[Federal Register Volume 61, Number 191 (Tuesday, October 1, 1996)]
[Notices]
[Pages 51295-51298]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-25253]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES
[BPD-874-N]


Medicare Program; Update of Ambulatory Surgical Center Payment 
Rates Effective for Services on or After October 1, 1996

AGENCY: Health Care Financing Administration (HCFA), HHS.

ACTION: Notice.

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SUMMARY: This notice implements section 1833(i)(2)(C) of the Social 
Security Act, which mandates an automatic inflation adjustment to 
Medicare payment amounts for ambulatory surgical center (ASC) facility 
services during the years when the payment amounts are not updated 
based on a survey of the actual audited costs incurred by ASCs.

EFFECTIVE DATE: The payment rates contained in this notice are 
effective for services furnished on or after October 1, 1996.
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FOR FURTHER INFORMATION CONTACT: Joan Haile Sanow, (410) 786-5723.

SUPPLEMENTARY INFORMATION:

I. Background and Legislative Authority

    Section 1832(a)(2)(F)(i) of the Social Security Act (the Act) 
provides that benefits under the Medicare Supplementary Medical 
Insurance program (Part B) include services furnished in connection 
with those surgical procedures that, under section 1833(i)(1)(A) of the 
Act, are specified by the Secretary and are performed on an inpatient 
basis in a hospital but that also can be performed safely on an 
ambulatory basis in an ambulatory surgical center (ASC), in a rural 
primary care hospital, or in a hospital outpatient department. To 
participate in the Medicare program as an ASC, a facility must meet the 
standards specified under section 1832(a)(2)(F)(i) of the Act and 42 
CFR 416.25, which set forth basic requirements for ASCs.
    Generally, there are two elements in the total charge for a 
surgical procedure: A charge for the physician's professional services 
for performing the procedure, and a charge for the facility's

[[Page 51296]]

services (for example, use of an operating room). Section 1833(i)(2)(A) 
of the Act authorizes the Secretary to pay ASCs a prospectively 
determined rate for facility services associated with covered surgical 
procedures. ASC facility services are subject to the usual Medicare 
Part B deductible and coinsurance requirements. Therefore, 
participating ASCs are paid 80 percent of the prospectively determined 
rate for facility services, adjusted for regional wage variations. This 
rate is intended to represent our estimate of a fair payment that takes 
into account the costs incurred by ASCs generally in providing the 
services that are furnished in connection with performing the 
procedure. Currently, this rate is a standard overhead amount that does 
not include physician fees and other medical items and services (for 
example, durable medical equipment for use in the patient's home) for 
which separate payment may be authorized under other provisions of the 
Medicare program.
    We have grouped procedures into nine groups for purposes of ASC 
payment rates. The ASC facility payment for all procedures in each 
group is established at a single rate adjusted for geographic 
variation. The rate is a standard overhead amount that covers the cost 
of services such as nursing, supplies, equipment, and use of the 
facility. (For an indepth discussion of the methodology and rate-
setting procedures, see our Federal Register notice published on 
February 8, 1990, entitled ``Medicare Program; Revision of Ambulatory 
Surgical Center Payment Rate Methodology'' (55 FR 4526).)

Statutory Provisions

    Section 1833(i)(2)(A) of the Act requires the Secretary to review 
and update standard overhead amounts annually. Section 
1833(i)(2)(A)(ii) requires that the ASC facility payment rates result 
in substantially lower Medicare expenditures than would have been paid 
if the same procedure had been performed on an inpatient basis in a 
hospital. Section 1833(i)(2)(A)(iii) requires that payment for 
insertion of an intraocular lens (IOL) include an allowance for the IOL 
that is reasonable and related to the cost of acquiring the class of 
lens involved.
    Under section 1833(i)(3)(A), the aggregate payment to hospital 
outpatient departments for covered ASC procedures is equal to the 
lesser of the following two amounts:
     The amount paid for the same services that would be paid 
to the hospital under section 1833(a)(2)(B) (that is, the lower of the 
hospital's reasonable costs or customary charges less deductibles and 
coinsurance); or
     The amount determined under section 1833(i)(3)(B)(i) based 
on a blend of the lower of the hospital's reasonable costs or customary 
charges, less deductibles and coinsurance, and the amount that would be 
paid to a free-standing ASC in the same area for the same procedures.
    Under section 1833(i)(3)(B)(i), the blend amount for a cost 
reporting period is the sum of the hospital cost proportion and the ASC 
cost proportion. Under section 1833(i)(3)(B)(ii), the current hospital 
cost proportion and the ASC cost proportion are 42 and 58 percent, 
respectively.
    Section 13531 of the Omnibus Budget Reconciliation Act of 1993 
(OBRA 1993) (Public Law 103-66), enacted on August 10, 1993, prohibited 
the Secretary from providing for any inflation update in the payment 
amounts for ASCs determined under section 1833(i)(2) (A) and (B) of the 
Act for Federal fiscal years (FYs) 1994 and 1995. Section 13533 of OBRA 
1993 reduced the amount of payment for an IOL inserted during or 
subsequent to cataract surgery in an ASC on or after January 1, 1994, 
and before January 1, 1999, to $150.
    Section 141(a)(1) of the Social Security Act Amendments of 1994 
(SSAA 1994) (Public Law 103-432), enacted on October 31, 1994, amended 
section 1833(i)(2)(A)(i) of the Act to require that, for the purpose of 
estimating ASC payment amounts, the Secretary survey not later than 
January 1, 1995, and every 5 years thereafter, the actual audited costs 
incurred by ASCs, based upon a representative sample of procedures and 
facilities.
    Section 141(a)(2) of SSAA 1994 added section 1833(i)(2)(C) to the 
Act to provide that, beginning with FY 1996, there be an automatic 
application of an inflation adjustment during a fiscal year when the 
Secretary does not update ASC rates based on survey data of actual 
audited costs. Section 1833(i)(2)(C) of the Act provides that ASC 
payment rates be increased by the percentage increase in the consumer 
price index for urban consumers (CPI-U), as estimated by the Secretary 
for the 12-month period ending with the midpoint of the year involved, 
if the Secretary has not updated rates during a fiscal year, beginning 
with FY 1996.
    Section 141(a)(3) of SSAA 1994 amended section 1833(i)(1) of the 
Act to require the Secretary to consult with appropriate trade and 
professional organizations in reviewing and updating the list of 
Medicare-covered ASC procedures. Section 141(b) of SSAA 1994 requires 
the Secretary to establish a process for reviewing the appropriateness 
of the payment amount provided under section 1833(i)(2)(A)(iii) of the 
Act for IOLs with respect to a class of new-technology IOLs.

ASC Survey

    Regulations set forth at Sec. 416.140 (``Surveys'') require us to 
survey a randomly selected sample of participating ASCs no more often 
than once a year to collect data for analysis or reevaluation of 
payment rates. In addition, section 1833(i)(2)(A)(i) of the Act 
requires that, for the purpose of estimating ASC payment amounts, the 
Secretary survey not later than January 1, 1995, and every 5 years 
thereafter, the actual audited costs incurred by ASCs, based upon a 
representative sample of procedures and facilities.
    In July 1992, we mailed Form HCFA-452A, Medicare Ambulatory 
Surgical Center Payment Rate Survey (Part I), to the nearly 1,400 ASCs 
that were on file as being certified by Medicare at the end of 1991. 
Part I data provided baseline information for selecting a sample of 320 
ASCs to complete Form HCFA-452B, Medicare Ambulatory Surgical Center 
Payment Rate Survey (Part II). The sample was randomly selected and is 
representative of ASCs nationally in terms of facility age, 
utilization, and surgical specialty.
    Part II of the ASC survey was mailed to the sample of ASCs in March 
1994. Part II of the ASC survey asked for data on costs incurred by the 
facility that are directly related to performing certain surgical 
procedures, such as cataract extraction with IOL insertion, as well as 
information on facility overhead and personnel costs. We asked 
facilities to report total volume, Medicare volume, OR time, and their 
average billed charge for the Medicare covered procedures that were 
performed at the facility during the survey year. We audited 100 
randomly selected Part II surveys between November 1994 and February 
1995. We intend to use the 1994 survey data as the basis for updating 
the schedule of ASC payment rates as well as for revising our method of 
ratesetting, all of which will be described in a proposed notice in the 
Federal Register in accordance with standard notice and comment 
procedures. In compliance with the requirement in section 
1833(i)(2)(A)(i) of the Act that we survey ASC costs every 5 years we 
expect to conduct the next survey of ASC costs before April 1999.
    Although we have completed our preliminary analysis of procedure 
costs based on data from the 1994 Medicare Ambulatory Surgical Center 
Payment

[[Page 51297]]

Rate Survey, we are still revising and updating the method of using 
those data to determine ASC payment rates. Therefore, we are not 
implementing rates that reflect 1994 survey data in FY 1997.
    We published our last ASC payment rate update notice on September 
26, 1995 (60 FR 49619).

II. Provisions of This Notice

    During years when the Secretary has not otherwise updated ASC rates 
based on a survey of actual audited costs, section 1833(i)(2)(C) of the 
Act requires application of an inflation adjustment. That inflation 
adjustment must be the percentage increase in the CPI-U as estimated by 
the Secretary for the 12-month period ending with the midpoint of the 
year involved. (The CPI-U is a general index that reflects prices paid 
for a representative market basket of goods and services.)
    Based on estimates prepared by Data Resources, Inc./McGraw Hill, 
the forecast rate of increase in the CPI-U for the fiscal year that 
ends March 31, 1997 is 2.6 percent. Increasing the ASC payment rates 
currently in effect by 2.6 percent results in the following schedule of 
rates that are payable for facility services furnished on or after 
October 1, 1996:

Group 1--$312
Group 2--$419
Group 3--$479
Group 4--$591
Group 5--$674
Group 6--$785 (635+150)
Group 7--$935
Group 8--$923 (773+150)

    ASC facility fees are subject to the usual Medicare deductible and 
copayment requirements. Under section 13531 of OBRA 1993, the allowance 
for an IOL that is part of the payment rates for group 6 and group 8 is 
$150.
    A ninth payment group allotted exclusively to extracorporeal 
shockwave lithotripsy (ESWL) services was established in the notice 
with comment period published December 31, 1991 (56 FR 67666). The 
decision in American Lithotripsy Society v. Sullivan, 785 F. Supp. 1034 
(D.D.C. 1992), prohibits payment for these services under the ASC 
benefit at this time. ESWL payment rates are the subject of a separate 
Federal Register proposed notice, which was published October 1, 1993 
(58 FR 51355).
    We will continue to use the inpatient hospital prospective payment 
system (PPS) wage index to standardize ASC payment rates for variation 
due to geographic wage differences in accordance with the ASC payment 
rate methodology published in the February 8, 1990 Federal Register (55 
FR 4526). Because ASC payment rates are updated concurrently with the 
annual update of the hospital inpatient PPS wage index, the wage index 
in the PPS final rule that will be implemented on October 1, 1996 will 
be used to adjust the ASC payment rates announced in this notice for 
facility services furnished beginning October 1, 1996.

III. Regulatory Impact Analysis

A. Introduction

    This notice implements section 1833(i)(2) of the Act, which 
mandates an automatic inflation adjustment to Medicare payment amounts 
for ASC facility services during the years when the payment amounts are 
not updated based on a survey of the actual audited costs incurred by 
ASCs.
    Actuarial estimates of the cost of updating the ASC rates by 2.6 
percent are as follows:

                   Projected Additional Medicare Costs                  
                             [In millions] *                            
------------------------------------------------------------------------
                                                                Dollar  
                                                                amounts 
------------------------------------------------------------------\1\---
FY 1997.....................................................        $30 
FY 1998.....................................................         30 
FY 1999.....................................................         30 
FY 2000.....................................................         40 
FY 2001.....................................................        40  
------------------------------------------------------------------------
* Rounded to the nearest $10 million.                                   
\1\ These amounts are in the Medicare budget baseline.                  

B. Regulatory Flexibility Act

    We generally prepare a regulatory flexibility analysis that is 
consistent with the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 
through 612) unless we certify that a notice will not have a 
significant economic impact on a substantial number of small entities. 
For purposes of the RFA, all ASCs and hospitals are considered to be 
small entities.
    Section 1102(b) of the Act requires us to prepare a regulatory 
impact analysis if a notice may have a significant impact on the 
operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 604 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a Metropolitan 
Statistical Area and has fewer than 50 beds.
    Although we believe an impact analysis on small rural hospitals is 
not required, this notice may have a significant impact on a 
substantial number of ASCs. Therefore, we believe that a regulatory 
flexibility analysis is required for ASCs. In addition, we are 
voluntarily providing a brief discussion of the impact this notice may 
have on hospitals.
1. Impact on ASCs
    Section 1833(i)(2)(C) of the Act requires that we automatically 
adjust ASC rates for inflation during a fiscal year when we do not 
update ASC payment rates based on survey data. Therefore, we are 
updating the current ASC payment rates, which were published in our 
September 26, 1995 Federal Register notice (60 FR 49619), by 
incorporating the projected rate of change in the CPI-U for the 12-
month period ending March 31, 1997, a 2.6 percent increase. There are 
other factors, however, that affect the actual payments to an 
individual ASC.
    First, variations in an ASC's Medicare case mix affect the size of 
the ASC's aggregate payment increase. Although we uniformly adjusted 
ASC payment rates by the CPI-U forecast for the 12-month period ending 
March 31, 1997, we did not adjust the IOL payment allowance that is 
included in the payment rate for group 6 and group 8 because OBRA 1993 
froze the amount of payment for an IOL furnished by an ASC at $150 for 
the period beginning January 1, 1994 through December 31, 1998. 
Therefore, because the net adjustment for inflation for procedures in 
group 6 is 2.08 percent and for group 8 is 2.21 percent, ASCs that 
perform a high percentage of the IOL insertion procedures that comprise 
these groups may expect a somewhat lower increase in their aggregate 
payments than ASCs that perform fewer IOL insertion procedures.
    A second factor determining the effect of the change in payment 
rates is the percentage of total revenue an ASC receives from Medicare. 
The larger the proportion of revenue an ASC receives from the Medicare 
program, the greater the impact of the updated rates in this notice. 
The percentage of revenue derived from the Medicare program depends on 
the volume and types of services furnished. Since Medicare patients 
account for as much as 80 percent of all IOL insertion procedures 
performed in ASCs, an ASC that performs a high percentage of IOL 
insertion procedures will probably receive a higher percentage of its 
revenue from Medicare than would an ASC with a case mix comprised 
largely of procedures that do not involve insertion of an IOL. For an 
ASC that receives a large portion of its revenue from the Medicare 
program, the changes

[[Page 51298]]

in this notice will likely have a greater influence on the ASC's 
operations and management decisions than they will have on an ASC that 
receives a large portion of revenue from other sources. In general, we 
expect the rate changes in this notice to affect ASCs positively by 
increasing the rates upon which payments are based.
2. Impact on Hospitals and Small Rural Hospitals
    Section 1833(i)(3)(A) of the Act mandates the method of determining 
payments to hospitals for ASC-approved procedures performed in an 
outpatient setting. The Congress believed some comparability should 
exist in the amount of payment to hospitals and ASCs for similar 
procedures. The Congress recognized, however, that hospitals have 
certain overhead costs that ASCs do not and allowed for those costs by 
establishing a blended payment methodology. For ASC procedures 
performed in an outpatient setting, hospitals are paid based on the 
lower of their aggregate costs, aggregate charges, or a blend of 58 
percent of the applicable wage-adjusted ASC rate and 42 percent of the 
lower of the hospital's aggregate costs or charges. According to 
statistics from the Office of the Actuary within HCFA, 10.7 percent of 
Medicare payments to hospitals by intermediaries for outpatient 
department services is attributable to services furnished in 
conjunction with ASC-covered procedures.
    We believe that, due to a variety of factors, the ASC rate increase 
in this notice will result in only a 0.8 percent increase in 
intermediary payments to hospitals for ASC-covered procedures. We would 
not expect an ASC rate increase in every instance to keep pace with 
actual hospital cost increases, although we would fully recognize cost 
increases resulting from inflation alone to the extent that the blended 
payment methodology includes aggregate hospital costs. The weight of 
the ASC portion of the blended payment amount, which would reflect the 
ASC rate increase, is offset to a degree when hospital costs 
significantly exceed the ASC rate. Another element that would eliminate 
the effect of the ASC rate increase on hospital outpatient payments is 
the application of the lowest payment screen in determining payments. 
Applying the lowest of costs, charges, or a blend can result in some 
hospitals being paid entirely on the basis of a hospital's costs or 
charges. In those instances, the increase in the ASC rates will have no 
effect on hospital payments. The number of Medicare beneficiaries a 
hospital serves and its case-mix variation would also influence the 
total impact of the new ASC rates on Medicare payments to hospitals. 
Based on these factors, we have determined, and we certify that this 
notice will not have a significant impact on a substantial number of 
small rural hospitals. Therefore, we have not prepared a small rural 
hospital impact analysis.

IV. Waiver of 30-Day Delay in the Effective Date

    We ordinarily publish notices, such as this, subject to a 30-day 
delay in the effective date. However, if adherence to this procedure 
would be impractical, unnecessary, or contrary to the public interest, 
we may waive the delay in the effective date. The provisions of this 
notice are effective for services furnished beginning on October 1, 
1996, to coincide with the FY 1997 PPS updated wage index. These 
provisions will increase payment to ASCs by 2.6 percent (as modified by 
any change to the wage indices), in accordance with section 
1833(i)(2)(C) of the Act, which requires automatic application of an 
inflation adjustment. As a practical matter, if we allowed a 30-day 
delay in the effective date of this notice, ASCs would be unable to 
take timely advantage of the increase in payment rates contained in 
this notice. Moreover, we believe a delay is impractical and 
unnecessary because the statute, as explained earlier, provides that 
ASC payment rates be increased by the percentage increase in the CPI-U 
if the Secretary has not updated rates during a fiscal year beginning 
with FY 1996. Therefore, we find good cause to waive the delay in the 
effective date.
    In accordance with the provisions of Executive Order 12866, this 
notice was not reviewed by the Office of Management and Budget. This 
rule is not a major rule as defined by U.S.C. 804(2).

(Sections 1832(a)(2)(F) and 1833(i) (1) and (2) of the Social 
Security Act (42 U.S.C. 1395k(a)(2)(F) and 1395l(i) (1) and (2)); 42 
CFR 416.120, 416.125, and 416.130)

(Catalog of Federal Domestic Assistance Programs No. 93.774, 
Medicare--Supplementary Medical Insurance Program)

    Dated: September 9, 1996.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.
    Dated: September 26, 1996.
Donna E. Shalala,
Secretary.
[FR Doc. 96-25253 Filed 9-30-96; 8:45 am]
BILLING CODE 4120-01-P