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Doing the deal: Understanding the key differences between ASC and hospital RCM

In 1970, Drs. Wallace Reed and John Ford opened the nation’s first ambulatory surgery center in Phoenix — the culmination of years of clamoring by providers, public officials and patients for a lower-cost, high-quality alternative to expensive hospital stays for same-day procedures.

The concept was a success virtually from the outset. Today, there are approximately 5,500 ASCs across the United States, and these outpatient facilities increasingly play host to an ever-sophisticated array of surgical procedures made possible by clinical advances in anesthesia and medical technology.

The business of ASCs also has changed dramatically in the more than four decades since Drs. Reed and Ford opened the first ASC. Once overwhelmingly dominated by independent physician operators and a few large management companies, the industry is now the darling of its former chief adversary — hospitals — which are highly motivated in the post-Affordable Care Act landscape to cut costs and improve quality for surgery that does not require an overnight stay.

Sound familiar?

To achieve these goals, hospital-physician joint venture ASC partnerships are becoming a predominant growth strategy among hospitals, creating a win-win for both the physicians as well as the hospitals. Existing physician owners benefit by gaining more referrals from the hospital and often improve reimbursement rates due to this newfound affiliation. Health systems gain the opportunity to participate in the growing ASC market while still providing sufficient incentives to their physician partners, ultimately leading to increased profitability, physician morale, patient satisfaction and clinical outcomes.

Recent public policy changes also are expected to be a major near-term driver of the hospital-physician joint venture model. A provision in the 2015 budget deal signed by President Barack Obama in November removed a significant incentive for hospitals to acquire off-campus ASCs and convert them into hospital outpatient departments. Specifically, the provision states that an ASC acquired outright by a hospital must remain an ASC from a reimbursement perspective unless the ASC is located within 250 yards of the hospital’s main buildings. This is important since ASCs today are reimbursed at approximately 60 percent of the rate of hospital outpatient departments.

Facilities acquired before Nov. 2, 2015, are exempt from the new reimbursement rules, which become effective Jan. 1, 2017. Given that the primary benefit of converting ASCs to HOPDs is disappearing, many hospitals and health systems will pursue a hospital-physician joint venture ASC strategy with the thousands of still-independent domestic ASCs that constitute over 60 percent of the U.S. surgery center market. But ASCs and hospitals are very different in a variety of ways. In this first of a two-part series, ASC leaders will learn about these critical differences, specifically with regards to how ASC and hospital coding and billing differ – and why it’s important to the ongoing success of a facility to keep these functions separate from the hospital once a JV deal is complete.

Coding

Hospital coding typically resembles a laundry list, with every pill, bandage and stitch spelled out related to a patient encounter. ASC coding is typically procedure-based, with a list of approved procedures that can be performed in that setting. ASCs use both CMS 1500 forms and UB forms. ASCs also utilize CPT codes, revenue codes and HCPCS codes.

Medicare, and a few of the large commercial carriers, utilize NCCI edits and many commercial carriers use other edit systems. There is no standardization of edit systems, which makes ASC coding very complex.

Reimbursement

There are two primary differences between hospital and ASC reimbursements. The first difference is the rate. ASCs are reimbursed at roughly 60 percent of the rate of hospitals for a similar procedure, which was a primary motivating factor for hospitals in acquiring off-campus ASCs.

The second major difference is the reimbursement methodology. Procedures performed at hospitals and ASCs are classified under different coding groups. ASCs utilize complex arrangements of “groupers” and percent billed, while hospitals employ a combination of per diem, case rates, revenue codes, as well as some CPT codes — more traditional, straightforward billing and coding techniques. Unlike hospitals, scant data exists for procedures performed in ASCs, creating difficulties when claims are underpaid.

Managed care contracting

The Affordable Care Act gave rise to a dramatic expansion of network agreements between providers and payers that create patient volume for hospitals and health systems and stabilize costs for insurance companies.

Managed care contracts are negotiated directly with ASCs, a process that requires knowledge of and experience with the ASC revenue cycle, as well as considerable research to ensure procedures are reimbursed at the correct rates; if not, facilities may wind up accepting cases that have no chance of turning a profit.

Poorly negotiated managed care contracts for hospitals and ASCs are frequently the source of financially underperforming facilities. Understanding how the contract applies to the entire revenue cycle, and experience negotiating with commercial payers, helps prevent a significant loss of revenue. While ASCs use a complex combination of CPT codes and “percent billed” arrangements, hospital outpatient departments frequently use ambulatory payment categories to receive reimbursements from managed care contracts.

Staffing specialization

Revenue cycle management has become increasingly complex for hospitals, physicians and surgery centers alike. RCM specialization is the key to achieving success for increasingly diversified hospitals and health systems, and few if any providers today are staffed to handle all of the unique billing and coding requirements associated with their growing rosters of facilities and practices.

Outside ASC RCM specialists possess these best practices and key performance indicators, which enable new ASC owners to assess and improve financial performance. This specialization also extends to implementing the best technology for each step of the revenue cycle, as well as business office processes and functions. Taken together, a trusted ASC RCM advisor provides ASC owners with the best opportunity to improve compliance, maximize reimbursement, and create happy patients and physicians.

More articles on surgery centers:
Operating a successful outpatient total joint replacement program
ASC transactions, payer partnerships, service line growth: 5 key updates from Surgery Partners
Memorial Sloan Kettering moves cases to the outpatient setting—5 key thoughts

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