For years, ambulatory surgery center leaders have argued that complex procedures can be performed safely and more cheaply outside the hospital. CMS is now acting on that argument. The agency began a three-year phaseout of Medicare’s inpatient-only list in 2026, removing 285 mostly musculoskeletal procedures, and its proposed 2027 rule would remove another 637 services from the list and add 618 codes to the ASC covered procedures list.
Raghu Reddy, chief administrative officer of Southfield, Mich.,-based MiOrtho Surgery Center and a board member of the Ambulatory Surgery Center Association, said the policy solves only half the problem. Moving higher-acuity cases into ASCs does little for centers, he said, if the reimbursement attached to those cases does not move with them.
“Yes, it is beneficial to bring the case from the hospital to ASC, but I really think we should also be looking at the reimbursement for the cases because our margins are still going to be compressed,” Mr. Reddy said in an interview with Becker’s.
The gap between sites of service is already wide. Under the 2026 final rule, CMS set the ASC conversion factor at $56.322, compared with $91.415 for hospital outpatient departments. Mr. Reddy said ASCs are paid less “for the same procedure with better outcomes, better satisfaction scores, and everything else in between.”
He does not dispute that hospitals carry burdens ASCs do not.
“We understand in the ASC industry that the hospitals have a lot of uncompensated care. They take a lot more risk,” he said.
His concern is that ASC rates — from Medicare to Medicare Advantage to commercial payers — have not kept pace with what it costs to deliver care. More complex cases carry more expensive inputs. When an implant vendor raises prices year over year, that increase falls to the center’s bottom line while reimbursement stays flat. Mr. Reddy pointed to three pressures compounding at once: post-pandemic inflation, rising labor costs driven by competition for a limited pool of qualified staff and steep payment cuts to anesthesia providers.
As anesthesia groups absorb reductions from government and private payers, many are asking ASCs to cover the difference through subsidies.
“Then, they have to go and find revenue streams that’s going to keep their doors open,” Mr. Reddy said. “Unfortunately, they have no other way but to put that burden back on the ASC, which was unheard of about 10 years ago or five years ago. But now, it’s pretty rampant.”
Commercial contracts can tighten the squeeze. Mr. Reddy walked through another hypothetical, noting that actual figures vary by market. An ASC negotiates $15,000 for a total knee replacement that might cost the insurer $25,000 or more in a hospital outpatient department. Later, citing losses on its plans, the payer cuts the ASC rate to $11,000 and leaves the hospital rate unchanged.
“How does this fare for us while we’re doing the exact same surgery? We’re already saving them $10,000-odd or more,” he said.
Mr. Reddy said the case for flat rates often rests on the idea that ASC ownership is a secondary income stream for physician and corporate investors, who can therefore absorb more cost. He summarized that view bluntly before rejecting it.
“[They argue,] ‘Let them whine a little bit. They’re already making too much money,’ and that’s the argument that does not sit well in a free market society and is not healthy,” he said.
ASCA’s position, he said, is a push for fair, equitable rates and payment parity with hospital outpatient departments, not special treatment. He places responsibility for that outcome with policymakers — members of Congress and the health committees at the state and federal levels — and argues the industry has the data and outcomes to show it is “saving the whole health system in the United States billions of dollars.”
“Healthcare is overregulated and underappreciated, in my opinion,” Mr. Reddy said.
As more procedures leave the inpatient-only list, he said, payers that respond with cuts rather than increases risk undermining the performance that justified the shift to ASCs in the first place.
“Then where is the incentive to provide the quality of care?” he said.
At the Becker’s 32nd Annual Meeting: The Business and Operations of ASCs, taking place October 29-31 in Chicago, ASC leaders, surgeons and healthcare executives will explore strategies to drive growth, enhance operational performance, navigate reimbursement challenges and prepare for the future of ambulatory surgery. Apply for complimentary registration now.
