Ambulatory Surgical Center Payments Versus Hospital Outpatient Payments: An Interstate Comparison and Analysis

Roger Rabb, J.D., Special Correspondent for the LexisNexis Workers’ Compensation eNewsletter

Although the common perception may be that using an Ambulatory Surgical Center (ASC) will save money compared to using a hospital for outpatient surgery, that may not always be the case. In fact, the results can vary greatly from state to state. That was the lesson to be learned at a December 2014 webinar sponsored by WCRI, Interstate Comparisons of Ambulatory Surgical Center (ASC) Payments.

During the webinar, presenter Dr. Bogdan Savych discussed two primary issues involving ASC payments, first looking at variations in payments to ASCs from state to state and discussing what may account for those variations, then looking at how payments to ASCs varied from payments to hospitals in the same state for the same outpatient surgeries. The data used in the presentation, collected in 2011 from payments made in 23 of the largest states, was restricted to facility fee payments for two common outpatient surgeries—knee and shoulder arthroscopies—and excluded those payments that went directly to doctors and surgeons. In addition, only independently-owned ASCs were included and ASCs owned by hospitals were omitted.

State-to-State Variation in ASC Payments

In comparing payments to ASCs in different states, the data showed that payments for similar knee surgeries ranged from little more than $1,000 in some states (Pennsylvania and Michigan) to approximately $7,000 in other states (Connecticut and Louisiana). In 15 of the 23 states studied, the payments ranged from approximately $3,000 to $6,000.

The use of facility fee schedules in some states but not others is one reason for this wide variation among states in payments for similar services. As expected, the use of fixed-amount fee schedules in some states resulted on average in lower payments for those services: 11 of the 12 states studied with this type of fee schedule placed in the bottom 14 in the amount paid to ASCs for the sampled knee surgeries. Ten of those states had payment amounts that ranged from slightly more than $1,000 to slightly more than $3,000, although two states, Illinois and Georgia, had payment amounts in the $5,000 to $6,000 range.

Conversely, six of the eight states with no fee schedule placed among the highest eight in amount paid for the same knee surgeries, with payment amounts in the $6,000 to $7,000 range. In addition, three states using a facility fee schedule based on a percentage of charges, Louisiana, North Carolina, and Minnesota, ranked 1st, 9th, and 12th in the highest amounts paid.

Similar results were seen when looking at amounts paid to ASCs for shoulder surgeries. In states with fixed-amount fee schedules, the amounts paid were much lower on average than in the states with no fee schedule or with a percentage-of-charge fee schedule, with Illinois and Georgia again being the exception to the general rule that having a fixed-amount fee schedule resulted in lower average payments.

Variations were also present within each state for the amounts paid to ASCs for similar surgeries, although the evidence showed that, consistent with the rationale underlying the use of fixed-amount fee schedules, the range of payments made was generally much narrower in the states with those fixed fee schedules.

Comparing ASC Payments to Hospital Payments

In comparing payments within the same states for shoulder surgeries performed at ASCs to those performed at hospitals, the data showed that in 11 states payments to ASCs were at least 10 percent lower than the payments made to hospitals, and in seven of those states the difference was at least $1,500. In eight states, the amounts paid to each type of facility were closer, within eight percent of each other, with a slightly lower amount paid to ASCs in five of those eight states. However, the payments made to ASCs for these shoulder surgeries were at least ten percent higher than the amounts paid to hospitals in four states, Connecticut, Georgia, North Carolina, and Tennessee, with the difference being at least $1,500 in all but Tennessee. So, at least for shoulder surgeries, the conventional wisdom that ASCs will be less expensive, or cost about the same, is not necessarily true.

However, the results were more in line with conventional wisdom when comparing the amounts paid within each state for knee surgeries, as in 16 states the payment to ASCs was at least 10 percent less than the amount paid to hospitals for the same outpatient surgery, in 6 states the amount paid was substantially similar, and in only 1 state, Connecticut, the amount paid to ASCs was substantially higher than the amount paid to hospitals.

Factors Influencing Variations Within Same State

Several factors were identified that would explain, at least in part, the difference in amounts paid within each state to ASCs and hospitals for similar outpatient surgeries. For example, some states apply different fee schedules to hospitals than they do to ASCs. Three states, Texas, South Carolina, and Illinois, were applying fixed-amount fee schedules to both types of facility, but with different fee schedule rates. For knee surgeries, for example, the different rate amounts in those three states were higher for hospital outpatient surgeries by at least 17 percent, with the difference in Texas being 33 percent. In four other states, Florida, Maryland, Michigan, and Pennsylvania, a fixed-amount fee schedule was applied to ASC payments, while a charge-based fee schedule was applied to hospitals. In those four states, the payments to hospitals for knee surgeries were much greater, ranging from 43 percent greater to 67 percent greater.

Although five states applied similar fee schedules to both ASCs and hospitals, in two of the states, Tennessee and Georgia, payments to ASCs for shoulder surgeries still exceeded payments to hospitals by substantial amounts, by 16 and 27 percent respectively. Clearly, other factors must come into play to explain the different payment amounts. In the case of Tennessee, for example, while the fee schedule amount for the shoulder surgery was $5,005 for both ASCs and hospitals, and the network participation rate was substantially similar, the key differentiator was the percentage of episodes with multiple surgical procedures. Although the primary surgery in these sampled cases was an arthroscopy, often secondary surgeries were performed and billed as part of the surgery. While hospitals billed for two or more surgical procedures 46 percent of the time, with three or more procedures included in only 5 percent of the episodes, ASCs billed for two or more procedures in 83 percent of the episodes, and three or more in 28 percent of the episodes.

By comparison, in Connecticut, which has no fee schedule for ASCs or hospitals, payments to ASCs for shoulder surgeries exceeded payments to hospitals by a substantial amount, with the average payment to ASCs exceeding the payment to hospitals by almost 80 percent. However, the difference in the number of charged procedures was much smaller than in Tennessee, with only a three percent difference in the number of episodes with two or more surgical procedures and only a nine percent difference in the number of episodes with three or more procedures. Instead, much of the difference in Connecticut was explained by looking at the healthcare network participation rate, which was only 53 percent for ASC surgeries compared to 85 percent for hospital surgeries.

In North Carolina, a sample state using a percentage-of-charges fee schedule for both ASCs and hospitals, average payments to ASCs exceeded payments to hospitals for shoulder surgeries by about 19 percent, even though the network participation rate was higher for ASCs, 96 percent to 79 percent. In that state, however, ASCs billed two or more surgical procedures 92 percent of the time, to only 82 percent for hospitals, and three or more procedures 53 percent of the time, to only 38 percent for hospitals.

Although not true for every state, the data indicated that on average ASCs were less likely to provide shoulder surgery within a network, with 15 of the states having network participation rates for hospitals that exceeded ASC participation rates by at least 10 percent. In addition, in 17 of the sample states, ASCs provided more shoulder surgical procedures per episode than did hospitals. In post-presentation comments, Dr. Savych suggested that the reason for this might be that the ASC surgeon, often having an ownership stake in the ASC, is more likely to perform additional surgeries and ensure proper billing for that surgery, while the surgeon at a hospital lacks that incentive.

Conclusion

As explained in the webinar, several factors come into play to determine whether ASC surgery will actually be less expensive in comparison to hospital outpatient surgery, and these factors may result in a different answer from state to state. The presence of a facility fee schedule, the nature of any such schedule, and whether the schedule applies equally to both types of facility, is a key factor, with a fixed-amount fee schedule likely to result in smaller payments with less variation in amounts paid in that state for similar surgeries. However, the story does not end there, as network participation will also tend to generate lower payments, although ASCs are less likely at present to provide surgery within a network. Finally, ASCs often bill for more procedures per episode than do hospitals, resulting in larger payments, albeit for more surgery. All of these factors should be taken into consideration in each state when choosing whether to utilize an ambulatory surgical center rather than a traditional hospital for outpatient surgery.

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