OIG Says Bring Down HOPD Rates for Surgery to ASC Rates, CMS Disagrees: 11 Things to Know

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11 observations on the OIG's report on transitioning hospital outpatient rates to ambulatory surgery center levels, and CMS' response.

1. The OIG was asked by Congress to assess the impact on total Medicare expenditures of providing services in an ambulatory surgery center as opposed to other settings.  Here, the OIG was asked to look at: 1) how much ASCs have saved the Medicare program, and 2) how much Medicare could save if payment rates were reduced to ASC payment rates.

2. The OIG found that Medicare saved $7 billion from 2007 to 2012 due to the use of ASCs. It also found that CMS could save $15 billion from 2012 to 2017 if HOPD rates were reduced for low-risk procedures to ASC rates. Medicare beneficiaries would also save $2 billion to $4 billion in co-payments if such rates were reduced to match ASC rates.

3. ASCs are paid on average about 50 percent of what hospitals are paid for the same procedure. ASC years back asked for their payment rates to be tied to hospital rates. As a result, they were tied to hospital rates but at a lower rate. One should consider the old adage, "be careful what you ask for."

4. Over the past few years, ASCs have requested that this payment differential be eliminated.  The ASC industry desires for their rates to be "raised" to be closer to hospital rates. The OIG report doesn't recommend this. Given "budget neutrality" and the political power of ASCs vs. hospitals, we believe there is little chance ASC rates are so raised and little chance hospital rates are so lowered.

5. The OIG estimates that nearly 68 percent of hospital patients are considered to be low-risk patients (i.e., rates could be reduced for 68 percent of surgery patients).

6. The OIG recommends that CMS seek legislation to make it possible to reduce such rates and that it actually reduce the rates for low-risk patients.

7. CMS disagreed with the OIG recommendations. This disagreement may be in part due to the financial stress already facing hospitals. Also, CMS may be more subject to politics than the OIG. In some ways the differences in rates for the same procedure in different settings reflect the bastardization of healthcare policy. For example, there seems to be the use of inexact subsidies without real clarity as to the final goal or aim, leading one to ask: Is the goal of higher rates for hospital is to support hospitals financially? Should this be a goal in and of itself?

8. By numbers of procedures, the three biggest specialties in ASCs are ophthalmology, gastroenterology and pain management. Orthopedics and dermatology are fourth and fifth. By revenue, ophthalmology, gastroenterology and orthopedics are the three biggest ASC specialties.

9. The HOPD rates are legislatively set to be budget neutral. That is total HOPD expenditures are to be the same year to year. For example, rates can go down 2 percent if procedures are expected to go up 2 percent. However, rates cannot just be axed to reduce costs. These are overall political realities that drive this kind of legislation.

10. The average difference in an ASC payment vs. an HOPD payment in 2011 was $363.15. That is, Medicare paid HOPDs $363.15 more, on average, per procedure.

11. We speculate that there is little near-term chance of this change, which has been recommended by CMS, occurring for a multitude of reasons. In essence, we bet zero chance of this change or any similar change occurring near term. We could be wrong of course. 

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