Medicare Program; Update of Ambulatory Surgical Center Payment Rates Effective for Services on or After October 1, 1997

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

[HCFA-1897-N]

Medicare Program; Update of Ambulatory Surgical Center Payment

Rates Effective for Services on or After October 1, 1997

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

ACTION: Notice.

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SUMMARY: This notice announces the update of Ambulatory Surgical Center

payment rates effective for services on or after October 1, 1997. It

implements section 1833(i)(2)(C) of the Social Security Act, which

mandates an 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, 1997.

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

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This Federal Register document is also available from the Federal

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asynchronous dial-in. Internet users can access the database by using

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is http://www.access.gpo.gov/su__docs/, by using local WAIS client

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password required). Dial-in users should use communications software

and modem to call (202) 512-1661; type swais, then login as guest (no

password required).

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 (Part B) program 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 the

basic requirements for ASCs set forth in our regulations at 42 CFR

416.25.

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, Medicare pays

participating ASCs 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

[[Page 8463]]

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 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 in-depth 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).

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.

Section 13531 of the Omnibus Budget Reconciliation Act of 1993

(OBRA 1993) (Public Law 103-66), enacted on August 10, 1993, 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 application of

an inflation adjustment during a fiscal year in which 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 reviewing and updating the list of

Medicare-covered ASC procedures.

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. A proposed rule entitled

``Adjustment in Payment Amounts for New Technology Intraocular Lenses''

(BPD-831-P) was published in the Federal Register on September 4, 1997

at 62 FR 46698.

Section 4555 of the Balanced Budget Act of 1997 (Pub. L. 105-33)

(BBA) amends section 1833(i)(2)(C) of the Act to require, in each of

the FYs 1998 through 2002, that the CPI-U factor by which ASC rates are

to be adjusted be reduced (but not below zero) by 2.0 percentage

points.

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 was mailed to the sample of ASCs in March

1994. 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 asked

facilities to report total volume, Medicare volume, operating room

time, and their average billed charge for the Medicare covered

procedures that were performed at the facility during the survey year.

We audited 100 randomly selected Part II surveys between November 1994

and February 1995. We plan to use the 1994 survey data to rebase ASC

payment rates. In accordance with rulemaking procedures, we will

publish the rebased rate in the Federal Register and solicit public

comments.

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

1996 (61 FR 51295).

II. Provisions of This Notice

During years in which the Secretary has not otherwise updated ASC

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

of the Act, as amended by BBA, requires application of an inflation

adjustment. That inflation adjustment must be the

[[Page 8464]]

percentage increase in the CPI-U as estimated by the Secretary for the

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

(but not below zero) by 2.0 percentage points in each of the fiscal

years 1998 through 2002. (The CPI-U is a general index that reflects

prices paid by urban consumers 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 FY that ends March

31, 1998 is 2.6 percent. Reducing the CPI-U factor by 2.0 percent

results in an adjustment factor of 0.6 percent. Increasing the ASC

payment rates currently in effect by 0.6 percent results in the

following schedule of rates that are payable for facility services

furnished on or after October 1, 1997:

Group 1--$314

Group 2--$422

Group 3--$482

Group 4--$595

Group 5--$678

Group 6--$789 (639+150)

Group 7--$941

Group 8--$928 (778+150)

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.

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 were 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 notice. The PPS wage

index final rule published on August 29, 1997 (62 FR 45965), for

implementation on October 1, 1997, will be used to adjust the ASC

payment rates announced in this notice for facility services furnished

on or after October 1, 1997.

III. 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 in which 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 0.6

percent are as follows:

Projected Additional Medicare Costs

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Fiscal year In millions*

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1998.................................................... 15

1999.................................................... 15

2000.................................................... 15

2001.................................................... 15

2002.................................................... 15

2003.................................................... 15

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* Rounded to the nearest $10 million.

The BBA is considered in the estimate, including the prospective

payment system for hospital outpatient services to be implemented on

January 1, 1999, and the formula-driven overpayment elimination

effective October 1, 1997.

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, most ASCs and hospitals are considered to be

small entities either by non-profit status or by having resources of $5

million or less annually.

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 that this notice will not have a significant

impact on a substantial number of small rural hospitals, it 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)(C) of the Act requires that for FYs 1998 through

2002, we automatically adjust ASC rates for inflation during an FY in

which we do not update ASC payment rates based on survey data by a CPI-

U factor reduced (but not below zero) by 2.0 percent. Therefore, we are

updating the current ASC payment rates, which were published in our

October 1, 1996 Federal Register notice (61 FR 51295), by incorporating

the projected rate of change in the CPI-U for the 12-month period

ending March 31, 1998 minus 2.0 percentage points, a net 0.6 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, 1998, 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 0.51 percent and for group 8 is 0.54 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 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

[[Page 8465]]

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 Strategic Planning within HCFA, 12

percent of Medicare payments to hospitals by intermediaries is

attributable to services furnished in conjunction with 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 in the portion

of the blended payment that 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.

IV. 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 on or after October 1,

1997. These provisions will increase payment to ASCs by 0.6 percent (as

modified by any change to the wage index), in accordance with section

1833(i)(2)(C) of the Act, as amended by the BBA. 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, 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 an FY,

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 reviewed by the Office of Management and Budget.

(Sections 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: October 9, 1997.

Nancy-Ann Min DeParle,

Deputy Administrator, Health Care Financing Administration.

Dated: October 30, 1997.

Donna E. Shalala,

Secretary.

[FR Doc. 98-4227 Filed 2-18-98; 8:45 am]

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