9 Reimbursement and Business Concepts for Orthopedics in ASCs

1. New CMS ASC payment system has generally increased orthopedic reimbursements. The transition to the new CMS ASC payment system, which pays centers at a percentage of HOPD rates, has increased the reimbursement rates of most orthopedic procedures, says Jay Rom, president of Blue Chip Surgical Center Partners. The system, which went into effect Jan. 1, 2008, and was designed to be phased in over a four-year period, continues to benefit orthopedic service lines as the percent of the payment formula determined by the new system is phased into the overall ASC reimbursement rate. The 2010 Medicare unadjusted base rates for a few of the more popular ASC orthopedic procedures are as follows:

• Arthroscopy, shoulder (CPT 29806) —$1,588.70
• Arthroscopy, knee (CPT 29875) — $1049.62
• ACL repair, arthroscopically (CPT 29888) — $2,785.52

2. Medicare payment increases can lead private payors to increase their payments. “CMS’s revamped reimbursement methodology significantly increased orthopedics, and we’ve been able to use that with other payors,” says Mr. Rom. “If Medicare is recognizing that reimbursement needs to increase, in many cases, other payors will follow suit.” Additionally, because many commercial payors negotiate payment rates at a percent of Medicare, increases in Medicare reimbursement could potentially lead to increases in rates from commercial payors, says Eric J. Woollen, vice president of managed care for Practice Partners in Healthcare. 3. Increased payments have allowed more orthopedic cases to be performed in the ASC setting. Rising reimbursement has allowed physicians to bring cases to the ASC over the past few years that traditionally may not have made sense to perform in the ASC setting, says Mr. Rom. “Implant-heavy procedures and more complex cases, as well as some fracture work, now make sense financially for the ASC,” says Mr. Rom. “However, the challenge is that not all payors will reimburse adequately, so what makes sense financially needs to be determined on a payor by payor basis.” 4. Regularly evaluate contracts with private payors. ASCs must stay on top of their contracts to ensure the payment rates cover their costs and provide adequate profit. Mr. Woollen says an ASC should never pass up an opportunity to renegotiate a contract upon renewal. “You always want address these because cost structure changes every year, such as changes in case mix and changes in overall costs,” he says. Mr. Rom recommends ASCs administrator work with payors to negotiate rates that cover costs and provide a reasonable profit. If these negotiations fail, administrators should educate their physicians about which cases from which payors are not financially feasible in the ASC because the reimbursement is less than the cost, he says. Mr. Woollen echoes his sentiment. “Our challenge is to demonstrate to payors that we’re providing value and costs savings for plans and for the patients because our setting is more cost-effective than the hospital,” he says. “Because of co-insurance, rising deductibles and increased cost sharing, we’re ultimately saving both the plan and the patient money.” 5. Case costing is fundamental. In order for ASCs to know which procedure and payor combinations are profitable, ASCs must understand the cost of each procedure performed by each surgeon, says Mr. Rom. “If ASCs don’t understand case costs, they don’t have the knowledge to know which cases they’re losing money on, and they lack the ammunition to go to payors to explain why their payment rate doesn’t make sense,” he says. 6. Payor contracts must address implant costs. Implant costs are a critical component of any contract negotiations, says Mr. Woollen. ASCs should carve out procedures with expensive implants to ensure they are adequately reimbursed for implant costs. “Payors are generally receptive to carve-outs because of implant costs and the time required for certain procedures,” says Mr. Woollen. “ASCs can validate these high costs by showing payors their implant invoices and demonstrating the need for payors to negotiate fair reimbursements that build in some profitability.” Ralph Gambardella, MD, an orthopedic surgeon and president of Kerlan-Jobe Orthopaedic Clinic in Los Angeles, which also operates an ASC, says that carve-outs are crucial to orthopedic profitability. “As more and more orthopedic surgeries are done in the outpatient setting, more and more surgeries will require implants. Because of the high cost of implants, these procedures have to be carved out or you’re dead, financially,” he says. 7. Work with physicians and vendors to reduce implant business. ASCs can tap their physicians and vendors to bring down the costs of implants. “Make the vendors compete for implant business,” says Mr. Rom. “Once you know you’ll start a new procedure or service that requires a new type of implant, work with the physicians to minimize variation of implant price and negotiate with vendors to find the one offering the most cost-effective pricing.” Although encouraging physicians to use the same implants can save an ASC money, Dr. Gambardella warns it can also negatively impact physician satisfaction. “The challenge of providing only one brand of implant in order to negotiate a better price is that you are still dealing with multiple physicians who prefer different products,” he says. “You could potentially lose a physician’s business to another center if that center offers the implant he or she prefers.” 8. Consider adding additional, profitable orthopedic procedures. ASCs should also consider adding profitable orthopedic procedures, such as spine cases and partial knees, which are growing in popularity in the outpatient setting, says Dr. Gambardella. Mr. Woollen agrees. “Adding these procedures, if implants are covered, can be fairly profitable and provide a better experience for the patient, but you need to carve them out so it makes sense for the ASC to perform them,” he says. Alejandro Badia, MD, FACS, founder of the Badia Hand to Shoulder Center in Miami, a fully-integrated orthopedic facility, which includes an ASC, says some orthopedic trauma cases can also be profitable in the ASC. “We’ve been doing trauma cases in our ASC for about a year-and-a-half,” he says. 9. Un-affiliated orthopedic surgeons are still available in some markets. The surest way to increase profitability in any service line is to add additional cases, which can be done fairly easily by bringing in a new physician user. While it is difficult in some markets to find orthopedic surgeons that are not already affiliated with an ASC, these physicians are quite available in other markets. “The challenge is convincing other surgeons to change their habits,” says Dr. Badia. It’s starting to happen as cases trend more and more to the ASC setting, but many other surgeons continue to operate at hospitals, which are largely inefficient operations, out of habit.  I personally don’t see how they do it.”