Medicare Program; Update of Ambulatory Surgical Center (ASC) Payment Rates Effective for Services On or After October 1, 1995

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

[BPD-824-N]

Medicare Program; Update of Ambulatory Surgical Center (ASC)

Payment Rates Effective for Services On or After October 1, 1995

AGENCY: Health Care Financing Administration (HCFA), HHS.

ACTION: Notice.

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SUMMARY: This notice implements section 1833(i)(2)(C) of the Social

Security Act, which mandates an automatic inflation adjustment to

Medicare payment amounts for ambulatory surgical center (ASC) facility

services during the years when the payment amounts are not updated

based on a survey of the actual audited costs incurred by ASCs.

EFFECTIVE DATE: The payment rates contained in this notice are

effective for services furnished on or after October 1, 1995.

Copies: To order copies of the Federal Register containing this

document, send your request to: New Orders, Superintendent of

Documents, P.O. Box 371954, Pittsburgh, PA 15250-7954. Specify the date

of the issue requested and enclose a check or money order payable to

the Superintendent of Documents, or enclose your Visa or Master Card

number and expiration date. Credit card orders can also be placed by

calling the order desk at (202) 512-1800 or by faxing to (202) 512-

2250. The cost for each copy is $8. As an alternative, you can view and

photocopy the Federal Register document at most libraries designated as

Federal Depository Libraries and at many other public and academic

libraries throughout the country that receive the Federal Register.

FOR FURTHER INFORMATION CONTACT: Joan Haile Sanow, (410) 786-5723.

SUPPLEMENTARY INFORMATION:

I. Background and Legislative Authority

Section 1832(a)(2)(F)(i) of the Social Security Act (the Act)

provides that benefits under the Medicare Supplementary Medical

Insurance program (Part B) include services furnished in connection

with those surgical procedures that, under section 1833(i)(1)(A) of the

Act, are specified by the Secretary and are performed on an inpatient

basis in a hospital but that also can be performed safely on an

ambulatory basis in an ambulatory surgical center (ASC), in a rural

primary care hospital, or in a hospital outpatient department. To

participate in the Medicare program as an ASC, a facility must meet the

standards specified under section 1832(a)(2)(F)(i) of the Act and 42

CFR 416.25, which set forth basic requirements for ASCs.

Generally, there are two elements in the total charge for a

surgical procedure: A charge for the physician's professional services

for performing the procedure, and a charge for the facility's services

(for example, use of an operating room). Section 1833(i)(2)(A) of the

Act authorizes the Secretary to pay ASCs a prospectively determined

rate for facility services associated with covered surgical procedures.

ASC facility services are subject to the usual Medicare Part B

deductible and coinsurance requirements. Therefore, participating ASCs

are paid 80 percent of the prospectively determined rate for facility

services, adjusted for regional wage variations. This rate is intended

to represent our estimate of a fair payment that takes into account the

costs incurred by ASCs generally in providing the services that are

furnished in connection with performing the procedure. Currently, this

rate is a standard overhead amount that does not include physician fees

and other medical items and services (for example, durable medical

equipment for use in the patient's home) for which separate payment may

be authorized under other provisions of the Medicare program.

We have grouped procedures into nine groups for purposes of ASC

payment rates. The ASC facility payment for all procedures in each

group is established at a single rate

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adjusted for geographic variation. The rate is a standard overhead

amount that covers the cost of services such as nursing, supplies,

equipment, and use of the facility. (For an indepth discussion of the

methodology and rate-setting procedures, see our Federal Register

notice published on February 8, 1990, entitled ``Medicare Program;

Revision of Ambulatory Surgical Center Payment Rate Methodology'' (55

FR 4526).)

Statutory Provisions

Section 1833(i)(2)(A) of the Act requires the Secretary to review

and update standard overhead amounts annually. Section

1833(i)(2)(A)(ii) requires that the ASC facility payment rates result

in substantially lower Medicare expenditures than would have been paid

if the same procedure had been performed on an inpatient basis in a

hospital. Section 1833(i)(2)(A)(iii) requires that payment for

insertion of an intraocular lens (IOL) include an allowance for the IOL

that is reasonable and related to the cost of acquiring the class of

lens involved.

Under section 1833(i)(3)(A), the aggregate payment to hospital

outpatient departments for covered ASC procedures is equal to the

lesser of the following two amounts:

The amount paid for the same services that would be paid

to the hospital under section 1833(a)(2)(B) (that is, the lower of the

hospital's reasonable costs or customary charges less deductibles and

coinsurance); or

The amount determined under section 1833(i)(3)(B)(i) based

on a blend of the lower of the hospital's reasonable costs or customary

charges, less deductibles and coinsurance, and the amount that would be

paid to a free-standing ASC in the same area for the same procedures.

Under section 1833(i)(3)(B)(i), the blend amount for a cost

reporting period is the sum of the hospital cost proportion and the ASC

cost proportion. Under section 1833(i)(3)(B)(ii), the hospital cost

proportion and the ASC cost proportion for portions of cost reporting

periods beginning on or after January 1, 1991 are 42 and 58 percent,

respectively.

We published our last update of ASC payment rates in the Federal

Register on October 1, 1992 (57 FR 45544). Statutory provisions enacted

after October 1, 1992 that affect ASCs include the Omnibus Budget

Reconciliation Act of 1993 (OBRA 1993) (Pub. L. 103-66), enacted on

August 10, 1993. Section 13531 prohibited the Secretary from providing

for any inflation update in the payment amounts for ASCs determined

under section 1833(i)(2)(A) and (B) of the Act for fiscal years (FYs)

1994 and 1995. Section 13533 of OBRA 1993 reduced the amount of payment

for an IOL inserted during or subsequent to cataract surgery in an ASC

on or after January 1, 1994, and before January 1, 1999, to $150.

Section 141(a)(1) of the Social Security Act Amendments of 1994

(SSAA 1994) (Pub. L. 103-432), enacted on October 31, 1994, amended

section 1833(i)(2)(A)(i) of the Act to require that, for the purpose of

estimating ASC payment amounts, the Secretary survey not later than

January 1, 1995, and every 5 years thereafter, the actual audited costs

incurred by ASCs, based upon a representative sample of procedures and

facilities.

Section 141(a)(2) of SSAA 1994 added section 1833(i)(2)(C) to the

Act to provide that, beginning with FY 1996, there be an automatic

application of an inflation adjustment during a fiscal year when the

Secretary does not update ASC rates based on survey data of actual

audited costs. Section 1833(i)(2)(C) of the Act provides that ASC

payment rates be increased by the percentage increase in the consumer

price index for urban consumers (CPI-U), as estimated by the Secretary

for the 12-month period ending with the midpoint of the year involved,

if the Secretary has not updated rates during a fiscal year, beginning

with FY 1996.

Section 141(a)(3) of SSAA 1994 amended section 1833(i)(1) of the

Act to require the Secretary to consult with appropriate trade and

professional organizations in specifying Medicare-covered ASC

procedures and facility payment amounts. Section 141(b) of SSAA 1994

requires the Secretary to establish a process for reviewing the

appropriateness of the payment amount provided under section

1833(i)(2)(A)(iii) of the Act for IOLs with respect to a class of new-

technology IOLs.

ASC Survey

Regulations set forth at Sec. 416.140 (``Surveys'') require us to

survey a randomly selected sample of participating ASCs no more often

than once a year to collect data for analysis or reevaluation of

payment rates. In addition, section 1833(i)(2)(A)(i) of the Act

requires that, for the purpose of estimating ASC payment amounts, the

Secretary survey not later than January 1, 1995, and every 5 years

thereafter, the actual audited costs incurred by ASCs, based upon a

representative sample of procedures and facilities.

In July 1992, we mailed Form HCFA-452A, Medicare Ambulatory

Surgical Center Payment Rate Survey (Part I), to the nearly 1,400 ASCs

that were on file as being certified by Medicare at the end of 1991.

Part I data provided baseline information for selecting a sample of 320

ASCs to complete Form HCFA-452B, Medicare Ambulatory Surgical Center

Payment Rate Survey (Part II). The sample was randomly selected and is

representative of ASCs nationally in terms of facility age,

utilization, and surgical specialty.

Part II of the ASC survey asked for data on costs incurred by the

facility that are directly related to performing certain surgical

procedures, such as cataract extraction with IOL insertion, as well as

information on facility overhead and personnel costs. We updated charge

data for all Medicare-covered procedures performed at the facility. We

audited 100 randomly selected Part II surveys between November 1994 and

February 1995.

Because we are still reviewing data from Part II of the 1994

Medicare Ambulatory Surgical Center Payment Rate Survey, we are not

adjusting ASC payment rates in FY 1996 to reflect these data.

II. Analysis of and Responses to the Public Comments

We published our last ASC payment rate update notice on October 1,

1992 (57 FR 45544). In response to that notice, we received one public

comment. Because section 13531 of OBRA 1993 prohibited the Secretary

from providing for any inflation update for FYs 1994 and 1995, we did

not publish update notices for those years, and, consequently, the

public comment on the October 1, 1992 notice and our response have not

been published. A summary of that comment and our response will be

contained in a proposed rule updating the ASC payment methodology that

we expect to publish in the Federal Register next year. Because the

public comment relates to the wage index, we believe the comment and

our response fit more appropriately in that document, which will

contain a discussion of the wage index used to adjust ASC payment rates

for geographic wage differences. We did not make any changes as a

result of our consideration of the public comment.

III. Provisions of This Notice

During years when the Secretary has not otherwise updated ASC rates

based on a survey of actual audited costs, section 1833(i)(2) of the

Act requires automatic application of an inflation adjustment. That

inflation adjustment must be the percentage increase in the CPI-U as

estimated by the Secretary for the 12-month period ending with the

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midpoint of the year involved. (The CPI-U is a general index that

reflects prices paid for a representative market basket of goods and

services.)

Based on estimates prepared by Data Resources, Inc./McGraw Hill,

the forecast rate of increase in the CPI-U for the fiscal year that

ends March 31, 1996 is 3.2 percent. Increasing the ASC payment rates

currently in effect by 3.2 percent results in the following schedule of

rates that are payable for facility services furnished on or after

October 1, 1995:

Group 1--$304

Group 2--$408

Group 3--$467

Group 4--$576

Group 5--$657

Group 6--$769

Group 7--$911

Group 8--$903

ASC facility fees are subject to the usual Medicare deductible and

copayment requirements. Under section 13531 of OBRA 1993, the allowance

for an IOL that is part of the payment rates for group 6 and group 8 is

$150.

In order to implement the inflation adjustment required by section

141(a)(2) of SSAA 1994 beginning in FY 1996, we estimated the annual

percent change in the CPI-U for the 12-month period ending March 31,

1996. However, the first 6 months of this 12-month period, April 1,

1995 through September 30, 1995, fall in FY 1995, and section 13531 of

OBRA 1993 prohibited the Secretary from providing any inflation update

in ASC payment amounts for FYs 1994 and 1995. We believe that

determining, in part, the FY 1996 adjustment factor by reference to

April 1, 1995 through September 30, 1995 does not violate or contradict

the OBRA 1993 provision because our use of the adjustment factor

applies only to payments for ASC services actually furnished beginning

in FY 1996.

A ninth payment group allotted exclusively to extracorporeal

shockwave lithotripsy (ESWL) services was established in the notice

with comment period published December 31, 1991 (56 FR 67666). The

decision in American Lithotripsy Society v. Sullivan, 785 F. Supp. 1034

(D.D.C. 1992), prohibits payment for these services under the ASC

benefit at this time. ESWL payment rates are the subject of a separate

Federal Register proposed notice, which was published October 1, 1993

(58 FR 51355).

We will continue to use the inpatient hospital prospective payment

system (PPS) wage index to standardize ASC payment rates for variation

due to geographic wage differences in accordance with the ASC payment

rate methodology published in the February 8, 1990 Federal Register (55

FR 4526). Because ASC payment rates are updated concurrently with the

annual update of the hospital inpatient PPS wage index, the PPS wage

index final rule that will be implemented on October 1, 1995 will be

used to adjust the ASC payment rates announced in this notice for

facility services furnished beginning October 1, 1995. The policy of

eliminating midyear corrections to the hospital inpatient PPS wage

index applies to ASCs and the calculation of individual ASC payment

amounts as well.

IV. Regulatory Impact Analysis

A. Introduction

This notice implements section 1833(i)(2) of the Act, which

mandates an automatic inflation adjustment to Medicare payment amounts

for ASC facility services during the years when the payment amounts are

not updated based on a survey of the actual audited costs incurred by

ASCs.

Actuarial estimates of the cost of updating the ASC rates by 3.2

percent are as follows:

Projected Additional Medicare Costs

[In millions]*

FY 1996.......................................................... $35

FY 1997.......................................................... 40

FY 1998.......................................................... 50

FY 1999.......................................................... 55

FY 2000.......................................................... 60

*Rounded to the nearest $5 million.

These amounts are in the Medicare budget baseline.

B. Regulatory Flexibility Act

We generally prepare a regulatory flexibility analysis that is

consistent with the Regulatory Flexibility Act (RFA) (5 U.S.C. 601

through 612) unless we certify that a notice will not have a

significant economic impact on a substantial number of small entities.

For purposes of the RFA, all ASCs and hospitals are considered to be

small entities.

Section 1102(b) of the Act requires us to prepare a regulatory

impact analysis if a notice may have a significant impact on the

operations of a substantial number of small rural hospitals. This

analysis must conform to the provisions of section 604 of the RFA. For

purposes of section 1102(b) of the Act, we define a small rural

hospital as a hospital that is located outside of a Metropolitan

Statistical Area and has fewer than 50 beds.

Although we believe an impact analysis on small rural hospitals is

not required, this notice may have a significant impact on a

substantial number of ASCs. Therefore, we believe that a regulatory

flexibility analysis is required for ASCs. In addition, we are

voluntarily providing a brief discussion of the impact this notice may

have on hospitals.

1. Impact on ASCs

Section 1833(i)(2) of the Act requires that we automatically adjust

ASC rates for inflation during a fiscal year when we do not update ASC

payment rates based on survey data. Therefore, we are updating the

current ASC payment rates, which were published in our October 1, 1992

Federal Register notice (57 FR 45544), by incorporating the projected

rate of change in the CPI-U for the 12-month period ending March 31,

1996, a 3.2 percent increase. There are other factors, however, that

affect the actual payments to an individual ASC.

First, variations in an ASC's Medicare case mix affect the size of

the ASC's aggregate payment increase. Although we uniformly adjusted

ASC payment rates by the CPI-U forecast for the 12-month period ending

March 31, 1996, we did not adjust the IOL payment allowance that is

included in the payment rate for group 6 and group 8 because OBRA 1993

froze the amount of payment for an IOL furnished by an ASC at $150 for

the period beginning January 1, 1994 through December 31, 1998.

Therefore, because the net adjustment for inflation for procedures in

group 6 is 2.56 percent and for group 8 is 2.66 percent, ASCs that

perform a high percentage of the IOL insertion procedures that comprise

these groups may expect a somewhat lower increase in their aggregate

payments than ASCs that perform fewer IOL insertion procedures.

A second factor determining the effect of the change in payment

rates is the percentage of total revenue an ASC receives from Medicare.

The larger the proportion of revenue an ASC receives from the Medicare

program, the greater the impact of the updated rates in this notice.

The percentage of revenue derived from the Medicare program depends on

the volume and types of services furnished. Since Medicare patients

account for as much as 80 percent of all IOL insertion procedures

performed in ASCs, an ASC that performs a high percentage of IOL

insertion procedures will probably receive a higher percentage of its

revenue from Medicare than would an ASC with a case mix comprised

largely of procedures that do not involve

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insertion of an IOL. For an ASC that receives a large portion of its

revenue from the Medicare program, the changes in this notice will

likely have a greater influence on the ASC's operations and management

decisions than they will have on an ASC that receives a large portion

of revenue from other sources.

In general, we expect the rate changes in this notice to affect

ASCs positively by increasing the rates upon which payments are based.

2. Impact on Hospitals and Small Rural Hospitals

Section 1833(i)(3)(A) of the Act mandates the method of determining

payments to hospitals for ASC-approved procedures performed in an

outpatient setting. The Congress believed some comparability should

exist in the amount of payment to hospitals and ASCs for similar

procedures. The Congress recognized, however, that hospitals have

certain overhead costs that ASCs do not and allowed for those costs by

establishing a blended payment methodology. For ASC procedures

performed in an outpatient setting, hospitals are paid based on the

lower of their aggregate costs, aggregate charges, or a blend of 58

percent of the applicable wage-adjusted ASC rate and 42 percent of the

lower of the hospital's aggregate costs or charges. According to

statistics from the Office of the Actuary within HCFA, 12.7 percent of

Medicare payments to hospitals by intermediaries is attributable to

services furnished in conjunction with ASC-covered procedures.

We believe that, due to a variety of factors, the ASC rate increase

in this notice will result in only a 0.9 percent increase in

intermediary payments to hospitals for ASC-covered procedures. We would

not expect an ASC rate increase in every instance to keep pace with

actual hospital cost increases, although we would fully recognize cost

increases resulting from inflation alone to the extent that the blended

payment methodology includes aggregate hospital costs. The weight of

the ASC portion of the blended payment amount, which would reflect the

ASC rate increase, is offset to a degree when hospital costs

significantly exceed the ASC rate. Another element that would eliminate

the effect of the ASC rate increase on hospital outpatient payments is

the application of the lowest payment screen in determining payments.

Applying the lowest of costs, charges, or a blend can result in some

hospitals being paid entirely on the basis of a hospital's costs or

charges. In those instances, the increase in the ASC rates will have no

effect on hospital payments. The number of Medicare beneficiaries a

hospital serves and its case-mix variation would also influence the

total impact of the new ASC rates on Medicare payments to hospitals.

Based on these factors, we have determined, and we certify that this

notice will not have a significant impact on a substantial number of

small rural hospitals. Therefore, we have not prepared a small rural

hospital impact analysis.

V. Waiver of 30-Day Delay in the Effective Date

We ordinarily publish notices, such as this, subject to a 30-day

delay in the effective date. However, if adherence to this procedure

would be impractical, unnecessary, or contrary to the public interest,

we may waive the delay in the effective date. The provisions of this

notice are effective for services furnished beginning on October 1,

1995, to coincide with the FY 1996 PPS updated wage index. These

provisions will increase payment to ASCs by 3.2 percent (as modified by

any change to the wage indices), in accordance with section 1833(i)(2)

of the Act, which requires automatic application of an inflation

adjustment. As a practical matter, if we allowed a 30-day delay in the

effective date of this notice, ASCs would be unable to take timely

advantage of the increase in payment rates contained in this notice.

Moreover, we believe a delay is impractical and unnecessary because the

statute, which, as explained earlier, provides that ASC payment rates

be increased by the percentage increase in the CPI-U if the Secretary

has not updated rates during a fiscal year beginning with FY 1996.

Therefore, we find good cause to waive the delay in the effective date.

In accordance with the provisions of Executive Order 12866, this

notice was not reviewed by the Office of Management and Budget.

(Sec. 1832(a)(2)(F) and 1833(i)(1) and (2) of the Social Security

Act (42 U.S.C. 1395k(a)(2)(F) and 1395l(i)(1) and (2)); 42 CFR

416.120, 416.125, and 416.130)

(Catalog of Federal Domestic Assistance Programs No. 93.774,

Medicare--Supplementary Medical Insurance Program)

Dated: July 28, 1995.

Bruce C. Vladeck,

Administrator, Health Care Financing Administration.

[FR Doc. 95-23742 Filed 9-25-95; 8:45 am]

BILLING CODE 4120-01-P