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The ASC Cost Differential

Ambulatory Surgery Centers (ASCs) perform more than 7 million procedures for Medicare beneficiaries needing same-day surgical, diagnostic and preventive procedures. By specializing in specific procedures, ASCs are able to maximize efficiency and quality outcomes for patients.

On average, the Medicare program and its beneficiaries share in more than $2.3 billion in savings each year when patients receive certain preventive and surgical procedures at ASCs instead of other outpatient surgical facilities such as hospital outpatient departments (HOPDs). Because ASCs perform specific services and do so more efficiently, Medicare reimburses ASCs as a percentage of the amount paid to HOPDs.

In 2003, Medicare procedures performed in ASCs cost 83% of the amount paid to hospital outpatient departments for the same services. Today, procedures performed in the ASC cost Medicare just 55% of the amount paid to HOPDs. For example, Medicare pays hospitals $1,670 for performing an outpatient cataract surgery while paying ASCs only $964 for performing the same surgery. Beneficiary savings are also significant:

Private insurance companies tend to save similarly, which means employers also incur lower health care costs when employees utilize ASC services. For this reason, both employers and insurers have recently been exploring ways to incentivize the movement of patients and procedures to the ASC setting.

Different Inflation Measures

This growing divergence in payments is driven, in part, by differences in how the payment systems are updated each year to account for inflation.

Despite the fact that ASCs and HOPDs offer the same services, the Centers for Medicare & Medicaid Services (CMS) applies two different measures of inflation to update each payment system.

For HOPDs, CMS uses the hospital market basket, which measures the cost of medical expenses. For ASCs, CMS uses the Consumer Price Index –Urban (CPI-U), which measures the cost of goods such as milk and bread. Not only is the CPI-U based on changes entirely unrelated to medical costs, the inflation update is historically lower than the hospital market basket.

Costly Consequences for Patients

Given the growing disparity in payment rates between HOPDs and ASCs, it is increasingly attractive for hospitals to acquire ASCs. Even if an ASC is not physically located next to a hospital, once it is part of a hospital, it can terminate its ASC license and become a unit of the hospital.

When an ASC is converted to an HOPD, the hospital is entitled to bill the services at the higher rate. For example, when cataract procedures are performed at an ASC, Medicare pays $964. However, if the ASC were acquired by a hospital and converted to an outpatient unit, the payment rate would be $1,671, or $707 more per surgery. This conversion limits competition, increases Medicare and beneficiary costs, and limits patient choices.

Without ASCs as a high quality, low-cost option, many patients could be forced to either choose a higher cost site of service or delay key surgical and/or preventive care.