Continued Use of CPI-U for ASCs

CMS has proposed to continue to base the ASC inflation update on the CPI-U while basing the HOPD’s inflation update on the health care specific hospital market basket measure. This decision, in combination with a new policy to use a separate estimate for the statutorily mandated productivity for ASCs and HOPDs, results in ASC’s receiving a 0.9% update compared to HOPDs receiving a 1.5% update.

The Ambulatory Surgery Center Association (ASCA) has been highly critical of the agency’s continued reliance on the CPI-U to update ASC payments since the payment system was originally implemented. The hospital market basket is a more appropriate measure of inflation for ASCs and has typically been higher than the CPI-U.  Previous updates and adjustments had pushed ASC rates down to 56 percent of HOPD rates last year, and the continued use of the CPI-U, compounded by different measures of multifactor productivity for ASCs and HOPDs, will likely push the gap even wider in 2012.  ASCA is extremely disappointed that the agency has continued to ignore the widening gap in payments for outpatient surgical services in these two settings.

ASC operators should keep in mind that the change in the rates paid for individual procedures at individual ASCs will vary by region beyond the 0.9% across-the-board update due to other factors, such as the change in the relative costs of the procedures and changes in wage index values.

Quality Reporting

For 2012, CMS has proposed a voluntary, confidential quality reporting program for ASCs. The agency proposes 7 measures, including all 6 measures developed by the industry-led ASC Quality Collaboration.  For 2013 and subsequent years, however, CMS has proposed that ASCs that fail to report required quality measures will have their payment rates for the next year reduced.

There are several important issues in the rule that we will be evaluating as we review the proposal in detail. Below is a brief recap of some additional key issues.

1.      Inflation Update: By staying with the CPI-U update and estimating a low level of inflation (contrary to most economic indicators), the agency has set an update of 0.9 percent that will continue to erode the ASC payments relative to the HOPD rates. The hospital market basket is projected to be 2.8 percent, but the reform law requires it to be reduced by the hospital’s productivity factor of 1.2 and an additional 0.1 percent, leaving the HOPD update at 1.5 percent.

2.      Productivity Adjustment: As required by the health reform law, ASC rates are reduced by a measure of economy-wide productivity gains (a 10-year rolling average calculated by the Bureau of Labor Statistics). CMS estimates this adjustment will be 1.4 percent in 2012. The agency has introduced a new policy to use a separate estimate of productivity for the outpatient and ASC setting, meaning that the assumption of productivity gains for the ASC setting is higher than the assumed productivity gains for hospitals.

3.      Conversion Factor: After taking into account the update and productivity adjustments, CMS further adjusts the conversion factor to account for budget neutrality in the recalibration of the wage index. The ASC conversion factor for 2012 will rise to $42.329.

4.      Scaling of ASC Relative Weights: Each year, CMS applies a ‘secondary’ budget neutrality calculation to the ASC relative weights to ensure that changes to the Ambulatory Payment Classifications relative weights under the hospital outpatient payment system do not result in an aggregate increase or decrease in payments. CMS estimates the scaling factor for 2012 to be 0.9373.

5.      Wage Index: CMS continues to use the pre-floor, pre-reclassified wage index to adjust ASC payments for geographic differences in the relative cost of labor. The differences in some markets is particularly pronounced because of a policy in the health reform law that sets the hospital wage index for inpatient and outpatient services in so-called “frontier states” at 1.0. The states affected by the frontier wage index policy include Montana, Wyoming, North Dakota, South Dakota and Nevada.

CMS published the information below in Table 53 of its proposed rule to show the estimated impact on ASC payments for the most common procedures. As you can see, many high-volume procedure rates will go down while payments for other services will increase significantly.

ASCA staff will continue to review the 896-page proposed rule and will provide updates on the ASCA web site in the days and weeks ahead.