pain or GI probably don’t feel much up to joining in on the happy dance. The coming changes extend beyond each center’s walls, and the demographics of the industry as a whole may very well experience a slight shift. Caryl A. Serbin, RN, BSN, LHRM, president and founder of Surgery Consultants of America, Inc. and Surgery Center Billing, LLC; and her colleague Judith L. English, vice president of business operations, have seen just about every up and down the industry has experienced. They share their take on what’s to come. “During this final quarter of 2007 and the first quarter of 2008, it is likely that the ASC industry will maintain a ‘wait and see’ attitude which will probably manifest itself in a slow-down of new ASCs and an increase in sales or mergers of certain types of facilities.” Todd Tidmore, managing director of MedCapital Group, a healthcare capital financing company, likens the final rule and its accompanying changes to that of the reimbursement hit imaging centers recently weathered. “It is definitely affecting the way the finance world looks at imaging centers,” he notes. “Now, I don’t think it’s that drastic for surgery centers, but I will say that when we have changes like this it makes some lenders’ underwriting of credit related to surgery centers a little more stringent. One of the unknowns that some lenders — and I’m speaking primarily real estate-wise — worry about is the government dealing with, in a negative way, the income stream of the surgery center procedures.” He says lenders will be “very careful” about entering into a business venture where the income stream can be “so volatile and not necessarily dependent on market conditions, but on artificial conditions established by a governmental agency.” His advice: “Expect to put a little more equity into projects.” Titan Health Corporation chairman David Hall notes that “the certainty of the new system is encouraging.” He adds too that on a net basis, the CMS final rule will reflect an improvement on reimbursement for Titan’s centers. It will also be an improvement on a consolidated basis, “although not nearly the improvement that’s needed,” he says. As afore mentioned, pain and GI will take the hardest hit with this final rule. Hall shares that one of Titan’s biggest challenges will be finding ways to offset the negative reimbursement impact on its pain procedures. Shannon Marie Smith, CPA, strategic management consultant and founder of San Francisco, Calif.-based The Rush Group, shared the following examples of just how much these two specialties will be affected financially. (Her example also shows the benefit of the phase-in plan.)
Smith shares the cost per case for colonoscopies and EGDs at a California center (founded in 2003-2004):
“I think these guys will continue to do well because we standardized the supplies used by all of the GI docs,” Smith shares. “The docs deferred cash distributions to pay debt and the debt is almost paid (hence the overhead will drop) and the docs have a really good mix of Medicare and commercial payers to help offset the decrease from Medicare. Plus, they operate in California so the payments are slightly higher than those reflected,” she concludes. According to Serbin and English, the phasein of the payment system is “a blessing to those specialties hardest hit and a nuisance by those who expect to gain by the changes.” They also say however, that phase-in of reimbursement by a blend of payment systems is not the only challenge facing ASCs. In particular, they note the following:
“And the list goes on,” they assert, adding, “To combat these questions, we need to inundate ASCs with easily understood education in the media — articles, seminars, presentations, audio conferences, etc., etc.” Serbin and English also share the following few key areas centers need to address to ensure they receive the highest reimbursement possible in light of the new reimbursement rules: 1. Fee schedule: If you have a fee schedule based on Medicare groupers, it’s important to evaluate and modify it. Develop a spreadsheet of your procedures and the reimbursement of your top payers, including Medicare’s reimbursement for 2008 and beyond. Consider that your fee schedule will now need to have a basis in a combination of factors; Medicare reimbursement, case cost and possibly grouped by APCs. 2. Education of office staff: Processes are changing. Make sure your billing staff is aware of the new requirements; form changes, groupers to APCs, fee schedule change, contractual allowance change, coding/ billing for implants, modifier requirements, additional new procedures, ancillary procedures. Make sure your computer system and your clearinghouse are prepared for the changes as well. 3. Case costing: Compare to new reimbursement; decide which procedures to add and which ones to discontinue. 4. Budget: Changes in revenue and changes in types of procedures performed may result in changes in supply costs and staffing pattern. “An important bit of advice we are giving to our facilities’ governing bodies and administrators is a recommendation to stockpile cash equal to that of at least 90 days of Medicare reimbursement. CMS changes of this magnitude are bound to result in a payment slow-down and it’s important to be prepared,” they conclude. The Little Center that Could
“We were hoping for higher than 65 percent,” Craig says. For a diagnostic colonoscopy, as one example of the hit her center will take, Craig says the center’s reimbursement was $446, “which is not a lot to begin with.” Now, it and all of her other top five GI codes now will be cut by an average of $100. She notes that bundling procedures won’t even help in their case. “The second thing we look at is bundling the procedure with another. The problem with that is our No. 1 CPT code, 45378, is performed 71 percent of the time as a single procedure. So we don’t even have that to fall back on.” The center’s lifeblood may have to come from other payers? But that too may become a challenge. “That is our biggest fear,” notes Craig. “We are tackling each and every insurance contract to ensure that they don’t follow suit in this. Otherwise we will not be able to care for those carriers.” Smith says a buzz is already occurring among some of the larger payers. “I am sure that the Blues will be making contractual changes with their contracted ASCs if it is financially beneficial,” she wrote in an email. “Contract language has prevented them in the past from making changes in reimbursement methodology. However, the payers have become a lot more restrictive with regard to the language of new contracts. “It might be a good time for ASCs to review their contracts and make sure they are aware of their legal rights (i.e. if a change is not going to benefit them do they have legal grounds to fight it, and be familiar with the notice requirements under each of the contracts). Craig says “everybody is going to have to look at their top procedures and decide on a strategic game plan to follow to ensure they do not take the hit that some of these areas are taking.” Overall, the industry isn’t too surprised with the outcome of the CMS final rule, and many positives can be pulled from it. “The final rule is the first step in updating the long-ignored reimbursement strategies for ASCs,” Serbin and English point out. “Although there are a few areas of lowered reimbursement, overall CMS has taken an important and positive step forward in allowing ASCs to have equal payment for equal services rendered (or at least nearer to hospitals than before).” “It could have been 62 percent,” adds Craig. “Baby steps are good sometimes. We do have to celebrate those small victories.” References 1. CMS. Fact Sheets. Details for: A REVISED PAYMENT SYSTEM FOR SERVICES PROVIDED IN AMBULATORY SURGICAL CENTERS. July 16, 2007. 2. AORN. While Slamming 65% payment rate, FASA, AAASC laud other changes in CMS final payment rule. www.aorn.org/Managers/Archive/August2007Issue/CMSFinalASCPaymentRule/ 3. today’s surgicenter magazine. Hot News. FASA Comments on Medicare ASC Payment System Reform. www.surgicenteronline.com/hotnews/77h17642414397.html.
From a GI Prospective: Q: How hard will GI be hit with this final rule? A: Our own internal analysis of the rule, using 10 of our operating GI centers in a detailed case study, finds that the overall impact of the new rule is not nearly as bad as everyone expected. Within our 10-center case study, which has an average Medicare component of 24 percent within the payer mix, we find the actual overall average revenue per procedure is reduced by about 2 percent in 2008. There are smaller reductions also in 2009 and 2010, and then in 2011 the average revenue per procedure actually increases. Q: What does PE have planned to best weather this final rule? A: For the past two years we have encouraged the respective board of managers at each of our partnered facilities to develop and implement a plan to overcome what were anticipated to be some very heavy cuts in Medicare. Each center has responded differently — some have opened new procedure rooms to ramp-up volumes, others have increased their daily block time available in the center while others have looked to expand into other business opportunities. Our partnered facilities already are efficient so cutting costs was not an option — instead we’ve focused on driving more procedures into the schedule as well as try to increase overall utilization rates within each procedure room. The economics of the GI center model haven’t changed — volume is king, utilization is queen and patient safety always comes first. Q: Are there any plans to add or 86 any particular procedures due to the rule? A: None whatsoever. Our partnered facilities have a commitment to their local communities — we take all patients regardless of their ability to pay; and likewise we’ll continue the same types of procedures we’ve always performed — regardless of reimbursement issues. Q: What else would you share about how the final rule will affect PE and its member centers? A: If this were 2012 right now, I think we’ll look back and say that this rule was basically a non-event for our partnered facilities. We’ve spent two years planning for a Category 5 hurricane and as it turns out, this storm is not as severe as anticipated. The four year phase-in methodology was helpful in mitigating the overall financial impact. Coupled with our obsession to increase volumes and drive utilization, our partnered facilities will do just fine in the long term.
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Rebecca R. Craig, RN, CNOR, CASC, is administrator of Fort Collins, Colo.-based Harmony Ambulatory Surgery Center, LLC. She says the CMS final rule is “pretty significant to us.” Harmony’s volume mix includes about a quarter general surgery, 53 percent GI, and 25 percent pain management.
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