Surgery centers hoping Larson bill increases Medicare revenue

WASHINGTON–Need a colonoscopy? Or cataract surgery? How about an operation on your finger or foot?

Three decades ago, you probably would have had to go to a hospital, even for a minor surgical procedure. But more and more, such cases are being handled at free-standing facilities called ambulatory surgical centers (ASCs).

ASCs have the same staff and clinical requirements as hospital outpatient departments. But ASCs, sometimes called “surgicenters,” often specialize in one narrow arena, such as orthopedics or ophthalmology, and their physicians usually perform hundreds, even thousands, of those surgeries a year. One such center in Hartford, for example, does more than 10,000 eye-related surgeries annually.

Even as the number of ASCs has swelled in the last decade, however, ASC leaders say their financial well-being is under threat, with hospitals eager to gobble them up. So this increasingly-powerful health care sector is pushing legislation that could tilt the balance between surgical centers and hospitals, as the competition for lucrative procedures balloons along with America’s aging population.

Last week, Rep. John Larson, D- 1st District, joined with a top House Republican, Pete Sessions of Texas, to introduce legislation designed to increase the amount that ASCs are reimbursed by Medicare, the government health insurance program for the elderly. The measure, pushed by the Ambulatory Surgery Center Association, an advocacy group, would also give ASCs entrée into a key element of the federal health care reform law–a change that could potentially drive millions of new Medicare patients their way.

Already, more than 3 million Medicare patients receive care at ASCs each year. And the number of Medicare-certified ASCs has nearly doubled, from 2,786 in 1999 to more than 5,200 today. Often owned by groups of physicians, ASCs are allowed to perform more than 3,000 low-complication procedures, and they often do so at a lower cost than a regular hospital.

Indeed, Larson and others say his legislation could end up saving Medicare billions of dollars–a key selling point when entitlement spending for that health care program is at the epicenter of the current Washington budget battle.

Proponents say the bill would simply rectify a significant gap between the Medicare reimbursements paid to hospitals and those paid ASCs for the same procedures. ASC advocates hope it will also slow an emerging trend, in which hospitals are snapping up ASCs in acquisitions that help their bottom line.

“Surgery centers are providing care more cost efficiently and are sort of penalized for doing a good job and are really being squeezed,” said Lisa Winkler, executive director of the Connecticut Association of Ambulatory Surgery Centers . “Our hope is this legislation will address this issue.”

Joanne Roche, a nurse and administrator of the Hartford Surgical Center, put it more bluntly. “We’re getting the life sucked out of us,” she said. Roche noted that her labor and supply costs are the same as any hospital outpatient department.

“Everything is equal and on par with the hospital. It has to be,” Roche said, referring to state and federal requirements for ASCs. “Yet the real thing that gets in my craw, we get paid so much differently.”

Hospital groups, so far, are staying relatively mum on Larson’s bill. But officials in the industry say hospital purchases of ASCs are driven by quality considerations, not financial incentives.

“When we acquire a center, it becomes an integrated center with our hospital and our health system,” said Jeff Flaks, chief operating officer for Hartford Hospital. “It’s to create a center of excellence within broader context and to integrate inpatient and outpatient services.”

The goal, he said, is to offer a more seamless “continuum of care” for patients, and to increase access and quality at both the hospital and the ASC. Flaks said they also typically invest “millions of dollars” in any acquired facility, bringing in new equipment, introducing electronic records, and updated technology.

As recently as 2005, ASCs were reimbursed almost as much as hospitals for removing a Medicare patient’s cataracts, performing an endoscopy, or the like. Now, Medicare only pays ASCs about half–56 percent on average–what it gives hospitals for surgical procedures.

The gap has grown because Medicare bases its annual increases in ASC reimbursements on the Consumer Price Index. Medicare officials use a more complicated formula–which takes into account medical inflation–to reimburse hospitals. So as inflation has remained relatively low, and medical costs have skyrocketed, a growing gap has opened between Medicare’s payments to different facilities for the same procedure.

The Larson-Sessions’ bill would start linking increases in Medicare reimbursements to ASCs to the same yardstick used for hospitals, so the gap would stop growing. The 1st District Democrat called it a “commonsense, pragmatic fix” that will preserve patients’ access to high-quality, cost-effective surgical care outside a hospital setting.

“ASCs are providing vital services to patients every day and this legislation will help them keep it up by fixing the illogical way they get paid by Medicare,” said Larson, who has 12 ASCs in his congressional district.

“We don’t want to be at the whim of the consumer price index,” said Steve Miller, a federal lobbyist for the national ASC association. He noted that the consumer price index is based on “the cost of bread and gas and things that aren’t inputs into the services we provide.”

Miller said the payment discrepancy-in addition to creating a tough financial climate for ASCs–has also given hospitals a big incentive to buy ASCs. “The hospital can come up and buy out the physician ownership, and then just change the name of the facility” and operate it as an affiliate, he said.

The new hospital-owned surgery center then “goes from collecting 56 cents on the dollar to collecting the full dollar,” Miller noted, even though “the surgeries are the same, the staff is the same.”

The hospital gets a profitable new business operation-and Medicare gets a much bigger bill-while the care remains essentially the same.

Miller pointed to Hartford Hospital’s recent purchase of the Newington-based Constitution Eye Surgery Center, as a prime example of what’s happening across the country. In February, the Eye Surgery Center officially became a department of Hartford Hospital.  “Almost nothing else will change–same great service, same great doctors, same convenient location,” Hartford Hospital’s website says.

But Flaks said the hospital’s purchase of the eye center was “a very good example” of how such deals can improve quality. “We acquired that center for the purpose of creating a center of excellence in ophthalmology and expanding the complexity of the services that are provided within that center,” he said. He said Hartford Hospital spent millions of dollars in capital investments in the center, bringing in “state-of-the-art technology” and making sure it met the same accreditation, quality of care, and other standards that hospitals must adhere to.

Jim Blazar, the hospital’s chief strategy officer added: “It was not a financially-driven decision. It was a quality-driven decision.”

They said the hospital doesn’t have a position on Larson’s bill. But they noted that the procedures done at ASCs “do not happen in isolation,” as Flaks put it. When hospitals and ASCs team up, it ensures that “we’re treating the patient as a whole and not as an episode.”

Patty Charvat, a spokeswoman for the Connecticut Hospital Association, said CHA was reviewing Larson’s bill and trying to determine the impact on hospitals. A spokeswoman for the American Hospital Association said their policy expert on this issue was unavailable to comment.

Miller said he did not expect the hospital industry to like the bill, but he wasn’t sure if they would forcefully fight it. Roche and others noted that many current ASCs have partnerships with hospitals now, so it’s not necessarily an adversarial issue.

But, Miller predicted, “they’re not going to do cartwheels” about the legislation. That’s particularly true because, in addition to the Medicare reimbursement change, the proposal would also allow ASCs to participate in a so-called “value-sharing” initiative, an idea included in the federal health reform law. (The measure would also require ASCs to report quality outcome data to the federal government, something hospitals have had to do for years.)

The value-sharing provision would allow ASCs to share in any savings if they deliver care at lower-than-projected costs. So if, for example, an ASC treats its Medicare patients for $1 million less than anticipated, the ASC would get $500,000 of the savings and the Medicare program would get the other $500,000. Because ASCs are set up to do a handful of highly specialized procedures–unlike hospitals that provide a wide range of services–they’re often expert at cost efficiency, giving them a possible advantage in any value-sharing program.

“The way health care is going, we’re exactly what the doctor ordered,” said Roche. “We’re exactly what Medicare is looking for.”

And possibly what Congress is looking for too. Medicare spending has become a flashpoint in the debate over reining in federal deficits. But controlling health care costs is a tough problem that has bedeviled both political parties.

Miller said the ASC association hopes the value-sharing provision would spur the federal Centers for Medicare & Medicaid Services (CMS) to identify and shift more patients to ASCs, if they can be treated more cost-effectively than at a hospital outpatient department. “The only way that CMS is going to save money in the value-sharing is to move surgeries out of the hospital outpatient department into an ASC,” he said.

In a letter to CMS last year, Larson, Sessions, and other lawmakers said that if half of all eligible outpatient procedures were done at ASCs instead of hospital outpatient departments, it would save Medicare $2 billion a year. “It will incentivize CMS because they will capture half the savings to begin to identify surgeries to move over,” Miller said. “So the total number of surgeries in ASCs will go up and the cost to the system will go down.”

So isn’t this bill a potential boon to ASCs, providing incentives that will lure surgical patients away from hospitals?

“We could see our business go up,” Miller conceded, but that’s not what this legislative push is about. “With everybody looking for savings in the system, this is one area that has potential,” he said.

He said the trade association hopes to have a Senate version of the bill introduced in the coming days. And then they will start looking for ways to move the measure quickly, hopefully by attaching it to another must-pass bill.

He said a different version of the bill stalled in the last Congress, in part because health care reform “sucked all the oxygen of out town.” This year, he hopes, will produce a different atmosphere.