3rd Quarter 2007

Significant Changes to Medicare's Ambulatory Surgical Center Payment System

By John McDermott and Qasim Zaidi

The Medicare Modernization Act (MMA) of 2003 mandated that the Centers for Medicare and Medicaid Services (CMS) overhaul the payment system for ambulatory surgical centers (ASCs) no later than January 1, 2008. In keeping with this legislative requirement, CMS proposes to introduce the ambulatory payment classifications (APCs) currently used in hospital outpatient departments to the ASCs.

ASCs have historically been paid on a case rate basis where all procedures performed in the ASC are grouped into one of nine case rates. According to the proposed rule, payments made to ASCs will be 65 percent of the payment made for the corresponding APC in the Hospital Outpatient Prospective Payment System (HOPPS). To maximize efficient delivery of care in the ASC setting, the proposed rule states that, for procedures that are primarily performed in the physician office, physicians would be reimbursed at the lower non-facility rates even if they performed these procedures in the ASC.

The proposed rule will provide separate payment for drugs and biologicals "integral" to a covered surgical procedure. CMS considers a drug or biological integral to a procedures if it is (1) required for the successful performance of the surgery and (2) provided to the beneficiary in the ASC immediately preceding, during, or immediately following the covered surgical procedure.

Payments for separately payable drugs and biologicals under the revised ASC payment system for a calendar year are equal to the OPPS payment rates for that same year, without application of the ASC budget neutrality adjustment."¹ CMS clarified that drugs identified in Addendum BB of the proposed rule will be considered integral, and therefore separately paid, when they are billed on the same day and on the same claim as a covered service. Reimbursement for these drugs will be subject to the same rules as those in place for the separately payable drugs under HOPPS: their cost must exceed $60 per day, and reimbursement will be at their average sales price plus five percent.

CMS also will be implementing a quality reporting initiative similar to the one already in place in the hospital inpatient setting and proposed for the hospital outpatient setting. ASCs that do not comply with the requirements of the quality reporting initiative will be penalized two percentage points in their annual pricing update. CMS has opted to defer the implementation of a quality reporting initiative to future rules because it "believe[s] that the transition to the revised payment system in CY 2008 poses such a significant challenge to ASCs that it would be most appropriate to allow some experience with the revised payment system before introducing other new requirements."²

Covance will continue to monitor the changes in the ASC arena. The decision to more closely align ASC payment to the hospital outpatient payment system marks a significant paradigm shift by CMS; this may enable pharmaceutical manufacturers to pursue increased utilization of their products outside the hospital outpatient setting. Please contact Covance at 1-888-COVANCE if you are interested in learning how these changes will affect your product line.

1 Federal Register, Volume 72, Number 148; August 2, 2007: 42782.

2 Federal Register, Volume 72, Number 148; August 2, 2007: 42806.