Resolve to EXPLORE NEW Partnerships

By Daniel H. Melvin and Eric Zimmerman

In the spirit of the New Year, ambulatory surgery center (ASC) owners should resolve to understand the implications of anticipated Medicare (and, by extension, private payor) reimbursement changes, and explore new alliances that might help blunt any negative impacts.

In 2008, the Centers for Medicare and Medicaid Services (CMS) will implement a new methodology for paying ASCs a facility fee that will base the payment amount on a percentage — proposed to be 62 percent — of the amount paid to a hospital for the same service. For example, where Medicare presently pays a hospital $1,000 for a procedure, it will pay the ASC $620 for the same procedure.

While this might be good news for some historically underpaid services, such as orthopedics, it spells trouble for a number of other specialties that are traditionally paid more than 62 percent of the commensurate hospital reimbursement amount or, in some instances, even more than 100 percent of what the hospital is paid. ASCs focused on gastroenterology, urology and pain management procedures are among those likely to see dramatic declines in Medicare reimbursement. Worse still, many private payors are expected to follow suit.

There are a variety of things ASCs can do in response (e.g., bring in new specialties, diversify procedures within existing specialties), but an alternative that seems to be catching the interest of ASCs and hospitals alike is hospital/ASC joint ventures established under an “under arrangements” model.

The under arrangements model has an ASC furnishing the facility component of ambulatory surgery to hospital outpatients.

Instead of the ASC billing payors, the hospital pays the ASC a fair market value per procedure fee, and then bills payors under its provider and tax identification numbers. Because Medicare and many private payors will — under new payment systems — consistently pay hospitals more for surgical procedures, the venture and its investors can realize higher returns through higher reimbursement rates.

Under current law, Medicare covers hospital outpatient services when provided by the hospital or by another entity “under arrangements” in the hospital. Thus, Medicare coverage rules explicitly provide for payment to a hospital for services provided by an outside entity under arrangement to the hospital’s patients.

However, the outpatient surgery “under arrangements” model is not without its operational and legal challenges. Medicare rules like provider-based status requirements, the physician self-referral or Stark law, and anti-kickback statute all must be considered and reconciled. Nonetheless, the outpatient surgery “under arrangements” model is certainly intriguing, and hospitals and surgeons alike are increasingly looking at it as a new alternative.