.p.~. 
" .
Department of Health and Human Services 
OFFICE OF 
INSPECTOR GENERAL 
REIMBURSEMENT FOR 
OUTPATIENT FACILITY SERVICES 
MANAGEMENT ADVISORY REPORT 
Richard P. Kusserow 
INSPECfOR GENERAL 
vc  J rt' 
'QC1 
OEl-09-88-01003  ...................... .................. .. ............... ........... .................. ................... .......................... .....,..................... ........ ......,.... ........,................... ...... .............  .............. ...................... 
... " ... ...........
TABLE  CONTENTS 
PURPOSE 
BACKGROUND 
METH 0 DO LOGY 
FINDING 
I)jfferences exist in Medicare payments to OPDs and 
ASCs. 
RECOMMENDATION 
APPENDICES 
APPENDDC k. Methodology 
................................... A-
APPENDIX B: 
Agency Cmi1lnents  RIDMBURSEMENT FOR OUTPATIENT F ACIUIY SERVICES 
OEI..Q9-88..01003 
PURPOSE 
This report compares Medicare payments for facility services in ambulatory surgery 
and hospital outpatient departments (OPDs). 
centers  (ASCs) 
BACKGROUND 
Under the Sixth Omnibus Budget Reconciliation Act of 1986 (SOBRA), which was 
effective July 1987, the Hea1th Care Financing Administration (HCFA) began 
reimbursing OPDs the lesser of (1) the hospital's reasonable or customary charges 
for outpatient surgical facility services or (2) a blend of current OPD hospital-
specific costs and ASC prospective payment rate~ for each 
procedw-e. For the cost
reporting periods beginning October 1987, the blended rate was 75 percent of the 
OPD hospital-specific cost and 25 percent of the ASC rate. The blended rate was 
changed to a 50-50 percent ratio in October 1988. Effective Janumy 1991, OPD 
reimbursement was changed under the Omnibus Budget Reconciliation 
Act of 1990 
(OBRA 1990) by (1) reducing OPD 
hospital-specific costs by 5.8 percent and
(2) using this reduced amount in the new blended rate of 42 percent of the OPD
hospital- percent of the ASC rates. 
specific costs and  S8 
We recently completed an fuspection in which we 
examined Medicare outpatient
surgery performed in ASCs and OPDs. 
In Februaxy 1991, we released the medical
outcome analysis in a final report entitled " 
Outpatient Surge.ty-Medica1 Necessity
and Quality of Care" (OEI.o9-88-01000). 
MmHODOLOGY 
We selected three high-volume Medicare procedures--cataract extraction with 
intraocular lens (IOL) :implant, lTppe.r gastrointestlnaI (GI) endoscopy, and
colonoscopy. We selected a random sample of 1 
162 Medicare beneficiaries, half of
whom had their surgeries in ASCs and 
ha1f in OPDs during the first quarter of
calendar year 1988. The surgeries were performed in the 10 States with the highest 
number of Memcare-certified ASCc; in February 1988. 
We detennined OPD and ASC paid amounts by reviewing the beneficiary histories
and claims obtained from the Medicare carriers and 
fiscal intermediaries. For OPDs,
the paid amounts represent the interim 
payments. These interim payments are
subject to adjustment based on the intermediaIy's audit of the hospital cost report 
for the fiscal year in which the 
selVices were rendered. Our analysis included 
surgeons' fees, facility fees , preoperative tests, postoperative office visits, and IOL
charges. In order to gain a 
national perspective, we made two non-statistical 
projections from the data, First, we projected the 10 States' quarterly costs to  of sampled procedures represents. 49 percent 
annua1 costs. Second, since the 
 cost 
the Medicare procedures performed nationally, we calculated the national costs by 
dividing the sampled costs by 0.49. This methodology assumes the 10 sampled States
are representative of the nation as a whole. In 
appendix A, we have included
additional information concerning the basis under which we (1) collected and 
analyzed the data and (2) calculated the cost 
savings. 
FINDING 
DJFFERENCES EXIST IN MEDICARE 
PAYMENTS TO OPDs AND ASCs 
In 1988, Medicare payments to OPDs exceeded payments to ASCs by 26.
3 percent 
for upper OI endoscopies, 43.8 percent for colonoscopies, and 73.6 percent for
cataract surgeries.. In our sample, the weighted OPD facility 
payments averaged
$276 for uppe,r 01 endoscopies, 
$331 for coJonoscopies, and $879 for cataract
surgeries. The ASC facility payments averaged $218 for upper 
Gl endoscopies
$213 for colonosoopies, and $489 for cataract surgeries. 
To compare these figures wjth OPD 
payments under the CUIrent reimbursement 
systemt we converted the 1988 OPD data from the 7$.25 percent blended rate to the 
estimated 42-58 percent blended rate. We based the average 42-58 percent blended
rate for the 
sampled procedures OD State averages. Under the 42-58 percent
blended rate, the sampled OPDs still would have 
been paid more for facility fees
than ASCs for 2 procedures-4.
1 percent more for colonoscopies and 44.9 percent
more for cataract surgeries. On the other hand, OPDs would have been paid
0 percent less than ASCs for upper Gl 
endoscopies. The chart on the next page
compares the OPD payments under the two blended rates to ASC 
paymentS.  :;:;.:.::::;;:..:::::.;;:.:::::.;;::.:~::.:::,:::.:;:;.:::.:::;:.:::.:::;.:::: '  : ,. :.;::.:.:.::..:.. ::'.;..:;:..;..::..:.;.::..;.::.:; --.. ::..::..::::..;:..::::,;..:.::::.:..:.::::,;..:.-::::.:...:::-::.;...:::::.;-...:: :   :- :'..,.:.:'-..::.:..:..::.:..:-:.:..:::.-..:::...-.:.: .------- -.--, :';-:.:.:.::.:..:::.'.:::;. .::;..:::'.::.-: .::.:::..:.::-:.:  :'-.:.:.:. :.:.-:,:.-:.:.:..:.:.-:.:.... --.--
DIFFERENCES EXIST IN OPD AND Ase FACIUTY FEE PAYMENTS 
AVERAGE FACIUTY PAYMENT 
$1,DOO 
600 
600 
:~(~I~t:
tf::::
400 
$276 
200  $207 $218  $221  $213 
~~i~ijmi~iji! :~:?f::~:~: 
::::::::;:::::::: :':':-:':':':':0 
Cataract Surgei)' 
Upper GI Endoscopy  CoIonoscopy 
TYPE OF SURGERY 
CPO1 PAYMENT  OPD2 PAYMENT 
75-25 PERCENT BLEND  r:;o:::;'::::: 42-58 PERCENT BLEND  1:::::::::1  ASC PAYMENT 
Even under the 42-58 percent OPD blended rate, differences exist in Medicare 
payments to OPDs and ASCs at the State 
level. For cataract 
surgeries, OPDs are
paid more than ASCs in aU sampled States. The differences ranged from $56.62 in 
Arizona to $'442.96 in Maryland 
Although the above chart 
i1lustrate.$ ilear parity in facility fee paynients for upper 
GI endoscopies and colonoscopies, fiscal intermediaries in sevel'aIStates make 
substantia11y different payments based on the setting. 
For co1onoscopies, Florida
OPDs are pajd $90.59 more than ASCs, while Louisiana ASCs are paid $86.
17 more
than OPDs. For upper GI 
endo3cvpies, Maryland OPD5 arc paid $58.
92 more than
AS~ while Arizona ASCs are pnid $69.
72 more than OPDs. 
The OPDs allege that they should receive higher reimbursement than ASCs because
they (1) treat patients with 
concomitant conditions such as hypertension or diabetes
and (2) maintain standby equipment and staff for 
discussed jn our
report entitled "  emergencies.  As 
Outpatient Surgery--Medical Necessity and Quality of Care 
" we
found no significant differences between OPDs and ASCs with respect to 
concomitant conditions, average patient age
, ability to resolve intraoperative
complications, or quality of care. 
U5ing the 42-58 percent blended 
:rate, we estimate the difference in Medicare
payments between OPDs and ASCs in our sample 
was $14.
43 million per quarter.
This differenCe projects to approximately $57.
70 million annuaUy for 1988. If one  asswnes our 10-State 5ample is representative of the nation, the difference in 
payments between OPDs and ASCs was approximately $117.
76 million in 1988. 
RECDMMBNJ)ATION 
II- TIlE HCF A SHOUlD SEEK LEGISIATION TO ACHIEVE P A1UTY IN
MC AND OPD PAYMENTS. 
AGENCY COMMENTS 
The HCFA has agreed with our recommendation to seek 
legislation to acbieve parity
in ASC and OPD 
payments. As a result, a HCF A legislative proposal is included in
the Fiscal Year 
1992 Budget. The proposal would establish unifonn payments for
ASCs and OPDs. The ASCs and 
OPDs would receive the same payment-
the lower
of either the (1) OPD 
payment (under the 
42-58 percent blended late) or (2) ASC
rate. The HCFA would implement the new rates for high volume outpatient surgical
procedures in 1992 and phase in other 
surgical procedures at a later date. 
The HCFA disagreed with the OIG estimated cost 
savings in the draft report,
because we did not calculate them based on the cunent 42-
58 percent blended rate
for OPDs. Wlrile HCFA agrees that OPD payment is 
significantly higher than ASC
payment for catmact 
surgery, they believe the opposite is true for upper
GI endoscopies and 
coIonosc:opies under 
the current 42.58 percent blended rate. 
The complete text of the 
comments js contained in appendix B. 
OFFICE OF lNSPECOOR GENERAL RESPONSE 
Based on HCFA' s comments, we have recalculated our cost 
savings based on the
current 42-58 percent blended rate and incorporated the revised 
fincting. According to our data, OPDs still  cost savings into the
receive more than ASCs for cataract 
surgeries and colonoscopies while they 
recei'(fe less for upper 01 endoscopies. The
following saVings will be achieved through parity-$107.
61 mil1ion for cataract surgeIY,
$5.62 million for upper GI 
. endoscopies. and $4.53 million for colonoscopies. 
While there still may be 
disagreements about the cost savings between the two
5ettings, we want to emphasize that we do 
agree with HCFA' s legislative proposal to
set parity in both outpatient 
settings.  APPENDIX A

METHODOLOGY 
Facility Fees 
We deteDDined OPD and ASC paid amounts by 
reviewing the beneficiary payment 
hIstories and claims that we obtained from the Medicare carriers and fiscal 
intermediaries. For OPDs, the paid amounts represent the interim payments. These 
interim payments are subject to adjustment based on the :intennediarts audit of the 
hospital cost report for the fiscal year in which the services were rendered. 
analY2ed all paid amounts including surgeons' fees, facility fees! preoperative tests,
postoperative office visits within 90 days after surgery) and IOL charges for cataract 
cases. 
Tn OPD cataract cases, we (a) identified the amount that was paid for the 
IOL from 
the claim or patient history if it was billed by the hospital and (b) subtracted it from
the total amount. The remainder was the payment for the facility fee. If we; could
not isolate the rOL payment contacted the hospital for this :information. Since
1 we 
IOu 
were billed separately 
-by ASCs during the review period1 there was no need for
us to deduct them from the facility fee payment for the 
cataract surgety cases. 
In severa1 cases, we excluded records from our analysis because (a) Medicare was 
the secondary payor, and thus, the program paid minimal amounts, if any, or (b) the 
intermediaries could not locate any claims. 
Converting OPD Payments From 75-
25 rercent plended ~ates to 42-58 Percent 
Blended Rates 
The data collected for this 
inspection represent a 3-mont11 pedod in which OPD
facilities were reimbursed at a blended rate of 75 percent of OPD hospital-specific 
costs and 25 percent of the comparable ASC facility fee. 
Tn order to project 
potential cost savings for the options) we converted the payments from the
75-25 percent blended rates to the 42-58 percent blended rates that were effective
Janumy 1991. We estimated the OPD facility 
costS by first subtracting (a) the
beneficiary coinsurance and deductibles and (b) 2S percent of the ASC facility fee
paid by the Medicare program (ie.
, 80 percent of the ASC allowed amount) from
the OPD allowed amount. We divided this 
futermediate amount by 0.75, thus
obtainjng the estimated average historical cost that the fiscal intermediary 
uses to
deteIIDine the blended rate. 
Effective January 1, 1991) Section 4151 of the Ommlms Budget Reconciliation Act
(OBRA) of 1990 reduced the OPD reimbursement to a 42-58 percent blended rate. 
To calculate the current rate, we (a) reduced the OPD 
hospitaI.specific ~"t amount
by 5.8 percent, (b) took 42 percent of this reduced 
amount, and ( c) blended this  amount with 58 percent of the ASC  Since the IS percent

prospective payment rate. 
OPD capital cost adjustment was not effective in 1988, we did not include this

adjustment :in our estimated 42.58 percent blended rates. We based the average

42-58 percent blended rate for the 
sampled surgeries on State averages. 

comparing the 75-25 percent blended rate to the  percent blended

estimated  4:!r58 
rate, we calculated the estimated savings between ASC and OPD facility payments.

Cost Estimates and National Projections 
Upon reviewing the beneficiary payment histories, we eliminated surgeries that were 
:incorrectly coded for ASC8 or OPDs and then substituted additional cases to acl1ieve 
the desired sample size. TIms, we adjusted the sample to account for the histories 
that contained errors. We used the adjusted sample to develop the cost estimates 
for the first quarter of 1988. In addition, we used the estimated 42-58 percent
blended rate for OPD reimbursement for our cost projections. 
Since our sample represented one quarter of the year, we multiplied the quatter 
projections by four to calculate the annual estimates for the procedures. Also, since 
our sample costs represented 49 percent of all surgeries performed nationally, we 
divided the annual estimates ,by 0.49 to obtain national projections. 
The tables on the following pages present the savings if ASCs and OPDs receive the 
same payment for cataract surgeries, upper GI endoscopi~ and colonoscopies.  TABLE 1:(cid:1) ES'1.":IMATED ANNUAL SAVINGS FOR CATARACT SURGERY 
IF Ases AND OPDs RECEIVED SAME REDIBURSEMENX 
AVERAGE  ADJUSTED  AWRAGE  ESTIHA':ED 
S:t'2\TE:  SAVINCS  51':!;  Q\1AR'l'ERLY  ANNtTAL 
PER CASE
 UNIVERSE  SAVINGS  SAVINGS 
ARIZONA  $56.  1468
 $83, 118.
 5332,472.

CALU'ORNIA  5296.  5228
 $1, 551, 304.
 205,217.

FLORIDA  $332.  15470
 $5, 145, 476.
 $20, 581,906.

ILLiNOIS  $200.  3262
 $653,345.  $2, 613, 383.

LOUISIANA  $100.  3904
 $394,108.  $1, 576,435.

MARn.AND  $442 .  1759
 $779,156.  $3,116,666.

NORTH CAROLINA  $97.  2633
 $257,136.
 $1, 02S,SSS.

OHIO  $181. 18
 7388
 $1, 338, 557.
 $5,354,231.

PENNSYLVANtA  $124. S2
 8034
 $1, 000, 393.
 001, 574.

TEXAS  $149.  13260
 $1, 979, 320.
 $7,917,280.

TOTALS;  $1, 982.  62406
 $13, 181, 931.
 $52,727,724.

ESTIMATED NATIONAL

ANNUAL SAVINGS

FOR CATARACTS:

$107,607,601.
 TABLE 2:  ESTIMATED ANNUAL SAVINGS FOR UPPER GI ENDOSCOPY
IF .ASCs AND O:l?Ds :RECEIVED SAME RBIHBtJRSEKENT 
AVERAGE  ADJVSTBD  AVERAGB  ESTDm.TEJ) 
SAVINGS  SITE  QUARTERLY  ANNUAL 
PER CASE  UNIVERSE  SAVINGS  SAVINGS 
ARIZONA  $69.  $697.  $2,788.

CALIFORNIA  $16.  1781  $29,867.  $119,469.

FLORIDA  $74.  6949  $513,195.  $2,052,782.

ILLINOIS  $0.  $0.  $0.

LOUISIANA  $65.  $2,161.  S8, 646.

M2\RYLAND  $58.  1493  S87, 967. S6  $351,870.

NORTH CAROLINA  $9.  $150.  $603.

OHIO  $21.  Sl,30~.  $5,210.

PENNSYLVANIA  $27.  129.  $4,519.

TEXAS  $13. SO  3888  $52,488.  $209, 952. 
TOTALS:  $356.  14173  $688,960.  $2,755,842. 
ESTIMATED NATXONM.
ANNUAL SAVINGS
FOR U:I?PER GIs: 
$5,624,168. 
A-4
 ~ABLE 3;(cid:1) ESTIMATED ANNUAL SAVINGS FOR COLONOSCOPY 
IF ASCs AND OPDS RECEIVBD SAME REIMBURSEMENT 
AVERAGE  ADJUSTED  AVERAGE  ESi'IHA'rBD 
SAVINGS  SITE  Qt/A1\'rERLY  ANNUAL 
PER CASE  mnvERS E  SAVINGS  SAVINC-S 
ARIZONA  $8.
 $94.  $377. 
CALJ:FORNIA  $4.  1141
 $4, 769.  $19, 077. 
FLORIDA  $90.  4681
 $424, 051.  $1, 696, 207. 
ILLINOIS  $0.  $0.  $0. 
LOUI:SIANA  $66.  292.  $5, 170. 
MARY);.AIW  $76.  $230.  $923. 
NORTH CAROLI:NA  $89. OS  576  $51.. 292.  $205, 171. 
OHIO  ~SO.  1429  $71, 950.  ~287, 800. 60 
PENNSYLVANIA  $33.  $897.  $3, 589. 
TEXAS  $3.  $31- 32  $125. 28 
1'OTALS:  $442.  7/392  $554, 610.  $2, 218, 443. 
ESi'Dm.'l'2D NA~IONAL
ANNt1AL SAVINCS
FOR COLONOSOOPIES: 
$4, 527, 435.  "--..
APPENDIX B 
AGENCY COMMENTS  ~:~~:/: 
.-:
Health Care
SER~S 
Financing Adminism",ion
DEPARH,1.ENT OF HEALTH &. HUMAN 
DIG AS 
 Memorandum
DIG-
Dm-O1
AAPR 2d 9m 1991 inistratOr ~Ml?
Date OGC/IG 
From Health Care Financing Administration 
DIG Draft Management Advisory Report ~ "Reimbursement for Outpatient Facility
SubjeCt
Se1Vices," OEI-O9..s8-01003
The Inspector General
Office of the Secretary

We have reviewed the subject management acMsory- report which compares 
Medicare payments for facility services in ambulatory surgery centers (ASCs) and 
hospital outpatient departments (OPDs). This report indicates that M~dicare ParI: 
B payments to OPDs fot' facility services associated with cataract surgery, 
endoscopiest ~nd colonoscapies far exceed payments for the same services when 
they are pro~ded in an ASC. It also states that significant savings could be 
achieved by reducing OPD p~yments for these three services to ASC levels: 
However, data which we have reviewed from the Office of the ACtUary
(OACT) for the first quarter of 1990. adjusted for the Omnibus ;Budget 
Reconctliation Act of 1990 COBRA 90) changes and inflated to 1991, indicate that 
while- payment to OPDs is significantly higher than payment to ASCs for facility 
services associated with cataract surgery, the opposite is true for endosc:opies and 
colonoscopies. Changing payment for colonoscopies and endoscopies performed in 
OPDs to the ASC rates wouldt therefore, result in a budget cost rather than
budget savings.
The report recommends that HCF A seek legislation to achieve parity' in 
ASC and OPD payments'  We agree with this recommendatioIt and have' already 
developed a legislative proposal, contained in the Fiscal Year 1992 President 
Budget, to eStablish uniform payment across OPDs and ASCs. We are proposing 
that prospective rates be set at the lower of OPD COStS ot" the- current ASC rate~ 
and that the same rate apply  provided in an OPD or an 
whe:ther the service  is 
ASc. These prospective rates would be implemented in 1992 for' high volume 
s~rgicnl procedures, with prospecrj-lre ~tcs phased- in subsequently for other 
ambutatoty surgical procedures. 
We: do question erG's savings estimate attached to this recommendation. It
does not take into account changes made to OPD payment by OBRA 90. These
changes extended from QBRA 89 the 15 percent cut in hospital outpatient capital 
costs, reduced non-ca.pital outpatient costs by 5.8 percent, and rednced the blend of 
hospital-specific costs and ASC.prospective rates to a 42.58 percent radar  ~. 
. -
Page 2 - The Inspector General
We also have me following technical commentS: 
The use of the word "previous 
0 On page 1, Background, 1st paragraph: 
blended payment amount is based on a bIend ~f 
should be deleted. The 
rates. 
a hospital's present costs and ASC payment 
0 The term fIOrD-specific rate," which is used throughout the report, should 
rate'" co~eys a fixed or 
be changed to "hospital-specific cost." The word U
prospective amount' rather than a specific hospital's cost. . 
Thank you far the opportunity to comment on this report. Please advise us 
whether you agree with our position on the report s recomII1endation at your 
earliest convenience. 
0 LJ:\~ 
Ph.D. 
GaIl R. 
'I. 
: ~ 3
II~ 
~r 
TOTAL P. 15