As a result of the new legislation, ASCs may face Medicare reimbursement challenges in the near future.

The massive health reform legislation enacted on March 23, 2010, (and subsequently amended on March 30, 2010) includes only a few changes directly affecting Medicare-certified ambulatory surgery centers (ASCs), but these changes will affect Medicare reimbursements in the near-term and may portend even greater reimbursement changes in the future.

Under current law, the Centers for Medicare and Medicaid Services (CMS) is required to update Medicare ASC facility fee payments annually for inflation. The agency historically has used the consumer price index for urban areas (CPI-U) for this purpose. Beginning in 2011, the Patient Protection and Affordable Care Act (PPACA) requires CMS to reduce the inflation update by a “productivity adjustment,” which is also defined under the new law as the 10-year rolling average of productivity gains in the general economy. Most significantly, the new law provides that application of the productivity adjustment may result in a negative update, which could reduce payments from one year to the next.

In 2010, CMS inflated ASC payments by 1.2 percent based on CPI-U for the relevant period. The productivity adjustment for 2010 was 1.3 percent. If the PPACA policy had been in effect for 2010, Medicare payments to ASCs would have been reduced by 0.1 percent, before other adjustments are applied. Although the PPACA policy will not go into effect until next year, given the current low rate of inflation, ASCs should expect this productivity adjustment to affect Medicare payments comparably next year.

ASCs may face additional Medicare reimbursement challenges in the future pursuant to the new law. The PPACA also calls on CMS to conduct a study on whether to expand Medicare’s acquired conditions policy to ASCs, among other provider types. The acquired conditions policy is one of several new Medicare initiatives intended to reward quality and penalize poor care. Under the acquired conditions policy, Medicare payments are reduced when patients incur a secondary diagnosis that was not present upon admission (e.g., a foreign object was retained after surgery or the patient has a surgical site infection). Medicare’s acquired conditions policy currently applies only to hospitals but could apply to ASCs, depending on the results of CMS’s study. This report is due to the U.S. Congress by January 2012.

The new legislation also requires CMS to develop a plan to implement a value-based purchasing program for ASCs. Under current law, hospitals are required to report quality data to CMS, and payments are reduced if the hospital fails to report adequately. The new law will begin transitioning that “pay-for-reporting” program to an actual “pay-for-performance” program for hospitals under which Medicare payments will be increased or reduced depending on a hospital’s performance on specified quality measures relative to its peers. CMS has for years had the discretion to require ASCs to report quality data and to penalize facilities for failure to do so, but has heretofore declined to implement such a requirement. Under the new law, the agency must develop a plan by January 2011 to implement a value-based purchasing program for ASCs. Although congressional action would be required before CMS can actually adjust ASC payments based on quality performance, given the emphasis on incentivizing quality through Medicare payment policy, the plan that will be developed by CMS is likely to lead to actual performance-based payments for ASCs in the not too distant future.

A version of the health reform legislation approved by the U.S. House of Representatives in November 2009 would have required ASCs to submit cost reports to CMS. This provision was not included in the final legislation. Nonetheless, ASC cost reporting has been endorsed by the Medicare Payment Advisory Commission and remains a popular idea among some lawmakers, so it may appear again in future legislation.