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[Federal Register Volume 65, Number 27 (Wednesday, February 9, 2000)]
[Notices]
[Pages 6380-6383]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-2959]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

[HCFA-1085-N]
RIN 0938-AJ79

Medicare Program; Update of Ambulatory Surgical Center Payment 
Rates Effective for Services on or after October 1, 1999

AGENCY:  Health Care Financing Administration (HCFA), HHS.

ACTION:  Notice.

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SUMMARY:  This notice implements section 1833(i)(2)(C) of the Social 
Security Act, which mandates an inflation adjustment to Medicare 
payment amounts for ambulatory surgical center (ASC) facility services 
during the years when the payment amounts are not updated based on a 
survey of the audited costs incurred by ASCs.

EFFECTIVE DATE:  The payment rates contained in this notice are 
effective for services furnished on or after October 1, 1999.

FOR FURTHER INFORMATION CONTACT: Bob Cereghino, (410) 786-4645.

SUPPLEMENTARY INFORMATION:

I. Background and Legislative Authority

    Section 1832(a)(2)(F)(i) of the Social Security Act (the Act) 
provides that benefits under the Medicare Supplementary Medical 
Insurance program (Part B) include services furnished in connection 
with those surgical procedures that, under section 1833(i)(1)(A) of the 
Act, are specified by the Secretary and are performed on an inpatient 
basis in a hospital but that also can be performed safely on an 
ambulatory basis in an ambulatory surgical center (ASC), in a critical 
access hospital. (Under section 4201(c)(1) of the Balanced Budget Act 
of 1997 (BBA) (Pub. L. 105-33), enacted on August 5, 1997, the term 
``rural primary care hospital'' is replaced with ``critical access 
hospital'' applicable to services furnished on or after October 1, 
1997.) To participate in the Medicare program as an ASC, a facility 
must meet the standards specified under section 1832(a)(2)(F)(i) of the 
Act and 42 CFR 416.25, which set forth basic requirements for ASCs.
    Generally, there are two elements in the total charge for a 
surgical procedure: A charge for the physician's professional services 
for performing the procedure, and a charge for the facility's services 
(for example, use of an operating room). Section 1833(i)(2)(A) of the 
Act authorizes the Secretary to pay ASCs a prospectively determined 
rate for facility services associated with covered surgical procedures. 
ASC facility services are subject to the usual Medicare Part B 
deductible and coinsurance requirements. Therefore, Medicare pays 
participating ASCs 80 percent of the prospectively determined rate for 
facility services, adjusted for regional wage variations. This rate is 
intended to represent our estimate of a fair payment that takes into 
account the costs incurred by ASCs generally in providing the services 
that are furnished in connection with performing the procedure. 
Currently, this rate is a standard overhead amount that does not 
include physician fees and other medical items and services (for 
example, durable medical equipment for use in the patient's home) for 
which separate payment may be authorized under other provisions of the 
Medicare program.
    We have grouped procedures into nine groups for purposes of ASC 
payment rates. The ASC facility payment for all procedures in each 
group is established at a single rate adjusted for geographic 
variation. The rate is a standard overhead amount that covers the cost 
of services such as nursing, supplies, equipment, and use of the 
facility. (For an indepth discussion of the methodology and rate-
setting procedures, see our Federal Register notice published on 
February 8, 1990, entitled ``Medicare Program; Revision of Ambulatory 
Surgical Center Payment Rate Methodology'' (55 FR 4526).)

Statutory Provisions

    Section 1833(i)(2)(A) of the Act requires the Secretary to review 
and update standard overhead amounts annually. Section 
1833(i)(2)(A)(ii) requires that the ASC facility payment rates result 
in substantially lower Medicare expenditures than would have been paid 
if the same procedure had been performed on an inpatient basis in a 
hospital. Section 1833(i)(2)(A)(iii) requires that payment for 
insertion of an intraocular lens (IOL) include an allowance for the IOL 
that is reasonable and related to the cost of acquiring the class of 
lens involved.
    Under section 1833(i)(3)(A), the aggregate payment to hospital 
outpatient departments for covered ASC procedures is equal to the 
lesser of the following two amounts:
     The amount paid for the same services that would be paid 
to the hospital under section 1833(a)(2)(B) (that is, the lower of the 
hospital's reasonable costs or customary charges less deductibles and 
coinsurance).
     The amount determined under section 1833(i)(3)(B)(i) based 
on a blend of the lower of the hospital's reasonable costs or customary 
charges, less deductibles and coinsurance, and the amount that would be 
paid to a free-standing ASC in the same area for the same procedures.
    Under section 1833(i)(3)(B)(i), the blend amount for a cost 
reporting period is the sum of the hospital cost proportion and the ASC 
cost proportion. Under section 1833(i)(3)(B)(ii), the hospital cost 
proportion and the ASC cost proportion for portions of cost reporting 
periods beginning on or after January 1, 1991 are 42 and 58 percent, 
respectively.
    Section 13531 of the Omnibus Budget Reconciliation Act of 1993 
(OBRA 1993)

[[Page 6381]]

(Pub. L. 103-66), enacted on August 10, 1993, prohibited the Secretary 
from providing for any inflation update in the payment amounts for ASCs 
determined under section 1833(i)(2)(A) and (B) of the Act for fiscal 
years (FYs) 1994 and 1995. Section 13533 of OBRA 1993 reduced the 
amount of payment for an IOL inserted during or subsequent to cataract 
surgery in an ASC on or after January 1, 1994, and before January 1, 
1999, to $150.
    Section 141(a)(1) of the Social Security Act Amendments of 1994 
(SSAA 1994) (Public Law 103-432), enacted on October 31, 1994, amended 
section 1833(i)(2)(A)(i) of the Act to require that, for the purpose of 
estimating ASC payment amounts, the Secretary survey not later than 
January 1, 1995, and every 5 years thereafter, the actual audited costs 
incurred by ASCs, based upon a representative sample of procedures and 
facilities.
    Section 141(a)(2) of SSAA 1994 added section 1833(i)(2)(C) to the 
Act to provide that, beginning with FY 1996, there be an application of 
an inflation adjustment during a fiscal year in which the Secretary 
does not update ASC rates based on survey data of actual audited costs. 
Section 1833(i)(2)(C) of the Act provides that ASC payment rates be 
increased by the percentage increase in the consumer price index for 
urban consumers (CPI-U), as estimated by the Secretary for the 12-month 
period ending with the midpoint of the year involved, if the Secretary 
has not updated rates during a fiscal year, beginning with FY 1996.
    Section 141(a)(3) of SSAA 1994 amended section 1833(i)(1) of the 
Act to require the Secretary to consult with appropriate trade and 
professional organizations in reviewing and updating the list of 
Medicare-covered ASC procedures.
    Section 141(b) of SSAA 1994 requires the Secretary to establish a 
process for reviewing the appropriateness of the payment amount 
provided under section 1833(i)(2)(A)(iii) of the Act for IOLs with 
respect to a class of new-technology IOLs. A notice of proposed 
rulemaking was published in the Federal Register on June 16, 1999, 
entitled ``Adjustment in Payment Amounts for New Technology Intraocular 
Lenses Furnished by Ambulatory Surgical Centers' (BPD-3831-F) (64 FR 
32198).
    Section 4555 of the BBA amends section 1833(i)(2)(C) of the Act to 
require, in each of the fiscal years 1998 through 2002, that the 
percentage increase by which ASC rates are to be adjusted be reduced 
(but not below zero) by 2.0 percentage points.
    We published our last ASC payment rate update notice on October 1, 
1998 (63 FR 52663). In this notice, we explained that the current rates 
were frozen and we stated the comment period for proposed rule (HCFA-
1885-P) published in the Federal Register June 12, 1998 entitled 
``Medicare Program; Update of Ratesetting Methodology, Payment Rates, 
Payment Policies, and the List of Covered Surgical Procedures for 
Ambulatory Surgical Centers Effective October 1, 1998'' would be 
extended to November 13, 1998. We further extended the comment period 
for this proposed rule in Federal Register notices published January 
12, 1999, March 12, 1999, and July 6, 1999. The comment periods have 
been running concurrently with those of another proposed rule 
addressing a prospective payment system (PPS) for hospital outpatient 
services published September 8, 1998 (63 FR 47552).
    HCFA-1885-P proposes to update the criteria for determining which 
surgical procedures can be appropriately and safely performed in an 
ASC, makes additions and deletions from the current list of procedures 
based on the revised criteria, rebases the ASC payment rates using 
cost, charge, and utilization data collected by a 1994 survey of ASCs, 
refines the ratesetting methodology that was implemented by a final 
notice published on February 8, 1990 in the Federal Register, and 
requires that ASC payment, coverage and wage index updates be 
implemented annually on January 1 rather than having these updates 
occur randomly throughout the year.

II. Provisions of This Notice

    As previously stated, during years in which the Secretary has not 
otherwise updated ASC rates based on a survey of actual audited costs, 
section 1833(i)(2)(C) of the Act requires application of an inflation 
adjustment equal to the percentage increase in the CPI-U as estimated 
by the Secretary for the 12-month period ending with the midpoint of 
the year involved, reduced (but not below zero) by 2.0 percentage 
points in each of the fiscal years 1998 through 2002. (The CPI-U is a 
general index that reflects prices paid by urban consumers for a 
representative market basket of goods and services.)
    Based on estimates prepared by Data Resources, Inc./McGraw Hill, 
the forecast rate of increase in the CPI-U for the fiscal year that 
ends March 31, 2000 is 2.8 percent. Reducing the CPI-U factor by 2.0 
percent results in an adjustment factor of 0.8 percent. Increasing the 
ASC payment rates currently in effect by 0.8 percent results in the 
following schedule of rates that are payable for facility services 
furnished on or after October 1, 1999:
    Group 1--$317
    Group 2--$425
    Group 3--$486
    Group 4--$600
    Group 5--$683
    Group 6--$794 (644 + 150)
    Group 7--$949
    Group 8--$934 (784 + 150)
    ASC facility fees are subject to the usual Medicare deductible and 
copayment requirements. The allowance for an IOL that is part of the 
payment rates for group 6 and group 8 remains $150.
    A ninth payment group allotted exclusively to extracorporeal 
shockwave lithotripsy (ESWL) services was established in the notice 
with comment period published December 31, 1991 (56 FR 67666). The 
decision in American Lithotripsy Society v. Sullivan, 785 F. Supp. 1034 
(D.D.C. 1992), prohibits payment for these services under the ASC 
benefit at this time. ESWL payment rates were the subject of a separate 
Federal Register proposed notice, which was published October 1, 1993 
(58 FR 51355).
    We will continue to use the inpatient hospital PPS wage index to 
standardize ASC payment rates for variation due to geographic wage 
differences in accordance with the ASC payment rate methodology 
published in the February 8, 1990 notice. The inpatient PPS wage index 
final rule published on July 30, 1999 (64 FR 41490), for implementation 
on October 1, 1999, will be used to adjust the ASC payment rates 
announced in this notice for facility services furnished on or after 
October 1, 1999.

III. Regulatory Impact Analysis

A. Introduction

    This notice implements section 1833(i)(2) of the Act, which 
mandates an inflation adjustment to Medicare payment amounts for ASC 
facility services during the years in which the payment amounts are not 
updated based on a survey of the actual audited costs incurred by ASCs.
    Actuarial estimates of the cost of updating the ASC rates by 0.8 
percent are as follows:

                   Projected Additional Medicare Costs
                             [In millions *]
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FY 2000.........................................................     $10
FY 2001.........................................................      10
FY 2002.........................................................      10
FY 2003.........................................................      10

[[Page 6382]]

 
FY 2004.........................................................     10
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*Rounded to the nearest $10 million.

    The BBA is considered in the estimate, including the PPS for 
hospital outpatient services, which will be implemented in the mid-
2000, and the formula-driven overpayment elimination effective October 
1, 1997.

B. Regulatory Flexibility Act

    We generally prepare a regulatory flexibility analysis that is 
consistent with the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 
through 612) unless we certify that a notice will not have a 
significant economic impact on a substantial number of small entities. 
For purposes of the RFA, most ASCs and hospitals are considered to be 
small entities either by non-profit status or by having resources of $5 
million or less annually.
    Section 1102(b) of the Act requires us to prepare a regulatory 
impact analysis if a notice may have a significant impact on the 
operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 604 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a Metropolitan 
Statistical Area and has fewer than 50 beds.
    Although we believe that this notice will not have a significant 
impact on a substantial number of small rural hospitals, it may have a 
significant impact on a substantial number of ASCs. Therefore, we 
believe that a regulatory flexibility analysis is required for ASCs. In 
addition, we are voluntarily providing a brief discussion of the impact 
this notice may have on all hospitals.
1. Impact on ASCs
    Section 1833(i)(2)(C) of the Act requires that for fiscal years 
1998 through 2002, we automatically adjust ASC rates for inflation 
during a fiscal year in which we do not update ASC payment rates based 
on survey data by a CPI-U factor reduced (but not below zero) by 2.0 
percent. Therefore, we are updating the current ASC payment rates, 
which were published in our October 1, 1997 Federal Register notice (63 
FR 8462), by incorporating the projected rate of change in the CPI-U 
for the 12-month period ending March 31, 2000 minus 2.0 percentage 
points. There are other factors, however, that affect the actual 
payments to an individual ASC.
    First, variations in an ASC's Medicare case mix affect the size of 
the ASC's aggregate payment increase. Although we uniformly adjusted 
ASC payment rates by the CPI-U forecast for the 12-month period ending 
March 31, 2000, we did not adjust the IOL payment allowance that is 
included in the payment rate for group 6 and group 8 because OBRA 1993 
froze the amount of payment for an IOL furnished by an ASC at $150 for 
the period beginning January 1, 1994 through December 31, 1998. 
Therefore, because the net adjustment for inflation for procedures in 
group 6 is 0.63 percent and for group 8 is 0.64 percent, ASCs that 
perform a high percentage of the IOL insertion procedures that comprise 
these groups may expect a somewhat lower increase in their aggregate 
payments than ASCs that perform fewer IOL insertion procedures.
    A second factor determining the effect of the change in payment 
rates is the percentage of total revenue an ASC receives from Medicare. 
The larger the proportion of revenue an ASC receives from the Medicare 
program, the greater the impact of the updated rates in this notice. 
The percentage of revenue derived from the Medicare program depends on 
the volume and types of services furnished. Since Medicare patients 
account for as much as 80 percent of all IOL insertion procedures 
performed in ASCs, an ASC that performs a high percentage of IOL 
insertion procedures will probably receive a higher percentage of its 
revenue from Medicare than would an ASC with a case mix comprised 
largely of procedures that do not involve insertion of an IOL. For an 
ASC that receives a large portion of its revenue from the Medicare 
program, the changes in this notice will likely have a greater 
influence on the ASC's operations and management decisions than they 
will have on an ASC that receives a large portion of revenue from other 
sources.
    In general, we expect the rate changes in this notice to affect 
ASCs positively by increasing the rates upon which payments are based.
2. Impact on Hospitals and Small Rural Hospitals
    Section 1833(i)(3)(A) of the Act mandates the method of determining 
payments to hospitals for ASC-approved procedures performed in a 
hospital outpatient setting. The Congress believed some comparability 
should exist in the amount of payment to hospitals and ASCs for similar 
procedures. The Congress recognized, however, that hospitals have 
certain overhead costs that ASCs do not and allowed for those costs by 
establishing a blended payment methodology. For ASC procedures 
performed in an outpatient setting, hospitals are paid based on the 
lower of their aggregate costs, aggregate charges, or a blend of 58 
percent of the applicable wage-adjusted ASC rate and 42 percent of the 
lower of the hospital's aggregate costs or charges. According to 
statistics from the Office of Strategic Planning within HCFA, 12 
percent of Medicare payments to hospitals by intermediaries is 
attributable to services furnished in conjunction with ASC-covered 
procedures.
    We would not expect an ASC rate increase in every instance to keep 
pace with actual hospital cost increases, although we would fully 
recognize cost increases resulting from inflation alone to the extent 
that the blended payment methodology includes aggregate hospital costs. 
The weight of the ASC portion of the blended payment amount, which 
would reflect the ASC rate increase, is offset to a degree when 
hospital costs significantly exceed the ASC rate. Another element that 
would eliminate the effect of the ASC rate increase on hospital 
outpatient payments is the application of the lowest payment screen in 
determining payments. Applying the lowest of costs, charges, or a blend 
can result in some hospitals being paid entirely on the basis of a 
hospital's costs or charges. In those instances, the increase in the 
ASC rates will have no effect on hospital payments. The number of 
Medicare beneficiaries a hospital serves and its case-mix variation 
would also influence the total impact of the new ASC rates on Medicare 
payments to hospitals. Based on these factors, we have determined, and 
we certify that this notice will not have a significant impact on a 
substantial number of small rural hospitals. Therefore, we have not 
prepared a small rural hospital impact analysis.
    We have reviewed this notice under the threshold criteria of 
Executive Order 13132 of August 4, 1999, Federalism, published in the 
Federal Register on August 10, 1999 (64 FR 43255). The Executive Order 
is effective November 2, 1999, which is 90 days after the date of this 
Order. We have determined that the notice does not significantly affect 
the rights, roles, and responsibilities of States.

IV. Waiver of 30-Day Delay in the Effective Date

    We ordinarily publish notices, such as this, subject to a 30-day 
delay in the effective date. However, if adherence to this procedure 
would be impracticable, unnecessary, or contrary to the public 
interest, we may waive the delay in the effective date. The provisions 
of this

[[Page 6383]]

notice are effective for services furnished on or after October 1, 
1999. These provisions will increase payment rates to ASCs by 0.8 
percent (before applying the wage index), in accordance with section 
1833(i)(2)(C) of the Act, as amended by the BBA. As a practical matter, 
if we allowed a 30-day delay in the effective date of this notice, ASCs 
would be unable to take timely advantage of the increase in payment 
rates contained in this notice. Moreover, we believe a delay is 
impracticable and unnecessary because as explained earlier, the statute 
provides that ASC payment rates be increased by the percentage increase 
in the CPI-U if the Secretary has not updated rates during a fiscal 
year, beginning with FY 1996. Therefore, we find good cause to waive 
the delay in the effective date.
    In accordance with the provisions of Executive Order 12866, this 
notice was reviewed by the Office of Management and Budget.
    (Sections 1832(a)(2)(F) and 1833(i) (1) and (2) of the Social 
Security Act (42 U.S.C. 1395k(a)(2)(F) and 1395l(i) (1) and (2)); 42 
CFR 416.120, 416.125, and 416.130)

    (Catalog of Federal Domestic Assistance Programs No. 93.774, 
Medicare--Supplementary Medical Insurance Program)

    Dated: October 6, 1999.
Michael M. Hash,
Deputy Administrator, Health Care Financing Administration.
    Dated: October 25, 1999.
Donna E. Shalala,
Secretary.
[FR Doc. 00-2959 Filed 2-8-00; 8:45 am]
BILLING CODE 4120-01-P
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