"Healthcare Reform" Survival for Surgery Centers

Author Nicholas Newsad's "The Medical Bill Survival Guide: Easy, Effective Strategies for People Experiencing Financial Hardship" received national media coverage when it was published last month, including a positive review in HFMA's Healthcare Financial Management. In this column, Mr. Newsad describes how imminent changes to the insurance environment will present new challenges to ASCs.


Overview

The insurance landscape is going to change dramatically in next 10 years as the recession and the Affordable Care Act have already irrevocably affected how medical services are being paid. According to the National Health Expenditure projections released in September, CMS now projected that 142 million U.S. citizens will be enrolled in Medicare and Medicaid by the year 2019[1]. This will compromise 42 percent of the total American population of 338 million people in 2019 [2]. All ASCs owners and managers should begin developing their business strategies now. Will your ASC survive on 42 percent Medicare and Medicaid?


Explosive Medicaid growth

According to the Kaiser Foundation, Medicaid enrollment grew by approximately 6 million enrollees between December 2007 and December 2009[3]. An additional 22 million people are projected to enroll in Medicaid in 2014 when the minimum income eligibility criteria increases from 100 percent of Federal Poverty Level (FPL) to 133 percent of FPL1.


Medicaid primarily benefits children in impoverished families and elderly adults in nursing homes. Very few adults between 19 and 64 years of age are eligible to enroll in Medicaid. Presently, children under 19 years of age represent 60 percent of non-elderly Medicaid enrollees overall[4]. Children represent more than 60 percent of Medicaid enrollees in 28 states.


In a sample of 1,077 Medicaid cases performed, the most common ASC specialties were ENT (31 percent), gastroenterology (15 percent), orthopedic (14 percent) and ophthalmology (13 percent). The large proportion of ENT can be attributed to the large proportion of children in Medicaid.


It is not surprising that many physicians have elected not to see Medicaid patients. Historically, Medicaid physician reimbursement has averaged only 72 percent of Medicare physician fees4. Medicaid physician reimbursement is higher than 100 percent of Medicare in 11 states and lower than 70 percent of Medicare in 11 states.


Seventy-five (75 percent) of Medicaid enrollees live in families with household incomes less than 133 percent of FPL. Medicaid patients cannot be balance billed for amounts above contracted rate. The likelihood of collecting any copays is less likely too because Medicaid eligibility translates to annual wages of about $9 per hour for one wage earner supporting a family of three.


Medicare and physician patient selection

A big question we are all waiting to find out is how many surgeons will really stop seeing Medicare patients if physician payment cuts occur this fall. Physicians are looking at a 21 percent payment cut in if Congress does not intervene by December 1st. Congress decided in June to postpone confronting this issue until after the election takes place in November.


While physician Medicare payment is a big question mark, on the ASC facility side, Medicare payments are dramatically different then they were four years ago. For example:


  • According to the ASC Association's 2011 Medicare payment calculator, the national average payment first CPT of an ACL knee repair (29888) now pays $3,371[5]. So a Medicare ACL repair performed in an ASC may now reimburse $4,000-$4,500 depending on whether two or three procedures are billed.
  • Similarly, the national average payment for the first CPT of a hysteroscopy (58563) is $1,457. So a minimum total payment of $2,200 for multiple procedures could be expected for most Medicare gynecology cases.


Not all specialties were winners in these Medicare payment changes. It appears that there is now a better business case for high-volume gastroenterology and ophthalmology specialties to migrate into single-specialty centers (volume and scale permitting) to maximize workflow efficiency.


Managed care reimbursement and cost-shifting

Unfortunately, commercial managed care insurance has to subsidize the Medicare and Medicaid programs for services rendered below cost. This subsidy of Medicare and Medicaid is conveyed through inflated managed care payments. Managed care pays more the Medicare and Medicaid does, allowing providers to subsidize underpayments from government payers.


The problem is that medical care for more Medicare and Medicaid patients than ever before now has to be subsidized by fewer managed care patients than ever before. Approximately 12-15 million people will leave their commercial insurance plans over the next nine years to enroll in Medicare. We are also looking at a large drop-off in the number of working adults with employer based insurance purely because the upcoming generation is demographically smaller than the baby boomers.


One offset to this phenomenon is that virtually no charity care will need to be subsidized after 2014. Patients that receives charity medical care now (meaning no reimbursement at all) should be at least marginally covered by some sort of insurance. For example, we know that 22 million people that were formerly uninsured should substantially enroll in Medicaid in 2014 and medical care for these 22 million new Medicaid enrollees will be subsidized to a lesser degree by managed care, because Uncle Sam is paying for a larger portion of their care.


Implications to ASCs

Not-for-profit hospitals, which are bearing the brunt of charity cases now, will see a substantial increase in total reimbursement as these hospitals will be reimbursed, albeit marginally, for services charges that were formerly waived as charity care.


ASCs that are seeing the Medicare proportion of their portfolio increase may consider taking a hard look at costs and deciding whether than is any incremental benefit to seeing Medicaid patients if they are not already. Cost allocation accounting and scheduling strategy both need to be considered in determining whether your ASC is efficient enough to turn a margin on Medicaid.


If your surgery schedule has gaping holes in the middle of the work day, or you frequently find staff idle, it may well be worth your while to plug some Medicaid cases into the schedule. If your schedule is packed, the decision may already be made for you.


Depending on your state, Medicaid may only reimburse for the primary procedure performed. Based on a sample of 1,077 Medicaid cases performed, the average reimbursement for Medicaid ASC specialties was $675 for ENT, $331 for GI, $846 for orthopedic surgery and $858 for ophthalmology. If you have idle staff or holes in the schedule, your labor costs are sunk. The staff is still going to be paid for idle time between commercial insurance cases regardless. Medicaid reimbursement only needs to be high enough to cover your material costs. Any revenue in excess of your materials will contribute to covering your sunk labor costs.


Conclusion

The ever competitive reimbursement market will require meticulous management to survive. Providers that anticipate and actively confront these challenges will persevere while those that passively ignore them will fail. ASC owners and managers must educate themselves of the larger issues affecting the healthcare industry and understand the effects upon themselves.

 

Nicholas Newsad, MHSA, is the author of "The Medical Bill Survival Guide: Easy, Effective Strategies for People Experiencing Financial Hardship." The book is available from Amazon.com and all major book retailers.


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CPT copyright 2009 American Medical Association. All rights reserved. CPT is a registered trademark of the American Medical Association.


The information provided should be utilized for educational purposes only. Facilities are ultimately responsible for verifying the reporting policies of individual commercial and MAC/FI carriers prior to claim submissions.



[1] http://www1.cms.gov/NationalHealthExpendData/Downloads/NHEProjections2009to2019.pdf

[2] http://www.census.gov/population/www/projections/summarytables.html

[3] http://www.hfma.org/News-and-Opinion/HFMA-News/Medicaid-Spending-and-Enrollment-Increases-Attributed-to-Recession/

[4] http://www.statehealthfacts.org/comparecat.jsp?cat=4

[5] http://ascassociation.org/calculator2011proposed.xlsx


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