[Federal Register Volume 63, Number 33 (Thursday, February 19, 1998)]
[Notices]
[Pages 8462-8465]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-4227]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration
[HCFA-1897-N]


Medicare Program; Update of Ambulatory Surgical Center Payment 
Rates Effective for Services on or After October 1, 1997

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

ACTION: Notice.

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SUMMARY: This notice announces the update of Ambulatory Surgical Center 
payment rates effective for services on or after October 1, 1997. It 
implements section 1833(i)(2)(C) of the Social Security Act, which 
mandates an 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, 1997.
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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 (Part B) program 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 the 
basic requirements for ASCs set forth in our regulations at 42 CFR 
416.25.
    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 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, Medicare pays 
participating ASCs 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

[[Page 8463]]

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 in-depth 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).
     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 hospital cost 
proportion and the ASC cost proportion for portions of cost reporting 
periods beginning on or after January 1, 1991 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 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) (Pub. L. 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 application of 
an inflation adjustment during a fiscal year in which 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. A proposed rule entitled 
``Adjustment in Payment Amounts for New Technology Intraocular Lenses'' 
(BPD-831-P) was published in the Federal Register on September 4, 1997 
at 62 FR 46698.
    Section 4555 of the Balanced Budget Act of 1997 (Pub. L. 105-33) 
(BBA) amends section 1833(i)(2)(C) of the Act to require, in each of 
the FYs 1998 through 2002, that the CPI-U factor by which ASC rates are 
to be adjusted be reduced (but not below zero) by 2.0 percentage 
points.

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, operating room 
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 plan to use the 1994 survey data to rebase ASC 
payment rates. In accordance with rulemaking procedures, we will 
publish the rebased rate in the Federal Register and solicit public 
comments.
    We published our last ASC payment rate update notice on October 1, 
1996 (61 FR 51295).

II. Provisions of This Notice

    During years in which the Secretary has not otherwise updated ASC 
rates based on a survey of actual audited costs, section 1833(i)(2)(C) 
of the Act, as amended by BBA, requires application of an inflation 
adjustment. That inflation adjustment must be the

[[Page 8464]]

percentage increase in the CPI-U as estimated by the Secretary for the 
12-month period ending with the midpoint of the year involved, reduced 
(but not below zero) by 2.0 percentage points in each of the fiscal 
years 1998 through 2002. (The CPI-U is a general index that reflects 
prices paid by urban consumers 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 FY that ends March 
31, 1998 is 2.6 percent. Reducing the CPI-U factor by 2.0 percent 
results in an adjustment factor of 0.6 percent. Increasing the ASC 
payment rates currently in effect by 0.6 percent results in the 
following schedule of rates that are payable for facility services 
furnished on or after October 1, 1997:

Group 1--$314
Group 2--$422
Group 3--$482
Group 4--$595
Group 5--$678
Group 6--$789 (639+150)
Group 7--$941
Group 8--$928 (778+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 were 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 notice. The PPS wage 
index final rule published on August 29, 1997 (62 FR 45965), for 
implementation on October 1, 1997, will be used to adjust the ASC 
payment rates announced in this notice for facility services furnished 
on or after October 1, 1997.

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 in which 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 0.6 
percent are as follows:

                   Projected Additional Medicare Costs                  
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                       Fiscal year                         In millions* 
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1998....................................................              15
1999....................................................              15
2000....................................................              15
2001....................................................              15
2002....................................................              15
2003....................................................             15 
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* Rounded to the nearest $10 million.                                   

    The BBA is considered in the estimate, including the prospective 
payment system for hospital outpatient services to be implemented on 
January 1, 1999, and the formula-driven overpayment elimination 
effective October 1, 1997.

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, most ASCs and hospitals are considered to be 
small entities either by non-profit status or by having resources of $5 
million or less annually.
    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 that this notice will not have a significant 
impact on a substantial number of small rural hospitals, it 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 for FYs 1998 through 
2002, we automatically adjust ASC rates for inflation during an FY in 
which we do not update ASC payment rates based on survey data by a CPI-
U factor reduced (but not below zero) by 2.0 percent. Therefore, we are 
updating the current ASC payment rates, which were published in our 
October 1, 1996 Federal Register notice (61 FR 51295), by incorporating 
the projected rate of change in the CPI-U for the 12-month period 
ending March 31, 1998 minus 2.0 percentage points, a net 0.6 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, 1998, 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 0.51 percent and for group 8 is 0.54 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 in this notice will likely have a greater 
influence on the ASC's operations and management decisions than they 
will

[[Page 8465]]

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 Strategic Planning within HCFA, 12 
percent of Medicare payments to hospitals by intermediaries is 
attributable to services furnished in conjunction with 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 in the portion 
of the blended payment that 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 on or after October 1, 
1997. These provisions will increase payment to ASCs by 0.6 percent (as 
modified by any change to the wage index), in accordance with section 
1833(i)(2)(C) of the Act, as amended by the BBA. 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 an FY, 
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 reviewed by the Office of Management and Budget.

(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: October 9, 1997.
Nancy-Ann Min DeParle,
Deputy Administrator, Health Care Financing Administration.

    Dated: October 30, 1997.
Donna E. Shalala,
Secretary.
[FR Doc. 98-4227 Filed 2-18-98; 8:45 am]
BILLING CODE 4120-01-P