Payment for Ambulatory Surgical Centers Should Be Based on the Hospital Outpatient Payment System

GAO-07-86: Published: Nov 30, 2006. Publicly Released: Nov 30, 2006.

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Medicare pays for surgical procedures performed at ambulatory surgical centers (ASC) and hospital outpatient departments through different payment systems. Although they perform a similar set of procedures, no comparison of ASC and hospital outpatient per-procedure costs has been conducted. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 directed GAO to compare the relative costs of procedures furnished in ASCs to the relative costs of those procedures furnished in hospital outpatient departments, in particular, how accurately the payment groups used in the hospital outpatient prospective payment system (OPPS) reflect the relative costs of procedures performed in ASCs. To do this, GAO collected data from ASCs through a survey. GAO also obtained hospital outpatient data from the Centers for Medicare & Medicaid Services (CMS).

GAO determined that the payment groups in the OPPS, known as ambulatory payment classification (APC) groups, accurately reflect the relative cost of procedures performed in ASCs. GAO calculated the ratio between each procedure's ASC median cost, as determined by GAO's survey, and the median cost of each procedure's corresponding APC group under the OPPS, referred to as the ASC-to-APC cost ratio. GAO also compared the OPPS median costs of those same procedures with the median costs of their APC groups, referred to as the OPPS-to-APC cost ratio. GAO's analysis of the ASC-to-APC and OPPS-to-APC cost ratios showed that 45 percent of all procedures in the analysis fell within a 0.10 point range of the ASC-to-APC median cost ratio, and 33 percent of procedures fell within a 0.10 point range of the OPPS-to-APC median cost ratio. These similar patterns of distribution around the median show that the APC groups reflect the relative costs of procedures provided by ASCs as well as they reflect the relative costs of procedures provided in hospital outpatient departments and can be used as the basis for the ASC payment system. GAO's analysis also identified differences in the cost of procedures in the two settings. The median cost ratio among all ASC procedures was 0.39 and when weighted by Medicare claims volume was 0.84. The median cost ratio for OPPS procedures was 1.04. Thus, the cost of procedures in ASCs is substantially lower than the corresponding cost in hospital outpatient departments.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: On July 16, 2007, CMS released a final rule that implements an Ambulatory Surgical Center (ASC) payment system based on the Outpatient Payment System (OPPS). CMS set the ASC payment rates for the new system at 65% of the OPPS, thus recognizing the lower relative costs of performing procedures in the ASC.

    Recommendation: The Administrator of CMS should implement a payment system for procedures performed in ASCs based on the OPPS. The Administrator should take into account the lower relative costs of procedures performed in ASCs compared to hospital outpatient departments in determining ASC payment rates.

    Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services


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