From: Becker Scott <>
Subject: CMS Issues Final Rule in ASC Payment Overhaul; 6 Keys to Orthopedic ASC's Physician-Driven Success; Sen. Crapo Introduces New Payment Reform Legislation; 2 Weeks Left: Register Early for Key Thoughts on Orthopedics Webinar


November 5, 2007
In This Issue
CMS Releases Final Rule for New ASC Payment System
Case Study: 6 Keys to an Orthopedic ASC's Physician-Driven Success
News and Notes
AHLA Publishes Resource on Changes to ASC Payment System, Conditions of Coverage
Key Thoughts on the Future of Orthopedics Webinar, Dec. 5: 2 Weeks Left to Register Early!
Companies to Watch
Ortho Webinar
CMS Releases Final Rule for New ASC Payment System

CMS on Nov. 1 released its highly anticipated final rule establishing the payment rates for services provided in ASCs in 2008. This finalizes the proposed rule that was issued in August as a companion to the final rule initially overhauling the Medicare ASC payment system. The effect of the latest final rule is twofold: It delineates payment rates for ASCs and HOPDs and establishes the first payments determined using the new payment system finalized in August.

Here's a look at the specifics:

  • In 2008, ASCs will generally be paid 65 percent of HOPD rates, as was proposed in August. Due to an inflationary update, CMS estimates Medicare payments for outpatient services will increase overall by an average of 3.8 percent in CY 2008.

  • Eight-hundred-nineteen more procedures will be payable in the ASC setting, for a total of 3,390. "FASA and its members have been saying that some of these procedures, like laparoscopic cholecystectomies, should have been included on the list even under the old criteria," writes the organization. "Although ASCs were unsuccessful in convincing CMS to add these and many other procedures under the old criteria, the new process and the new criteria resulted in their addition to the list."

  • There will be a four-year implementation period to give ASCs more time to adjust; newly added procedures will be established at full payments on Jan. 1.

  • Forty-five procedures designated as "device-intensive" will be paid at more than 65 percent of HOPD rates, and procedures performed more than 50 percent of the time in physicians offices will be capped at the lesser of either 65 percent of HOPD rates or the global fee Medicare pays physicians to perform the procedures in the office setting.

A complete list of additions and deletions; a breakdown of the 2008 national ASC rates and what the rates would be if fully transitioned in 2008; a rate calculator to determine local payments; information regarding a special audioconference on implementing the new rates; and other materials to assist FASA members in analyzing their 2008 payments are available at FASA's Web site and at AAASC's Web site.

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Case Study: 6 Keys to an Orthopedic ASC's Physician-Driven Success

The Orthopedic Surgery Center of Orange County opened in 1999 and within two years had outgrown its two ORs. The joint-venture between a supportive local hospital - Hoag Hospital - and a group of orthopedic surgeons started out as a 50-50 agreement and was modified to 80-20 in September 2005, with the surgeons group as the majority. Last year, the ASC moved to a new, four-OR facility in Newport Beach, Calif, and business hardly skipped a beat, despite the large capital outlay.

"This resulted in negative and reduced margins for a few months, but due to the already-established business and utilization, after a couple months, we were back to a healthy profit," says Gabrielle White, RN, the administrator of the Orthopedic Surgery Center of Orange County.

How has this ASC achieved success without bringing in a corporate partner? Here's a look at six key factos.

  1. Strong clinical background. Ms. White comes from an OR background, and applies that knowledge to the business side of operations, questioning vendors and physicians alike on the value of supplies and devices to negotiate better pricing. She says her focus on management, cost containment and contracting has "helped develop positive outcomes between clinical and administrative relations."

  2. Strong communication with physicians. At OSC, physicians aren't shielded from how their clinical decisions affect business; physician cost, payor mix, utilization and other factors are reviewed and improvements are communicated to the physician one-on-one. "Physicians are informed and educated regarding payer contracts, cost concerns and case mix, and all are more interested in the management of the center and the contracting," says Ms. White. "Physicians want to participate in improving cost containment and efficiency when they see what the outcomes can be."

  3. Contract vigilance. Ms. White ensures that payor contracts are updated routinely, analyzing payors' offers compared to OSC's needs and never, ever accepts a losing contract. "We have held contracts with all major payors in the area since 1999/2000, and these are updated and renegotiated routinely; therefore OSC contracts are now at a point where almost all contracts are much more reasonable," notes Ms. White. Implant carve-outs are a minimum of 100 percent (some are 105 to 110 percent of invoice cost), and "we do not accept a poor reimbursement contract -- 120, 140, 150 percent of current Medicare ASC rates, which are often offered by payors -- are not considered good or reasonable," she says.

    This year, OSC signed up with a contracting consultant to help with further contracting needs, get the most out negotiating and keep ahead of increasing costs. "This has proven to be very positive for OSC and, based on recent negotiations, she has already paid for herself," says Ms. White.

  4. Informing patients about payments. Patient deductibles and co-pays are paid up front, on the day of surgery, so OSC ensures that patients aren't surprised by this requirement or by their out of pocket costs. Many patients do not understand how their insurance contracts work and by informing them up front helps on many levels. "Our benefits department calls and informs patients one week prior to surgery of their financial responsibility," says Ms. White. "If we aren't able to make voice contact, a letter with the patient's financial responsibility is sent to the home so there are no surprises and no excuses." The center establishes promissory notes for patients who need assistance.

  5. Efficient scheduling and room utilization. Because physicians are well-informed about the business side, they are cooperative in altering their start times when needed to enhance scheduling efficiency. "If there's a two-hour gap in an OR between the morning block and the afternoon block because the morning physician did not fill his time completely, we ask the morning MD to start later to help close the gap," says Ms. White. "This improves staffing utilization and reduces non-productive time."

    At an average of just seven minutes, room turnover contributes to keeping the ORs humming throughout the day. Keys to minimizing the time include experienced staff, thoughtful scheduling, preparing and pulling cases the day before, and reviewing equipment needs at least one week out when possible, says Ms. White.

  6. Conscientious about supplies. OSC has supplies delivered daily in an effort to keep high-volume supplies on the shelf without tying up too much cash in inventory. Expensive implants are bought on consignment -- the facility only pays for what it uses -- and equipment trays are rarely purchased, as often they are provided with a bulk order of implants (OSC buys implants up front when it knows they will turn over quickly). Physicians who are cost-conscious help keep supply costs low.

    "Too often, OR teams will open everything on a preference card in an effort to be prepared for the physician, but staff here do not open disposable, non-routine supplies and implants until physicians ask," says Ms. White. "The supplies are all in the OR, but this way, the center doesn't have to pay for items that it cannot bill for."

Pulling it all together, says Mr. White, are experienced clinical and business staff who value teamwork and are independent self-starters who share their ideas.

"It may cost a little more, but it saves much more in time, and therefore costs, and eliminates headaches caused by inefficiency and inexperience," she says."New and inexperienced staff are mentored and monitored, and the physicians are aware of the new additions to staff and offer support, resulting in a strong, cooperative team."

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News and Notes

FASA applauds Sen. Crapo for leadership in ASC payment reform. Sen. Mike Crapo (R-Idaho) introduced the Ambulatory Surgical Center Medicare Payment Modernization Act of 2007 on Oct. 26, prompting positive comments from FASA "for his leadership in impacting change to expand Medicare beneficiary access to critical surgical services." If enacted, the legislation would improve the ASC payment system and the mechanism that CMS uses to determine what procedures Medicare reimburses ASCs for providing, says FASA in a release.

Similar to HR1823, which was introduced in the House of Representatives earlier this year by Reps. Kendrick Meek (D-Fla.) and Wally Herger (R-Calif.), this legislation links ASC payments to the payment system of HOPDs in an ongoing manner and would require CMS to pay ASCs 75 percent of the HOPD rate. The Medicare ASC payment reform CMS finalized earlier this year, on the other hand, results in payments to ASCs at 65% of the HOPD rate and, due to different methods for calculating annual updates for ASCs and HOPDs, will result in rates in both settings that will continue to diverge over time.

The new bill is patterned more closely on the Medicare Payment Advisory Commission's recommendation that ASCs be authorized to perform and receive Medicare facility payments for any surgical service, except for procedures requiring an overnight stay or those identified by HHS as too high-risk for the ASC setting. "In contrast to the final Medicare reforms," says FASA in a statement, "[HR1823] does not use a number of arbitrary criteria to determine what procedures are excluded."

Healthcare buoying office real estate. In weak downtown and suburban commercial real estate markets, healthcare tenants are moving into available spaces and reviving the markets, reports the Wall Street Journal in its Oct. 31 edition. In the sagging Cleveland-area market, for example, "bargain-hunting office buyers have snapped up ... trophy towers and suburban spaces at record levels this year," because they "see potential where a restrained pace of new construction combined with some expansion by existing companies such as healthcare firms." In addition, local government has increased county sales tax to fund the development of a medical complex in Cleveland that would include convention and device exhibit space.

Stark III to affect physician-hospital and physician-driven relations. The new Stark III regulations take effect Dec. 4. For a complete analysis, download the white paper, "CMS Issues Final Phase III Regulations -- Significant Impact on Physician-Hospital and Physician-Driven Relationships," authored by Scott Becker, JD, CPA, Ron Lundeen, JD, and Gretchen Heinz, JD, under Hot Topics at

Free McGuireWoods Webinar: "Sales and Marketing of Drugs and Medical Devices." On Wednesday, Nov. 7, from 11:30 a.m. to 12:45 p.m. Central time, McGuireWoods will host a free Webinar, "Current Developments Affecting Pharmaceutical & Medical Device Sales & Marketing Practices." The Webinar will focus on recent enforcement actions as well as practical ways to comply with the rapidly evolving laws and regulations that impact marketing practices by pharmaceutical and medical device companies. Topics to be covered include recent settlements related to off-label promotion and anti-kickback claims; state limitations on the use of prescriber data; and a discussion focused on the state false claims laws under the Federal Deficit Reduction Act. CLE credit is pending. To register, please e-mail Andrea Green. For more information about McGuireWoods' life sciences practice, please e-mail Candace Eastman.

Ask Scott Becker. If you have an ASC-related legal or business question, e-mail Scott, and we'll publish the answer in a future E-Weekly. Please indicate when asking whether you prefer to remain anonymous.

Call for proposals. We are seeking speaking proposals for the Orthopedics-, Spine-, and Pain Management-Driven ASC Conference, to be held in Chicago June 19 to 21. Should you have suggestions, please e-mail Scott Becker by early November.

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AHLA Publishes Resource on Changes to ASC Payment System, Conditions of Coverage

The American Health Lawyers Association published an article on two recent actions taken by CMS that will significantly impact ASCs: the adoption of a new payment system for services provided in ASCs, and the new conditions for coverage in ASCs. The final rule drastically changes how Medicare will reimburse ASCs, and the proposed rule has the potential for additional significant changes.

The following summary notes the key provisions of the final rule, which becomes effective Jan. 1, as well as discrepancies between the final rule and the proposed rule. The AHLA article was authored by Scott Becker, JD, CPA, Amber Walsh, JD, Gretchen Heinz, JD, Ron Lundeen, JD, and Ryan Higgins, JD.

I. Summary of Key Final Rule and Proposed Rules Provisions

  1. The revised payment rates. The final rule sets the ASC payment rates using the hospital outpatient prospective payment system (OPPS) as a guide. Essentially, the payment structure links the two payment systems. Thus, rather than billing pursuant to nine different ASC group rates as services are billed under the current ASC Rate, ASCs will now bill pursuant to numerous different ambulatory payment classifications (APCs). The rule is greatly positive for higher-acuity cases and less helpful for lower-acuity cases.

  2. Timing and implementation of the final rule. The revisions set forth in the final rule will be implemented beginning in January 2008. The new, revised ASC payment rates will be phased in over a four-year transition period.

  3. New procedures eligible for payment in ASCs. The final rule also significantly increases the number of procedures eligible for payment when performed in an ASC, adding approximately 790 procedures to the list of eligible procedures.

  4. Ancillary services. Many services currently provided in an ASC are considered "Stark services" and are not separately payable. Under the final rule, certain of these services will now be eligible for payment when furnished in an ASC.

  5. ASC payment for device-intensive procedures. The final rule provides a change in payment for certain high-cost devices. A device is deemed high-cost if the cost of the device is more than half of the median cost of the procedure.

  6. Physician billing. Currently, if a procedure is not on the ASC list, a physician may perform the procedure in an ASC and receive both the normal physician service component as well as the higher non-facility PE amount. Pursuant to the proposed rule, a physician will receive a payment as though he or she performed the services in the facility that receives payment.

II. CMS Issues New Conditions for Coverage for Ambulatory Surgical Centers

  1. Key changes.
  2. A. New definition for overnight stay. The existing conditions for coverage define an ASC as "any distinct entity that operates exclusively for the purpose of providing surgical services to patients not requiring hospitalization, has an agreement with CMS to participate in Medicare as an ASC, and meets the conditions set forth in subparts B and C of this part." 42 C.F.R. 416.2. The proposed conditions for coverage would add a new and clearer overnight stay element to the definition of ASC. This may be problematic for many ASCs.

    B. Patient transfers. This relates to the requirement for transfer agreements between surgical centers and local hospitals. Here, CMS appears to recognize that there are often political and competitive issues between local surgical centers and hospitals that often make it difficult for an ASC to obtain a transfer agreement with a local hospital.
  3. Remaining changes. The remaining changes to the conditions for coverage provide for additional controls, some of which are bureaucratic in nature. Commentary issued with the conditions of coverage provides insight into the agency's rationale behind the proposed changes.
  4. A. Statement and rule on patient rights.

    B. Governing body and management.

    C. Quality assessment of performance improvement.

    D. Laboratory and radiological services.

    E. Infection control.

These proposed rules would, taken as a whole, have a significant impact on ASCs from both operational and business perspectives. CMS accepted public comments on the proposed rule through Oct, 30, and expects to publish a final rule later this year.

The complete article, authored by Scott Becker, JD, CPA, Amber Walsh, JD, Gretchen Heinz, JD, Ron Lundeen, JD, and Ryan Higgins, JD, is available for download as a PDF from the American Health Lawyers Association's bookstore.

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Key Thoughts on the Future of Orthopedics Webinar, Dec. 5: 2 Weeks Left to Register Early!
At a Glance: "Key Thoughts on The Orthopedics Industry"

What you will learn: There are two key issues that will be the focus of the Webinar:

  1. A forecast for the next 10 years in orthopedics; and

  2. how ASCs, hospitals and medical device companies should work with orthopedic surgeons.

Who should attend: C-level hospital leadership, vice presidents and other leaders who who work in a orthopedic-physician-relations capacity, orthopedic physician leaders, ASC administrators, ASC owners, and ASC and medical device companies.

When: Wednesday, Dec. 5 at 2 p.m. CST (running time: 60 to 90 minutes)

About the speakers: John Cherf, MD, MBA, MPH, is an orthopedic surgeon at the Chicago Institute of Orthopedics, a clinical advisor for Sg2 and a thought-leader in orthopedics. Dr. Cherf founded the Midwest Orthopedic Institute, an orthopedic physicians group with full integration of diagnostic imaging, rehabilitation, ambulatory surgery and occupational medicine under one roof. He presently practices in Chicago and is once of the founding members of the Chicago Institute of Orthopedics. With more than 15 years' experience and fellowship training in sports medicine, he has served as team physician for several collegiate and professional sports teams in addition to U.S. Soccer. Dr. Cherf has published in numerous peer review journals, speaks internationally, and serves on several advisory boards for healthcare-related businesses.

Scott Becker, JD, CPA, is a partner in and co-chair of the health depatment at the national law firm of McGuireWoods in Chicago. For more information, visit his McGuireWoods profile or

Cost: $199 if registering before Nov. 19 (save $50!).

How to register: There are five easy ways.

  1. Fill out and submit the online registration form.

  2. E-mail Jessica Cole.

  3. Call us toll-free at (800) 417-2035.

  4. Download the printable registration, fill out and fax to (866) 678-5755.

  5. Download the printable registration, fill out and mail to 315 Vernon Ave., Glencoe, IL 60022.
Companies to Watch

We are delighted to highlight the following companies in this week's E-Weekly.

ZChart. It's incredible that surgical records are still kept the same way they were almost 100 years ago when you consider paper charts are messy, wasteful, expensive and leave room for error or misinterpretation. Further, creating and filing paper charts is time-consuming and paper storage is inefficient. This robs resources from patient care. ZChart's EMR was developed by dozens of healthcare professionals - administrators, office staff, nurses and physicians - at multi-specialthy outpatient surgery centers. Years of development and everyday use in the real-world surgery center environment has created a first-rate, intelligent, 21st century surgical chart that will surprise and delight users. They have a system designed exclusively for ASCs. Contact Tom Felstad at 866-924-2787. For more information visit

B. Braun. For 150 years, B. Braun has developed a rich heritage of knowledge and expertise for delivering innovative healthcare products, medical devices and programs designed to improve both patient and health-professional safety.

From a small-town apothecary founded in Germany in 1839, B. Braun has grown into a global organization with over 30,000 professionals worldwide -- and remains committed to translating customer needs into products with unmatched quality, cost-effectiveness, environmental responsibility and superior technology and safety. Using its Sharing Expertise initiative as a driving philosophy, B. Braun collaborates with customers, partners and employees to develop innovative products, services and education programs.

McShane Construction Corporation. McShane Construction Corporation is an integrated design/build construction and real estate development firm offering comprehensive services for the healthcare industry. Established in 1984 and headquartered in Rosemont, Ill., the firm also operates regional offices in the southeast, southwest and western regions. McShane Construction's healthcare specialties include both construction and real estate services for medical office buildings, ambulatory surgery centers, specialty hospitals, critical access hospitals, diagnostic imaging centers and centers of excellence. Contact Mr. John Daly, vice president, healthcare, at 847-692-8616 or visit the firm's web site at for more information.

*           *           *

If you have any questions on any of the items listed in this letter, please contact me at (312) 750-6016 or by email at

Very truly yours,
Scott Becker

Scott Becker, JD, CPA
(312) 750-6016

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