Top 8 Surgery Center Stories of 2009

1. Medicare reimbursement. During 2009, the ASC Association and ASC industry advocates lobbied for Medicare payment rates that would protect the financial viability of ASCs that care for Medicare beneficiaries. While these efforts have achieved some success, Medicare payment rates continue to favor HOPDs.


The CMS Final Rule for 2010, which was released in Nov. 2009, includes a 1.2 percent inflation update for ASCs beginning Jan. 1, 2010. This is an improvement over 2009, as there was no inflation update in 2009 for ASCs. However, HOPD rates received a 2.1 percent inflation update for 2010. Inflation updates for ASCs remain based on the estimated change in the consumer price index for all urban consumers while HOPD updates are based on the hospital market basket, a measure of inflation that tracks the change in healthcare costs, despite attempts by the ASC Association and ASC Advocacy Committee for the hospital market basket updates to also be applied to ASC rates.

In addition to the inflation update, ASC 2010 Medicare payment rates include the graduated transition to the new ASC payment system, which pays ASCs at a percentage of HOPD rates and went into effect Jan. 1, 2008. For 2010, 75 percent of ASC payment rates will be determined using this new methodology while 25 percent will be determined using the previous system. The ASC Association estimates that, on average, ASCs will be paid 57.9 percent of HOPDs for the same services due to these changes and changes in hospital relative weights after the 2010 rates take effect.

CMS also approved 80 new procedures in the ASC setting and added 76 new CPT codes to the ASC list.

While the addition of procedures to the ASC list is beneficial for the ASC industry, the payment updates fell short of the ASC Association's expectations. "We are not pleased with the updates," says Kathy Bryant, president of the ASC Association, "We believe that the best way for Medicare to save money is to encourage services at cost-effective facilities, such as ASCs. Not using the same relative weights for ASC and HOPD payment is counterproductive to Medicare's goal of providing services as efficiently as possible."

2. Healthcare reform efforts and its impact on ASCs. Since Pres. Obama was inaugurated in Jan. 2009, he has focused on healthcare reform as a key issue for his presidency. Currently, both the House and the Senate have passed health bills, and Democratic leaders are working to merge them into a single bill that can be put to a vote. Regardless of the language of the final bill, it is almost certain some type of law will be passed to expand healthcare coverage to the uninsured. A key component of reform efforts that directly affects ASCs is how Medicare payments may be reduced to help fund an expansion of coverage, and the uncertainty surrounding this issue is making it difficult for ASCs to plan for the future.

This uncertainty is the top concern for many physician-owners of ASCs, including Neal Lintecum, MD, an orthopedic hand surgeon who practices at Lawrence (Kan.) Surgery Center. Dr. Lintecum says that these potential payment reductions would negatively impact the financial success of his ASC.

Peter Colquhoun, MD, a board-certified ophthalmologist and physician-owner of Brookside Surgery Center in Battle Creek, Mich., says that uncertainly about reimbursements from government payors are particularly threatening to specialties that treat a large number of Medicare beneficiaries, such as ophthalmology. 

Uncertainty also makes it difficult for ASCs to plan strategically for growing or expanding their business. "We're all feeling very uncertain," says Bonnie Brady, RN, administrator, Specialty Surgical Center in Sparta, N.J. "You just can't predict what's going to happen, so it makes it very difficult for us to project a business. How can you do a strategic plan when you don't know what the country is going to be doing? How can you move forward with buying a piece of equipment if you're unsure of your reimbursements for it?"

3. New Medicare Conditions for Coverage. During 2009, ASCs also became required to provide new verbal and written advance notices to patients under CMS's new Conditions for Coverage. The new conditions were approved in Oct. 2008 and went into effect May, 18, 2009. These conditions require Medicare providers, including ASCs, to provide advance notice of physician financial interest, patients' rights and advance directives to patients.

CMS did not originally define what it meant by "advance notice," which led many healthcare attorneys to advise their ASC clients to provide the notice at least one day prior to the day of surgery. However, doing so created an administrative and procedural challenge for many ASCs as many do not require patient visits prior to the day of the procedure.

ASCs worked to meet these requirements in a number of ways including mailing disclosure documents and providing verbal disclosures over the phone, working with physician office staff to provide the documents and verbal disclosure and using electronic systems to provide these notifications to patients online.

On the day the new Conditions for Coverage were to go into effect, CMS issued an exception to the advance notice rule for surgeries that are scheduled on the same day they occur. In these instances, ASCs are required to provide notice prior to obtaining the patient's informed consent. According to CMS, same-day surgeries should be an infrequent occurrence as most ASCs perform elective surgery, and the frequent occurrence of such cases may represent noncompliance with the advance notice requirement.

"While most ASCs were able to successfully comply with these new Conditions for Coverage, complying adds costs to ASC services, that in my opinion, do not equate to the benefit of advance notification," says Ms. Bryant. "These regulations do not improve the quality of services ASCs provide."

4. Out-of-network reimbursement, pressures to go in-network. Numerous lawsuits and settlements regarding out-of-network reimbursement to healthcare providers, including ASCs, made headlines in 2009. Many of these cases ended in rulings against and settlements by the insurance industry. However, despite these rulings, many ASCs continue to experience pressures to contract with insurers in their markets.

One of the first major occurrences in 2009 concerning out-of-network reimbursements was New York Attorney General Andrew Cuomo's investigation into and eventual shut-down of the Ingenix database, a database used by health insurers across the country to set out-of-network reimbursement rates for out-of-network services. The investigation revealed that the database, which was owned by UnitedHealth Group, intentionally skewed usual and customary rates downward through faulty data collection and poor pooling procedures in order to reduce payments made by insurers to out-of-network providers.

In Jan. 2009, UnitedHealth agreed to shut down the database and contribute $50 million toward the creation of new, independent database. Between January and March 2009, more than 10 other insurers, including Aetna, CIGNA and WellPoint, settled with the state of New York, agreeing to end their relationship with Ingenix and contribute to the creation of the new database. To date, more than $100 million has been collected from insurers for this cause.

In Aug. 2009, Cooper, Lundy & Bookman, a Los Angeles-based law firm, filed a national class action complaint on behalf of Downey (Calif.) Surgical Clinic and other non-contracted ASCs across the country, alleging misuse of the Ingenix database by UnitedHealth to knowingly under-reimburse ASCs by millions of dollars over many years. The case is currently entering a discovery phase in which the firm will depose UnitedHealth and Ingenix employees, says Daron Tooch, an attorney working on the case.

Another significant court decision was passed down in Nov. 2009, when the New Jersey Appellate Division of the Superior Court of New Jersey upheld a decision by the state's trial court (Garcia v. HealthNet) that Wayne (N.J.) Surgical Center and its physician-owners did not violate the state's Insurance Fraud Prevention Act by waiving out-of-pocket costs for patients or by referring to patients to an ASC in which they owned an interest without notifying these patients' insurer of these practices.

According to Thomas Gentile, partner at Lampf, Lipkind, Prupis and Petigrow, the attorney who argued the case on behalf of WSC and its physician-owners, the case stemmed from an effort by insurers in the state to pressure ASCs and other physician-owned facilities to contract with them. Contracted rates are typically much lower than out-of-network rates paid to providers.

A critical component of Mr. Gentile's argument in the case was the insurer's lack of authority to bring forward suits against healthcare providers for insurance fraud using statues that are not intended to be enforced by private parties. 

While the case is a win for New Jersey ASCs, it does not completely remove all challenges to out-of-network practices by ASCs in the state or in other states around the country. Many ASCs around the country report pressure from insurers to go in-network. One tactic used by some insurers is threatening to revoke in-network status of physicians who hold ownership interest in out-of-network ASCs.

"We are beginning to see efforts by some insurers to pressure physicians to refer to in-network facilities," says Thomas Michaud, chairman and CEO of Foundation Surgery Affiliates. "In several states, insurers, such as Blue Cross, have sent letters to physicians who have a pattern of referring to out-of-network facilities and basically threatening to revoke the physician's contract if the pattern continues."

Other tactics insurers use include bifurcating in-network and out-of-network deductibles and capping out-of-network benefits.

ASCs that opt to remain out-of-network face an increasingly difficult environment; however, they are likely remain viable and some highly profitable, at least in the short-term, due to the high level of reimbursement they receive as compared to contracted ASCs for procedures.

5. Market consolidation, growth of hospital/physician joint ventures. Due to various market dynamics, including a decrease in the number of available non-affiliated physicians for ASCs to recruit and healthcare reform efforts, the ASC industry has experienced some consolidation of ownership in 2009.

However, industry experts expect even greater market consolidation in the coming years. One of the most interesting stories regarding transactions in 2009 dealt with the growth of hospital interest in hospital/physician joint venture ASCs. 

"I see a lot of mergers for surgery centers in the future, both between existing ASCs and through joint ventures and hospital acquisition of ASCs." says Tom Yerden, CEO of TRY Health Care Solutions. "Hospitals view a physician-hospital joint venture or outright acquisition of a surgery center as one way to expand/protect market share and complement their physician relationship strategy." Consolidation may also include corporate players and this, he says, is "not necessarily a bad trend."

As competition intensifies and reimbursement becomes less certain, hospitals and physicians are increasingly exploring partnering in joint-venture ASCs. Both are finding numerous economic, marketing and clinical reasons to join forces. Hospitals are seeking ways to align incentives with doctors, staunch physician defections and retain the outpatient business increasingly leaving their doors, while pleasing their most loyal physicians. Physicians often seek the access to capital and greater market clout hospitals possess.

"Hospitals have become much more interested in owning surgery centers," says Luke Lambert, CEO of ASCOA. "Many of our centers have been approached by their local hospitals in the past year asking whether the centers are open to accepting them as investors."

ASC industry insiders warn that numerous hospital/physician joint ventures have failed for a variety of reasons including unequal governance structures, misunderstanding or perceived inequalities in profit-sharing distributions and unclear strategic plans. Successful hospital/ASC joint ventures must carefully consider any joint-venture arrangements before moving forward.

6. Codey Law amendments signed into law.
In March 2009, amendments to New Jersey's Codey Law were signed into law that included an exception for physicians to refer patients to ASCs in which they held an interest. The Codey Law prohibits self-referrals by physicians to any healthcare services in which they own an interest. Before the signing of the amendment this year, physicians generally accepted that physician ownership of ASCs was allowed under the Codey Law with some risk as the law did not explicitly exempt ASCs.

The law's recent amendment allows for physician self-referrals to outpatient surgical facilities if the referring physician personally performs the procedures, if the physician's remuneration as an owner of or investor in the ASC is not tied to the volume of patients the physician refers and if the physician's ownership interest is disclosed to the patient, among other conditions.

Although the amended Codey Law reduces risks for physician-owners of existing ASCs, the law also places a moratorium on new ASCs except for limited circumstances, such as transfer of ownership. New Jersey is the first state in the country that has a prohibition on physician ownership of surgery centers.

"When the Codey Law [amendments] passed, yes, it was a good thing for ASCs because previously, we were unsure of the status of ASCs in New Jersey," says Ms. Brady. "It did allow us to keep our ASC, but it has created more paperwork and documentation for us and essentially limits new ASCs."

7. RAC audits and an increased focus on fraudulent claims. Following a successful three-year recovery audit contractor demonstration program that initially identified $900 million Medicare overpayments to healthcare providers and suppliers in six states, a permanent, national RAC program began to roll out across the country in 2009. The permanent RAC program began operating in several states March 1, 2009, with implementation for the remaining states required before Jan. 1, 2010. The permanent RAC program will be carried out by four regional RACs and their subcontractors and will affect healthcare providers who bill federal programs, including ASCs.

The RAC audits come at a time when the federal government has increased its focus on combating improper Medicare payments including fraudulent claims. HHS estimates place the sum of improper payments to Medicare provider and suppliers at $54 billion in 2009. In May, the DOJ and HHS announced an interagency effort to combat Medicare fraud, the Health Care Fraud Prevention and Enforcement Action Team. Throughout the year, the agencies have expanded the number of sites for its Medicare Fraud Strike Force Teams from two to seven cities in the United States.

The RAC program brings greater scrutiny of ASC Medicare billing practices and creates a financial risk for centers with improper billing practices. For many ASC administrators, RACs have created another administrative and regulatory challenge for facilities. While many ASCs have responded by reexamining coding and billing procedures and increasing internal audits, administrators worry unintentional errors will put ASCs at financial risk.

"RACs are coming to find money, and they're going to keep at it until they find something that makes them money," says Ms. Brady.

In order for ASCs to prepare for the audits, billing experts suggest carrying out frequent internal audits of coding and billing procedures.

ASCs should also appeal unfavorable RAC determinations or risk becoming an "ongoing target" for auditors, who are paid a percentage of improper payments recouped, says Cristina Bentin, principal, Coding Compliance Management. "If your ASC isn't taking the time to provide documentation to support its position for each account found to be incorrect, why would RAC close the window of opportunity for future recoupment?"

Ms. Brady also reports that her ASC recently purchased insurance for billing errors, which will cover any legal costs and fines associated with RACs. The ASC, however, is responsible for paying back any overpayments to the ASC that resulted from billing errors.

8. Red Flags Rule. The expected implementation of the Red Flags Rule created another administrative and procedural challenge for many ASCs in 2009. The Red Flags Rule, part of the Federal Trade Commission's Fair and Accurate Credit Transactions Act, was approved in the fall 2008 and was originally scheduled to go into effect Nov. 1, 2008. However, the FTC soon pushed its enforcement date back to May 1, 2009 and then to Aug. 1, 2009.

The rule requires any business that could be considered a creditor, including healthcare providers, to develop, implement and administer an identity theft prevention program designed to detect signs, referred to as "red flags," of identity theft, as well as to prevent and mitigate it.

ASCs were tasked with developing and implementing these identity theft prevention policies and procedures. According to Mr. Yerden, increased compliance issues, many which were supposed to go into effect in 2009, such as the Red Flags Rule, Medicare's Conditions for Coverage and additional HIPAA guidelines, represent an increasing burden for ASCs as the number of compliance regulations continues to grow. Adherence to these guidelines requires a significant effort on the part of an ASC administrator and can take away from the time an administrator can put toward improving quality of care and financial performance, he says.

On July 39, 2009, just three days before the Red Flags Rule was set to go into effect, the FTC announced that it would delay its enforcement until Nov. 1, 2009, and on Oct. 30, 2009, the FTC again pushed back the enforcement date until June 1, 2010. ASCs now have until next summer to comply with the Rule; however many facilities still spent considerable time and effort in 2009 preparing for a Rule that was repeatedly pushed back.

According to Ms. Brady, the Red Flags Rule is another example of regulations that have created more administrative and clerical work for ASCs. "I'm still collecting information on the Rule and attempting to get everything together so that we can implement procedures that comply with the Rule," she says.


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