.

Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

REIMBURSEMENT FOR 

OUTPATIENT FACILITY SERVICES 

MANAGEMENT ADVISORY REPORT 

.p.. 

Richard P. Kusserow 

J rt' INSPECfOR GENERAL 

vc 

'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 ................................... AAPPENDIX 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 centers (ASCs) and hospital outpatient departments (OPDs). 

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

hospital-

(2) using this reduced amount in the new blended rate of 42 percent of the OPD

specific costs and S8 percent of the ASC rates. 

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 
annua1 costs. Second, since the 
 cost of sampled procedures represents. 49 percent 

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

emergencies. As discussed jn our and (2) maintain standby equipment and staff for 

report entitled " 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 cost savings into the fincting. According to our data, OPDs still 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 payment1 we contacted the hospital for this :information. Since 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 prospective payment rate. Since the IS percent


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 estimated 4:!r58 percent blended


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: ES'1.":IMATED ANNUAL SAVINGS FOR CATARACT SURGERY 

IF Ases AND OPDs RECEIVED SAME REDIBURSEMENX 

AVERAGE 

S:t'2\TE: SAVINCS 

PER CASE


ARIZONA $56. 

CALU'ORNIA 5296. 

FLORIDA $332. 

ILLiNOIS $200. 

LOUISIANA $100. 

MARn.AND $442 . 

NORTH CAROLINA $97. 

OHIO $181. 18


PENNSYLVANtA $124. S2


TEXAS $149. 

TOTALS; $1, 982. 

ADJUSTED 

51':!; 

UNIVERSE 

1468


5228


15470


3262


3904


1759


2633


7388


8034


13260


62406


AWRAGE 

Q\1AR'l'ERLY 

SAVINGS 

$83, 118.


$1, 551, 304.


$5, 145, 476.


$653, 345. 

$394, 108. 

$779, 156. 

$257, 136.


$1, 338, 557.


$1, 000, 393.


$1, 979, 320.


$13, 181, 931.


ESTIHA':ED 

ANNtTAL 

SAVINGS 

5332, 472.


205, 217.


$20, 581,906.


$2, 613, 383.


$1, 576,435.


$3, 116, 666.


$1, 02S, SSS.


$5, 354, 231.


001, 574.


$7, 917, 280.


$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 

SAVINGS SITE 

PER CASE UNIVERSE 

ARIZONA $69. 

CALIFORNIA $16. 1781 

FLORIDA $74. 6949 

ILLINOIS $0. 

LOUISIANA $65. 

M2\RYLAND $58. 1493 

NORTH CAROLINA $9. 

OHIO $21. 

PENNSYLVANIA $27. 

TEXAS $13. SO 3888 

TOTALS: $356. 14173 

AVERAGB 

QUARTERLY 

SAVINGS 

$697. 

$29, 867. 

$513, 195. 

$0. 

$2, 161. 

S87, 967. S6 

$150. 

Sl, 30~. 

129. 

$52, 488. 

$688, 960. 

ESTDm.TEJ) 

ANNUAL 

SAVINGS 

$2, 788.


$119, 469.


$2, 052,782.


$0.


S8, 646.


$351, 870.


$603.


$5, 210.


$4, 519.


$209, 952. 

$2, 755, 842. 

ESTIMATED NATXONM.€

ANNUAL SAVINGS€

FOR U:I?PER GIs: 

$5, 624, 168. 

A-4

~ABLE 3; ESTIMATED ANNUAL SAVINGS FOR COLONOSCOPY 

IF ASCs AND OPDS RECEIVBD SAME REIMBURSEMENT 

AVERAGE ADJUSTED 

SAVINGS SITE 

PER CASE mnvERS E 

ARIZONA $8.


CALJ:FORNIA $4. 1141


FLORIDA $90. 4681


ILLINOIS $0. 

LOUI:SIANA $66. 

MARY);.AIW $76. 

NORTH CAROLI:NA $89. OS 576 

OHIO ~SO. 1429 

PENNSYLVANIA $33. 

TEXAS $3. 

1'OTALS: $442. 7/392 

AVERAGE ESi'IHA'rBD 

Qt/A1\'rERLY ANNUAL 

SAVINGS SAVINC-S 

$94. $377. 

$4, 769. $19, 077. 

$424, 051. $1, 696, 207. 

$0. $0. 

292. $5, 170. 

$230. $923. 

$51.. 292. $205, 171. 

$71, 950. ~287, 800. 60 

$897. $3, 589. 

$31- 32 $125. 28 

$554, 610. $2, 218, 443. 

ESi'Dm.'l'2D NA~IONAL€

ANNt1AL SAVINCS€

FOR COLONOSOOPIES: 

$4, 527, 435. 
..

APPENDIX B 

AGENCY COMMENTS 
.

:

Date€

From€

SubjeCt€

::/: 

Health Care€

DEPARH,1.ENT OF HEALTH &. HUMAN SER~S Financing Adminism",ion€

DIG AS 


DIG- Memorandum€

Dm-O1€ APR 2 9 1991 ~Ml?€ AdministratOr OGC/IG 

Health Care Financing Administration 

DIG Draft Management Advisory Report ~ "Reimbursement for Outpatient Facility€

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 whe:ther the service is provided in an OPD or an 

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: 

0 On page 1, Background, 1st paragraph: The use of the word "previous 

should be deleted. The blended payment amount is based on a bIend ~f 

a hospital's present costs and ASC payment rates. 

0 The term fIOrD-specific rate," which is used throughout the report, should 

be changed to "hospital-specific cost." The word Urate'" co~eys a fixed or 

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:\~ 

GaIl R. Ph.D. 'I. 

: ~ 3€

~r II~ 

TOTAL P. 15