Over the past several years there has been dramatic concern and anxiety within the endoscopy center marketplace regarding the unknown impact of the proposed 2008 Medicare reimbursement changes. Now that CMS has published their HOPD conversion rate (65%) and four-year phase in methodology, we’ve carefully analyzed the reality of the new payment system and conclude the entire impact on GI facility fees is essentially a minor bump in the road. Although the “final” rule won’t be available until November 2007, the information released this past summer likely represents a realistic expectation of the way CMS is thinking these days.

Medicare Can’t Be Viewed in a Vacuum

For a center providing services to only Medicare patients, the new payment methodology is not particularly kind. However, very few endoscopy centers only serve Medicare patients. In our ten-facility analysis below, the average Medicare portion of the total payer mix is appropriately 24% (with a range from 11% to 34%). These ten centers are located throughout the country across a broad spectrum of locations and communities. Thus in our analysis, only one out of every four patients is subject to CMS payments—the vast majority of the payer mix is comprised of non-governmental payers.

Non-Governmental Payers Continue Business as Usual

In April 2004 when CMS payments were frozen resulting from the Medicare Modernization Act of 2003, the entire ASC industry was concerned that other non-governmental payers would follow suit. Although there may have been a few isolated cases of this occurring across the country, almost all non-governmental payers continued business as usual. We believe the same will hold true in 2008 and beyond. OK, so you believe our assumption is not valid—let us ask you this: if the payers reduce their facility fees for GI to emulate Medicare’s new system, do you think they will increase their fees for nearly every other medical specialty? The truth is, under the new CMS rules a few select specialties are targeted for reduced facility fees—however the vast majority of specialties see their fees increase—in some cases these fees significantly increase.

The Phase-In Methodology is Key

The new CMS rules are complicated but result in mitigating the reduction impact to a fair degree. At first blush our reaction was probably the same as yours—if GI historically was paid an average of 89% of the HOPD rate then a reduction to only 65% of the HOPD rate surely must mean Medicare rates go down, on average, 24%. In actuality, the devil is in the details—and in this case the devil isn’t completely evil. Here’s why the phase-in methodology works better than a one-time reduction process:

• 2008 Rates: In 2008 the ASC rate is composed of 75% of the current 2007 ASC rate and 25% of the 2008 HOPD rate. We know what the current 2007 HOPD rate is—however the 2008 rate will subject to a hospital market basket increase on October 1, 2007 as well as updated local wage index weights. As a result, it’s likely the 2008 HOPD rate is somewhat higher than the current 2007 HOPD rate. Here are some examples of the 2008 ASC rates for GI:

• 2009 Rates: In 2009 the ASC rate is composed of 50% of the current 2007 ASC rate and 50% of the discounted 2009 HOPD rate. Again the 2009 HOPD rate will subject to a hospital market basket increase on October 1, 2008 as well as updated local wage index weights.

• 2010 Rates: In 2010 the ASC rate is composed of 25% of the current 2007 ASC rate and 75% of the discounted 2009 HOPD rate. Again the 2010 HOPD rate will subject to a hospital market basket increase on October 1, 2009 as well as updated local wage index weights.

• 2011 Rates: In 2011 the ASC rate is composed of 100% of the discounted 2010 HOPD rate. Again the 2011 HOPD rate will subject to a hospital market basket increase on October 1, 2010 as well as updated local wage index weights.

Some Overall Reimbursement Decline Does Occur Through 2010

Looking at 2007 average collections per procedure compared to future 2008, 2009 and 2010 estimates, for most centers in our analysis there is a decrease in average collections per procedure each of these first three years resulting from CMS reimbursement declines. However in 2011 this all turns around and each facility begins to again increase its average collections per procedure. Dependent upon the size of the facility and the relative amount of Medicare within the payer mix, our analysis shows that the total impact across these ten facilities averages about $63,000 from January 2008 through December 2011. Here are the details:

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Medicare % includes Medicare HMO plans
AAASC calculator used to determine reduction impacts and related factors

Contact the AAASC for more information.

Notes to Chart:
Our analysis does not factor in increases within other non-governmental third party payers. We expect these increases to continue and thus have a positive impact on this analysis.

The Silver Lining Starts in 2011

Starting in 2011, all ten facilities in our analysis show an increase in annual collections per procedure. And since the HOPD rate is expected to continue to increase each year due to hospital market basket adjustments and other factors, we may reasonably expect the trend to continue in subsequent years.

As a result, the ten centers in this analysis do suffer some decrease in annual collections per procedure in 2008 through 2010. However, starting in 2011 all facilities experience positive increases in annual collections per procedure performance. After much fanfare and angst over the past two years, we believe the new CMS payment actually turns out to be a minor bump in the road if you continue to run your endoscopy facility in an efficient and professionally managed manner.

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