The Medicare program covered 61.2 million Americans in 2019, and policymakers will face difficult financial considerations if the program is to remain solvent in the decades to come. While the Supplementary Medical Insurance (SMI) Trust Fund, which covers Medicare Parts B and D, is expected to be adequately financed in the short term, Part B expenditures have significantly outpaced gross domestic product (GDP) growth and will continue to do so. Annual Part B payments to hospitals alone, which increased by $29.5 billion from 2010 to 2019, are expected to grow by $79.1 billion from 2020 to 2029.7
The findings of this analysis make it clear that ASCs provide considerable savings to the Medicare program, even as the types of procedures performed in ASCs have remained relatively stagnant over the past decade. Absent any major policy changes, ASCs are already expected to provide more than $10 billion in annual savings to Medicare by 2027. Policymakers can further offset the expected growth in Part B payments to hospitals by prioritizing payment policies that encourage the migration of procedures to the lower-cost ASC setting.
Medicare Payment Policy Changes
The growing disparity between reimbursement rates for HOPDs and ASCs creates a financial disincentive to perform cases in the lower-cost setting at the expense of patients, taxpayers and the Medicare program. Whereas ASCs were once paid approximately 85 percent of the HOPD rate, they are currently paid on average one-half of what hospitals are paid for the same procedures.8 In recent years, CMS has signaled a willingness to address this issue and enact policies designed to encourage procedure migration to ASCs. The CY 2019 Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center Payment System final rule contained two such policy changes.
Until 2019, annual inflationary updates to the ASC payment system were made using the Consumer Price Index for All Urban Consumers (CPI-U). The CPI-U tracks price changes in a sampling of consumer goods, of which only 9 percent have any relation to healthcare. In contrast, HOPD payments are updated using the hospital market basket index, which tracks prices for such surgery-related expenses as health worker wages and medical equipment and supplies. As consumer prices historically inflated more slowly than medical goods, ASCs received smaller annual updates despite having cost structures roughly aligned with HOPDs.
The 2019 OPPS/ASC final rule instituted a five-year trial period (2019–2023) during which ASC payments will be updated using the hospital market basket while CMS gathers data to make a permanent policy determination. Our analysis assumes that ASC payments move back to updates based on the CPI-U after the trial period ends. However, any policy that further widens the disparity between ASC and HOPD payments will cause the Medicare program to incur costs by disincentivizing procedures to migrate to the lower-cost setting. CMS could permanently align the update indices to ensure that ASC reimbursements do not continue to fall relative to HOPDs.
The 2019 OPPS/ASC final rule also made changes to Medicare payments for surgical devices used at ASCs. Until 2015, CMS fully contemplated the device cost in the ASC reimbursement rate only if the device cost was at least 50 percent of the total cost of the procedure when performed in the HOPD setting. Such procedures were deemed “device-intensive.” However, the 50 percent threshold meant that only a handful of procedures (75 procedures in 2014) qualified for device-intensive status. This made procedures with high device costs impractical to perform in the ASC setting as the facility would be forced to incorporate the device cost into its already reduced payment relative to the HOPD. In 2015, CMS reduced the threshold for device-intensive status to 40 percent, resulting in 61 additional codes receiving device-intensive status. CMS further dropped the threshold to 30 percent in 2019, qualifying an additional 128 procedures for device-intensive status. Ensuring adequate payment for surgical devices is necessary for incentivizing procedure migration to the ASC, especially for those specialties primed for future growth. Of the 128 newly added device-intensive procedures in 2019, 85 were musculoskeletal and 14 were cardiovascular—two specialties projected to provide more than $1 billion each in annual savings to the Medicare program by 2028.
Looking Ahead: Migration of New Specialties
Other than total knee arthroplasty and knee mosaicplasty, this analysis does not contemplate savings for procedures that were approved for ASC payment after 2018 or which may be approved by CMS in future years. However, it does project which specialties will meaningfully increase program savings in future years. Endocrine and cardiovascular procedures, in particular, are expected to experience greater than 1,000 percent growth in savings over the next 10 years.
COMPARISON OF TOTAL PAST AND FUTURE MEDICARE SAVINGS BY CPT GROUP
A good example of an endocrine surgical procedure that could provide substantial savings in the next 10 years is parathyroidectomy (HCPCS 60500). Although Medicare approved the procedure for ASC payment in 2014, HOPDs still perform more than 96 percent of the Medicare volume annually. Having the procedure performed in an ASC instead of a hospital offers significant savings to beneficiaries since the beneficiary copayment for a parathyroidectomy in an ASC is currently $521 less than the HOPD copayment.9 Migration of this procedure to ASCs also offers substantial savings for the Medicare program, but the current payment disparity—ASCs receive 46 percent of the HOPD rate—currently discourages movement. Bolstering the ASC payment rate, as well as approving additional endocrine surgical procedures such as thyroidectomies (HCPCS 60252) for ASC payment, would likely encourage cases migrating to the ASC setting and increase program savings.
The high projected savings tied to the performance of cardiovascular procedures in ASCs aligns with recent payment policy changes. In 2018, CMS finalized a change to allow certain “surgery-like” procedures outside of the surgical CPT code range (10000 through 69999) to be added to the ASC Covered Procedures List (CPL). Most commenters, including major specialty organizations such as the American College of Cardiology (ACC) and the Society for Cardiovascular Angiography & Intervention (SCAI), supported the change.10 The result was 17 cardiac catheterization procedures added to the CPL in 2019, followed by six codes related to percutaneous coronary intervention (PCI) added in 2020. In the CY 2020 OPPS/ASC final rule, CMS estimated that moving just 5 percent of coronary interventions from HOPDs to ASCs would save $20 million in program payments and $5 million in beneficiary copayments.11 In comments supporting the proposal to allow PCIs in ASCs, ACC noted that many cardiovascular interventions involve the use of devices and expressed concern that “the ASC payment rate for these procedures may be insufficient to cover the costs of these procedures.”12 In a position statement outlining protocols for PCIs in ASCs, SCAI also noted that low ASC reimbursement rates might not allow facilities to participate in registries that would offer important quality feedback.13 Neither the cardiac catheterization nor PCI procedures were contemplated in the savings projections of this report, but they clearly have the potential to increase the already considerable savings projected for cardiovascular procedures. HOPDs currently perform roughly 130,000 PCIs per year on Medicare beneficiaries at a payment rate 75 percent higher than the ASC rate.14
Even excluding orthopedic procedures like TKA, THA and other orthopedic procedures that might be approved in the future, musculoskeletal surgeries performed in ASCs are expected to save Medicare more than $1 billion per year by 2028.
While endocrine and cardiovascular surgeries may be the specialties with the largest increases in projected savings, orthopedic surgery has undoubtedly been the most discussed specialty for future migration to ASCs. CMS’ addition of TKA to the ASC CPL in 2020 was met with some contention, and the savings projection reflects conservative estimates based on the migration pattern of PKA. CMS has proposed to add total hip arthroplasty (THA) to the ASC CPL in 2021, and research suggests that, with careful patient selection, THA can be performed at ASCs with no increased risk of complications compared to HOPDs.15 Even excluding TKA, THA and other orthopedic procedures that might be approved for payment in future years, musculoskeletal surgeries performed in ASCs are expected to save Medicare more than $1 billion per year by 2028. This number could likely be magnitudes higher if even a small portion of procedures migrate to the ASC setting. HOPDs performed more than 53,000 TKAs in 2018 (the first year of eligibility for payment), which CMS reports was roughly 25 percent of all Medicare TKAs. 16
Strengths and Limitations
This analysis has several strengths. Whereas the previous analysis calculated savings using average reimbursement rates as identified in Addendum B (for HOPDs) or the ASC Addenda, our analysis calculated average payments at the HCPCS level based on claims paid amounts. This approach is more accurate and accounts for differences in the two payment systems. Future projections incorporated HCPCS-specific assumptions on the growth of outpatient volume and ASC share for increased accuracy. We stratified the baseline volume for each HCPCS code by age, gender and race to more accurately match variations in the population groups as projected by census data and the Medicare Board of Trustees. Finally, we consider PKA to be a strong proxy as part of the TKA growth projection. The decision to use PKA was made after consulting a group of clinical subject matter experts, and we offer conservative savings scenarios in the event that TKA and knee mosaicplasty volume growth is lower than has been seen for PKA.
This analysis is not without limitations. From a broad perspective, we define savings by considering any procedure done in an ASC rather than an HOPD as having saved the Medicare program money via the reduced reimbursement rates in ASCs. We did not examine inpatient Medicare services and attempt to separate out savings due to procedure volume that is shifting from inpatient to outpatient sites of service.
The future savings projections are calculated by extending the HCPCS-level average annual exponential growth rate seen in the period 2011 to 2018. Reliance on a historical growth rate may overstate savings potential, particularly in codes that have experienced high recent growth in volume. The analysis also projects savings through 2028 for several category III CPT codes. These codes could have a substantially different savings impact once they are converted to category I status. Finally, the analysis also does not take into account codes that have been approved for ASC payment after 2018, other than TKA and knee mosaicplasty. This excludes some cardiovascular codes in particular that will likely contribute significantly to program savings attributable to ASCs in the coming decade.
ASCs continue to offer substantial savings to the Medicare program. Annual savings due to procedures performed in ASCs rather than HOPDs are estimated at more than $3 billion per year since 2011. This finding confirms the projections of the 2013 study Medicare Cost Savings Tied to Ambulatory Surgery Centers. Much of the program savings since 2011 is attributable to a stable group of high-volume procedures, namely cataract surgery and colonoscopies.
TOTAL MEDICARE SAVINGS AND PROJECTED SAVINGS (BY YEAR)
Medicare savings due to ASCs in the period 2019 to 2028 is projected at $73.4 billion, driven by growing specialties such as endocrine, cardiovascular and orthopedic surgery. Even absent additional payment policies targeted at moving eligible cases in these specialties to the ASC setting, the general movement of procedures away from inpatient hospitals should provide considerable program savings. Policymakers should be wary of the growing payment disparity between ASCs and HOPDs and prioritize policies that incentivize safe migration of eligible procedures to the ASC setting.