Starting in January, Medicare will make the most extensive changes in payment for ambulatory surgery facility services since the inception of the program. Under regulations released last month from the CMS, Medicare will pay ASCs in virtually the same method - though not at the same amounts - that it pays hospital outpatient departments. A primary goal of these changes is to lead physicians and patients to determine the best site of service for surgical services based on safety and quality of the care rather than on the reimbursement or co-payment. It's expected that, over time, there will be a substantial relocation of services among ASCs, HOPDs and physicians' offices. Here, we break down 10 key components of the new system.

1 From 9 grouper rates to 1,000 APCs.
Medicare now pays for about 2,500 services in ASCs at nine rates, with methods that haven't changed much since 1990. Payments to facilities range from $333 to $1,339, with few add-ons. Under the new system, payments will be made using the ambulatory payment classifications from Medicare's outpatient prospective payment system. CMS also will reimburse ASCs for about 3,300 more procedures, each grouped in more than 1,000 APCs, each with its own payment rate.

2 CMS will dramatically expand the number of services paid in ASCs.
New rules will exclude from the ASC covered services list only those procedures determined to be too risky to be performed in the ASC setting or those that would routinely require a patient to be in the facility at midnight. About 790 surgical services will be added, two-thirds of which are now excluded because they're predominantly performed in doctors' offices.

3 ASC payment rates will be a constant percentage of the OPPS rates.
CMS's current estimate of the percentage is 65 percent, up from the 62 percent proposed last year. This percentage is calculated by the CMS actuaries to insure the new ASC system is budget neutral relative to the current system; the difference is thought to be justified because hospitals must be open 24/7, have obligations to provide uncompensated care, face higher safety standards and so forth. As an example, Medicare will pay an ASC about $1,005 for a complex cataract procedure (CPT code 66982) and a hospital $1,542.

4 ASC payment rates will be automatically revised in the future.
The relative payment rates in the two settings will be the same, and as OPPS relative payment rates change, ASC rates will change commensurately. One advantage of this arrangement is that OPPS payment rates are recalibrated each year. Because of the direct linkage of the relative weights in the two settings, ASC payment rates will be automatically revised to reflect secular changes in technology and other factors.

5 High-cost implants might be feasible.
CMS, in a change from its proposed rule, will make separate payment for radiology services integral to surgeries, brachytherapy sources, expensive drugs and some implantable devices. CMS has identified "device-intensive" APCs that, because of the high proportion of their costs represented by devices, will only be partly subject to the 65 percent adjustment for payment in an ASC. As a result, insertion of pacemakers and other high-cost implantables in ASCs may be economically feasible.

6 Numbers still subject to change.
While the system's design and general policies are fixed, the rates and other numerical parameters could change. The values to take effect Jan. 1 will be updated in a new final regulation due about Nov. 1.

7 Four-year transition.
Given the magnitude of the changes, CMS decided to blunt their effect by providing a four-year transition for existing services. In 2008, 75 percent of ASC payments for old services will be based on the old system and 25 percent on the new. Services newly added to the ASC list will receive the new payment rate immediately.

8 GI and pain management take a hit.
CMS estimated the effect of the new system on ASC spending by surgical specialty. All areas except gastrointestinal and pain management procedures show increases, some of them large, as a result of the change. GI procedures are projected to decline 4 percent in 2008 (and 15 percent once the transition is fully implemented). Spending for eye procedures in ASCs is expected to rise modestly.

9 What about hospitals?
The overall effect on hospitals isn't entirely clear. Surely some surgical services will migrate toward ASCs over time as ASCs add services in response to the expanded list and improved payment rates for many services. On the other hand, ASCs may be less attractive sites for some services that they now provide in high volumes, and some patients requiring these services may wind up in HOPDs as a result.

10 To prevent economic incentives from biasing site choice...
While physicians (and beneficiaries) should have improved ability to choose where services are delivered based on clinical conditions, CMS has limited the ASC payment for services primarily provided in a physician's office to the office-based practice expense payment made under the physician fee schedule. If a physician delivers a service in an ASC that isn't on the ASC list, the physician will only receive the lower, facility-level practice expense payment. CMS has proposed changes in the physician self-referral ("Stark") regulations to accommodate radiology services delivered as an integral part of surgery in an ASC.

Cases will continue to migrate to ASCs
CMS estimates that Medicare spending for ASCs will rise by $270 million over spending in 2006 as a result of the changes. CMS assumes that 25 percent of the volume of new ASC services will migrate from hospitals in the next two years, and 15 percent of the new services currently provided in physicians' offices will move over four years.