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Surgery Centers’ Undisclosed Costs Leave Medicare in the Dark

March 5, 2020, 10:46 AM

The opaque finances of nearly 6,000 same-day surgery centers are making it impossible for members of an influential Medicare advisory group to do their jobs, they say.

Traditional Medicare paid ambulatory surgery centers $4.9 billion to provide outpatient surgical and diagnostic procedures for 3.5 million beneficiaries in 2018. From 2013 to 2017, Medicare per-enrollee spending increased an average of 5% a year at the centers.

But because the facilities don’t provide annual cost data to the Medicare agency, the advisory group can’t document the centers’ growth over time, can’t determine their profit margin on beneficiaries, and, therefore, can’t accurately evaluate the adequacy of Medicare payments.

As a major institutional provider that doesn’t submit cost data to the Centers for Medicare & Medicaid Services, ambulatory surgical centers are an outlier in Medicare’s push for transparency in program spending. With 10,000 baby boomers becoming program-eligible each day, Medicare’s looming enrollment surge is spurring greater scrutiny of provider payments to ensure they’re achieving value.

So in its March 13 report to Congress, the Medicare Payment Advisory Commission will recommend eliminating an expected 2.8% increase in the centers’ Medicare payment rate for 2021.

Without the cost data on items like drugs, medical supplies, medical equipment, labor costs, building expenses, and professional services, “it’s very difficult for this commission to make a recommendation for increased payments,” commission Chairman Francis J. Crosson said at a recent meeting.

The panel, which advises lawmakers on Medicare payment policy, will also recommend that the secretary of health and human services require the centers to submit annual cost data to the CMS. Other small providers like hospices, home health agencies, and dialysis facilities already do.

“There is something visceral about not getting a cost report from these people,” commission member Brian DeBusk said at a recent panel meeting. “At the rate they’re growing, yes, yes, and yes, we should get a cost report.”

Wary of Imposing Undue Burden

The CMS has acknowledged MedPAC’s concerns. The agency has sought public comment on how to lower the administrative burden of cost reporting on Medicare-certified surgery centers while getting enough data to determine their actual costs.

But because the facilities save Medicare about 50% over the cost of similar surgical procedures performed in a hospital setting, the CMS hasn’t pushed hard for mandatory cost reporting. The Ambulatory Surgery Center Association estimates Medicare would have spent $3.3 billion more in 2017 if the 100 most frequent procedures at the centers had been performed in a hospital instead.

“Given the significantly lower payments made to ASCs, CMS is mindful of placing undue burden on ASCs with additional cost reporting requirements,” a CMS spokesperson said. The agency increased payments for the surgery centers by 2.6%, or roughly $230 million in 2020—in spite of the commission’s identical call last year for no 2020 rate hike.

Even some commissioners are sympathetic to that logic.

“As much as I detest the fact that they don’t send us cost reports, I don’t know that that should translate into a zero update for a sector that’s handing us a 46% price decrease,” DeBusk lamented.

With high hospital costs driving fewer admissions, single-specialty and multi-specialty ambulatory surgery centers have picked up the slack. They provide convenient same-day operations like cataract laser surgeries and minor plastic surgeries along with diagnostic procedures like colonoscopies, biopsies, and endoscopies.

The industry is highly fragmented with lots of local and regional facilities, but major national industry players include AMSURG, SurgCenter Development, Surgery Partners, and Surgical Care Affiliates.

The CMS had updated the centers’ annual Medicare payments based on the Consumer Price Index for all urban consumers. But for a five-year period from 2019 through 2023, it will adjust reimbursements based on the hospital market basket index. The index is another inflationary measure of the cost of goods and services used by health-care providers.

“During this 5-year period, we intend to assess the feasibility of collaborating with stakeholders to collect ASC cost data in a minimally burdensome manner and could propose a plan to collect such information,” the 2019 payment rule said.

But the commission says five years is too long to wait. In its 2019 March report to Congress, it said “CMS should forgo the five-year period” and “instead use its authority and resources to act quickly in gathering ASC cost data.”

Because the centers vary by specialty, cost reports from each of the different types of facilities wouldn’t provide the CMS with any meaningful numbers to help set rates, William Prentice, CEO of the Ambulatory Surgery Center Association, said in an interview.

“You’d end up with data that isn’t representative of any of them. So it would be a waste of time to do that,” he said.

Instead, Prentice suggested in public comments from September 2019, “a simple, cost-effective survey or other least burdensome but effective data collection activity, perhaps voluntary in nature.”

“Requiring any formal cost reports from ASCs would run counter to the Agency’s desire to promulgate rules and establish policies that allow facilities to maintain efficiency in the Medicare program,” Prentice wrote.

Physician Ownership

But because most centers have some level of physician ownership, the commission is concerned the facilities may have a financial incentive to provide more surgical procedures.

Previous studies have found that “because of ASC physician ownership, the presence of ASCs in a market can increase the number of ambulatory surgical procedures,” Dan Zabinski, a commission analyst said at the panel’s December meeting. “One thing they don’t answer, though, is whether those procedures are appropriate or not appropriate.”

For that reason, commission member Dana Gelb Safran said the panel was “really unclear about how much unnecessary additional procedures” the centers were performing on Medicare patients. “But it’s hard to imagine that we’re not getting a lot,” she said at the meeting.

That means “paying a lower price for something you don’t need isn’t a bargain. And that’s my worry,” Safran said.

Commissioner Susan Thompson agreed. “Do these procedures bring value to our Medicare beneficiaries? In some cases they sure do. But in all cases, I’m not sure we know.”

To contact the reporter on this story: Tony Pugh in Washington at

To contact the editors responsible for this story: Fawn Johnson at; Brent Bierman at