HEAD-SCRATCHER Good luck trying to figure out the rationale behind Medicare's ASC payment policy.

I get asked all the time to explain how Medicare sets the payment rates for ambulatory surgical centers. That's a really tough task, but here are answers to 5 common questions about CMS policies that just don't make a whole lot of sense.

1Why are ASCs reimbursed so much lower than HOPDs?
In 2008, when the Centers for Medicare & Medicaid Services (CMS) introduced the system that it uses to set ASC payment rates today, ASCs were reimbursed about 65% of what HOPDs receive for providing the same surgical services. The rationale: ASCs lack much of the overhead associated with running a hospital, such as maintaining an emergency room and being open 24/7. Over the years, however, the payment disparity has widened: about 53% in 2016 and about 50% for 2017. The culprits?

• OPPS. When CMS began paying for facility services provided in ASCs — such as nursing, recovery care, anesthetics, drugs and other supplies — 8 years ago, it used the Hospital Outpatient Prospective Payment System (OPPS) as a basis. The OPPS is linked primarily to the hospital outpatient department (HOPD) payment system, but not all policies are aligned. This sometimes leads to significant disparity in rates and coverage.
• CPI-U. CMS uses different update factors to anticipate annual cost changes. To update HOPD payments, CMS uses the hospital market basket, which considers the costs of medical equipment, supplies, personnel and other overhead affiliated with running an outpatient surgical facility. To update ASC payments, CMS uses the Consumer Price Index for All Urban Consumers (CPI-U), which is based on what consumers spend on such goods as milk, bread and gasoline. Guess what. Medical equipment and supply cost increases are consistently higher than increases in consumer good prices. ASCs are the only facility type that are still updated on the CPI-U. Why won't CMS align the update factors by using the hospital market basket to update ASC payments?

2Why did the reimbursement rate for a code drop?
Rate setting is sophisticated, but at a very basic level starts with hospital cost reporting. Hospitals supply CMS with outpatient hospital cost data that it then uses to set both the OPPS and the ASC payment rates. CMS compiles the cost data and tries to take out anomalies to derive accurate average costs in the HOPD setting. If hospitals report lower costs for certain codes, those payment rates will then drop for both HOPDs and ASCs. In 2017, facility fee rates for many spine and orthopedic codes will drop significantly.

Another reason a code's reimbursement can drop is if it is reassigned to a new ambulatory payment classification (APC) group. CMS puts codes they view as clinically similar into the same group, and all codes within an APC are reimbursed the same amount. Sometimes that could benefit a certain code, but often it results in a drop in payment if CMS feels the code is more clinically similar to codes in a lower-paid APC group.

3Why won't CMS reimburse ASCs for devices?
Unless the device accounts for at least 40% of the total payment when performed in the HOPD setting, CMS views the device as a part of the facility fee payment. While the device portion of the reimbursement rate is the same regardless of surgical setting, CMS pays ASCs the lower amount for the non-device portion of the service, which will be about 50% of the HOPD rate for 2017. Even though CMS divides the payment into a device portion and a non-device portion, there is no separate payment.

Let's say the device accounts for $399 of a $1,000 case in an HOPD. Since it's under the 40% threshold, the device is not incorporated into the rate. For the same case, an ASC would receive about $500 (50% of the HOPD rate), $399 of which the device eats up, leaving $101 for payment for the case. Highly unlikely the ASC would perform this procedure.

CMS dropped the device threshold in the 2015 final payment rule from 50% to 40%. But due to the large disparity in the non-device portion of the reimbursement rate, many in the ASC community feel a threshold of 30% would be more appropriate. CMS clearly doesn't want to incentivize ASCs to perform device-intensive procedures. In the 2017 final rule, CMS states that "a lower device offset percentage in the ASC setting would result in more device-intensive procedures, when compared to the HOPD setting and, therefore, would result in a financial incentive to perform certain device-intensive procedures in the ASC setting rather than the HOPD setting."

4Why aren't there any unlisted codes on the ASC-payable list?
This is a great question. Unlisted codes can be reimbursed in the HOPD as well as the physician's office setting. Those facilities submit supporting evidence to their Medicare Administrative Contractors (MACs) as to why they must use the unlisted code, and then the MAC decides whether to provide reimbursement for the code. ASCs don't have that option. ASCs won't be reimbursed if the procedure "can only be reported using a CPT unlisted surgical procedure code," says Part 416 of the Code of Federal Regulations, which governs ASCs. In the 2017 final payment rule, CMS states that "all unlisted codes are noncovered in the ASC because we are unable to determine (due to the nondescript nature of unlisted procedure codes) if a procedure that would be reported with an unlisted code would not be expected to pose a significant risk to beneficiary safety when performed in an ASC, and would not be expected to require active medical monitoring and care of the beneficiary at midnight following the procedure." This does not explain why unlisted codes can still be reimbursed in the physician's office, however.

5Why are there so many other codes for which ASCs cannot be reimbursed?
CMS limits its ASC-covered procedures to those "that would not be expected to pose a significant safety risk to a Medicare beneficiary when performed in an ASC, and for which standard medical practice dictates that the beneficiary would not typically be expected to require active medical monitoring and care at midnight following the procedure."

CMS uses a list of exclusionary criteria to determine whether there is a significant safety risk that would preclude ASCs from performing certain cases on Medicare patients. Exclusions include:

• generally result in extensive blood loss;
• require major or prolonged invasion of body cavities;
• directly involve major blood vessels;
• are generally emergent or life-threatening in nature; and
• commonly require systemic thrombolytic therapy.

For 2017, there are more than 300 codes for which CMS will reimburse HOPDs but not ASCs, which makes little sense considering the facility types are so similar. OSM