Archive December 2016 XVII, No. 12

Coding & Billing: The Absurdity of the ASC Payment System

Why does Medicare pay surgical centers 50% of what hospitals receive?

Kara Newbury

Kara Newbury


ASC payment policy 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?
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