Potential Impact of MedPAC's Recommendation on ASC/HOPD Payments for Eye & Pain Procedures

The 2013 MedPAC report examined services meeting its principles to align payment rates across ambulatory surgery centers and hospital outpatient departments, excluding services typically provided with an emergency department visit or sicker patients who aren't good candidates for the ASC setting.

The report identified 12 groups of services — nine eye procedure groups, two nerve injection groups and one skin repair group — where HOPD rates could be reduced to the ASC level. If these procedure rates were reduced, the Medicare program spending and beneficiary cost savings program would save around $600 million per year. The change would impact both hospitals, physician-owned hospitals performing a high volume of outpatient procedures and ambulatory surgery centers.

"Given the trend toward consolidation in the market, not only is MedPAC pushing these sorts of policies, but you also have private payers pushing policies to neutralize payments between hospitals and ASCs for these procedures," says Nick Janiga, ASA, Director at HealthCare Appraisers. "Hospitals systems are acquiring many different ancillary outpatient businesses today, and they can achieve significantly higher reimbursement rates for the same procedures. This certainly does change the landscape."

There are a few potential outcomes if MedPAC moves forward with these policies:

•    Hospitals acquiring additional surgery centers to consolidate facilities and increase operating room utilization to a point where they'll be able to maintain profitability.
•    Hospitals become more willing to joint venture with physician organizations and/or ASC management companies to manage outpatient centers given that there would be less of a payment delta across this facility type.
•    Hospitals may push these non-emergent procedures out to freestanding ASCs.

"Site of service differential is going to be something that MedPAC continues to analyze and consider particularly as hospitals continue to acquire outpatient service lines and switch them over to a more costly proposition for insurers and patients," says Mr. Janiga. "It certainly does change the return on investment for hospitals that are historically out there acquiring ASCs and looking to acquire more."

Medicare isn't the only payer seeking to lower reimbursement for HOPDs on non-emergent procedures; commercial payers will likely follow suit if government payers move forward with a neutralization policy.

"There tends to be a few years lag in the commercial payers following Medicare policy," says Mr. Janiga. "But it puts ASCs on a more even playing field with the hospitals on these few select specialties/procedures. Depending on how reimbursement is changed, a hospital surgery center may not find ophthalmology and pain cases to be profitable after considering the cost of necessary equipment. These cases may be pushed to freestanding ASCs if hospital surgery departments are not willing to make the continued capital investment."

Despite the potential for neutralization of some procedures, hospitals still have more leverage with managed care contracts than freestanding ASCs, says Mr. Janiga, and ASCs will continue to be the low cost provider in many situations. Then the question becomes whether MedPAC will seek site of service neutralization efforts with additional procedures and specialties in the future.

"I think some services will always have the site of service differential because a good number of those cases are performed in an emergency situation where the hospital setting is necessary, especially for high acuity cases," says Mr. Janiga. "Depending on the hospital's position and goals, I think individual hospitals and health systems will react differently. Some will scale-up operations and grow while others shrink operations and push some of these outpatient procedures into the freestanding ASC space. Some may also consider more joint ventures for their outpatient surgical programs."

More Articles on Surgery Centers:
ASC M&A Activity: 4 Big Trends for 2014

What is An ASC Worth—10 Key Points

ASC Ownership Sales: 4 Things to Consider Beforehand

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