A new payment system is in the works for ambulatory surgery centers

When Congress approved the Medicare Modernization Act of 2003 (MMA), they directed the Secretary of Health and Human Services to implement a new payment system for ambulatory surgery centers (ASCs). In the statute, Congress granted the agency wide latitude for designing the new payment system.

As a result of this congressional mandate, the Centers for Medicare & Medicaid Services (CMS) has released rules establishing ASC procedures and payment rates for Medicare ASC services. The final rule for calendar year (CY) 2007 was released on November 1, 2006, and it affects all ASC services rendered on or after January 1, 2007. Additionally, CMS has also released a proposed rule for CY 2008, which will be finalized sometime this spring.

The final rule for 2007 has a less reaching impact than the proposed changes for ASC reimbursement in 2008. However, together these two regulatory reimbursement changes have a large impact on the ASC industry.


An ASC is a health care facility that specializes in providing surgery, pain management, and certain diagnostic (eg, colonoscopy) services in an outpatient setting. An ASC is also referred to as an outpatient surgery center or same-day surgery center. Overall, the services provided at an ASC can be generally called procedures. In simple terms, ASC-qualified procedures are considered more intensive than those performed in an average physician’s office, but not so intensive as to require a hospital stay afterward.

Medicare has provided benefits to ASCs for more than 20 years. Medicare will only make payment to an ASC for procedures that are on Medicare’s list of ASC-approved procedures, of which there are approximately 2,400. The ASC will then bill Medicare using the CPT codes for the procedures performed and Medicare’s claims-processing system then determines into which of nine ASC payment groups they are assigned. ASC payment rates are based on 1986 data and have not been rebased despite frequent proposals to do so.

In addition to the MMA congressional mandate, the Deficit Reduction Act of 2005 (DRA) also mandated regulatory changes to the ASC industry. This statute requires CMS to implement a requirement of the DRA that would cap the CY 2007 payment rate to an ASC for a surgical procedure at the Hospital Outpatient Prospective Payment System (OPPS) rate for the same procedure. The statute also requires CMS to review and update the ASC list at least every 2 years. The last revision of the ASC list was published in the Federal Register on May 4, 2005, and was effective in July 2005.

The current ASC payment groups with their respective payments are as follows:














$826 ($676 plus $150 for IOL)




$973 ($823 plus $150 for IOL)



The following sections detail the regulatory changes mandated by the Medicare Modernization and Deficit Reduction Acts.


On November 1, 2006, CMS released the final rule establishing the list of procedures and payment rates for Medicare ASC services in 2007. This rule implements several important changes for ASCs. For any ASC services rendered on or after January 1, 2007, the following changes are applicable:

  • Addition of 21 new procedures to the 2007 procedure list;
  • Addition of 25 CPT codes;
  • Deletion of 22 CPT codes; and
  • Implementation of Deficit Reduction Act cap, affecting 275 codes.

CMS adopted many of the recommended additions to the procedure list proposed by the American Association of Ambulatory Surgery Centers and the ASC industry coalition, resulting in the addition of 21 new codes to the 2007 procedure list. Additionally revisions of the American Medical Association’s CPT codes resulted in the addition of 25 codes and the deletion of 22. Therefore, as of January 1, 2007, 21 procedures have been added to the list of surgeries for which Medicare will make a facility payment to ASCs.

Furthermore, CMS did not make any changes to the current nine payment groups discussed above. Any newly added procedures have been assigned to one of these existing payment groups. Thus, the October 1, 2004, group payment rates are continuing through CY 2007.

Section 5103 of the DRA limits ASC payments to the lesser of either the Medicare Hospital OPPS payment amount or the ASC payment amount for services.

Therefore, effective January 1 of this year, the DRA provision limits all payments for ASC procedures to the lesser of the OPPS rate or the ASC grouper payment. In other words, there is no longer any procedure that is more profitable to perform in an ASC than in a hospital-based surgical setting. This statutory change affects 275 codes. The 275 procedure codes that are subject to this payment cap, along with the other final changes for ASCs in CY 2007, can be found at the following Web address: www.cms.hhs.gov/apps/ama/license.asp?file=/ascpayment/downloads/07asc_hcpcs.zip.

The following chart reflects some of the procedure codes with the highest payment loss resulting from the implementation of the DRA cap:

Comparison of 2007 ASC Rates
Subject to DRA Cap with 2006 ASC Rates

(Based on ASC Rates Effective 1/1/07 and 2007 Outpatient PPS)
Prepared by Murer Consultants, January 2006

Procedure Code


2006 ASC Rate

2007 ASC Rate and Hospital Outpatient Rate

ASC Decrease in Payment for 2007


Electrical bone stimulation





Revision of neck muscle





Repair of wound or lesion





Treat fracture radius/ulna





Nasal/sinus endoscopy, dx





Clearance of airways





Repair superficial wound(s)





Treat spine fracture





In January 2008, Medicare will implement the biggest change to ASC payment in more than 20 years, including fundamental changes in the ASC procedures lists. The final rule for CY 2008 should be released sometime this spring.

Beginning in 2008, CMS is required to revise the ASC payment system. Consistent with the goals of quality, efficiency, and rational alignment of payment rates across payment systems, CMS is proposing to revise the ASC payment system using the Hospital OPPS relative payment weights as a guide.

The revised ASC payment rates would be based on the ambulatory patient classifications (APCs) used to group procedures under the OPPS. Therefore, CMS is proposing to link ASC payments with the APC system used by Medicare to pay for services in the outpatient hospital setting. The ASC payment groups would increase from the current nine clinically disparate payment groups to the 221 APCs used under the OPPS for these surgical services. APCs are homogeneous both in terms of clinical characteristics and resource use.

Not only will APCs be used to group procedures under the OPPS, CMS is also proposing lower payments in the ASC setting. The reasoning behind this is that CMS believes that a procedure performed in an ASC setting has a lower cost than the corresponding procedure performed in a hospital’s outpatient department.

ASC payment rates under the revised system for the expanded list of approved surgical procedures would range from $3.68 to $16,146.03, compared with a range of $333 to $1,339 under the current payment structure. Under both the OPPS system and the revised ASC system, payment weights are assigned to each procedure and then multiplied by a conversion factor to compute national payment amounts. Payment weights represent the relative resource uses of procedures. Procedures with higher resource use have higher weights, and procedures with lower resource use have lower weights. The ASC payment weight for a procedure under the revised ASC payment system would in general be set equal to the OPPS payment weight for the APC containing that procedure.

The conversion factor for ASC services would be less than that for OPPS services because of the greater efficiencies typical of ASCs and the generally lower costs incurred by ASCs. For example, unlike hospitals, ASCs do not have to satisfy Emergency Medical Treatment and Active Labor Act requirements, do not run emergency departments, and do not have to be open 24 hours per day, 7 days per week. Due to the statutory ASC budget-neutrality requirement, CMS estimates that the CY 2008 ASC conversion factor would be 62% of the estimated CY 2008 OPPS conversion factor. CMS currently estimates the CY 2008 ASC conversion factor to be $39.688.

For CY 2008, CMS has estimated that the revised ASC rates would be 62% of the corresponding OPPS payment rates. However, given the significant payment changes for some procedures under the revised payment system, CMS is also proposing a 2-year transition from the current ASC payment rates to the new payment rates. CMS proposes to phase in the new ASC payment rates as a blended payment amount equal to 50% of the applicable CY 2007 payment rate plus 50% of the applicable CY 2008 payment rate. Beginning in CY 2009, CMS would fully implement ASC payment rates calculated under the proposed methodology for the revised payment system.


As evidenced by the recent regulatory changes affecting ASCs, today’s dynamic health care environment is characterized by sweeping changes in regulation and reimbursement. Therefore, it is essential for prudent health care operators to position their products and services in this new era.

The goal of sound health care management is to identify market-oriented strategies to moderate reimbursement changes. The first step for being prepared for adopting prudent operator strategies is to be fully apprised of all of the details and nuances of the regulatory changes affecting the ASC industry.

Some strategies for prudent operators to manage the regulatory changes include the following:

  • Identify steps to take now to prepare for the 2008 reimbursement changes;
  • Analyze the new payment system’s effect on your specialties;
  • Prepare your business office for any and all changes;
  • Code correctly to ensure you receive the reimbursement you deserve;
  • Stay up to date with all new regulations and make sure to have a clear understanding of new regulations and their implications on your practice;
  • Spot missed reimbursement opportunities;
  • Utilize case management and case costing processes to ensure that the most financially reasonable procedures are being utilized in the ASC;
  • Assess proposed cuts in ASC rates for certain procedures;
  • Analyze the proposed changes to the 2007 ASC list;
  • Assess the financial impact of the proposed ASC payment system;
  • Plan for your facility to take on new cases allowed by the 2008 expanded procedure list; and
  • Update all budgeting to account for the changes to the ASC procedure lists and payment system.

Ultimately, it is essential for all health care providers to adapt to the federal regulatory environment and manage all regulatory changes in a well-informed and prepared manner. By using the prudent operator strategies outlined above, most ASCs should endure these regulatory changes unscathed.

Cherilyn G. Murer, JD, CRA, is CEO and founder of the Murer Group, a legal-based health care management consulting firm in Joliet, Ill, specializing in strategic analysis and business development. Murer may be reached at (815) 727-3355 or through her Web site at www.murer.com.