In late 2012, Becker's Hospital Review published a column I wrote titled "10 Things to Know About Turning a Surgery Center Into a Hospital Outpatient Department." This was a hot topic at the time, and the article received significant attention — as evident by the number of questions our firm received from physicians and hospital administrators during the months following its publication.
While two years have passed since we wrote the piece, converting ASCs into HOPDs remains a hot topic, and there has been a great deal of misinformation published about it. We receive frequent questions about the process, with many of these questions based on a misconception about the conversion process or misunderstanding of the rules.
Here are six of the most frequently asked questions concerning turning an ASC into an HOPD.
1. What are the differences between an HOPD and ASC?
A: This is an important question to be able to answer when considering whether to convert an ASC into an HOPD, with much of the answer coming from regulatory language.
Note: Don't go looking for rules on HOPDs from the Centers for Medicare & Medicaid Services. The "correct" term for this transition is that the ASC becomes a "provider-based department." For ease of understanding, we will continue to reference provider-based entities as HOPDs in this article.
Here are just a few of the most significant differences between and ASCs and HOPDs:
- ASCs may be owned by a number of parties, including physicians, hospitals, management companies and even payors, and have a unique CMS certification number (CCN), formerly known as "provider number." In order to obtain HOPD rates for procedures performed at the facility, the hospital's CCN must be used. Physicians cannot have an ownership interest in only one department of a hospital; it's all or nothing. So unless the percentage of total ownership in the hospital by physician owners in the aggregate does not exceed such percentage as of March 23, 2010 (under the Patient Protection and Affordable Care Act's strict limitations on physician ownership in hospitals), physicians must divest any equity prior to the ASC becoming a provider-based department. The most frequent question we receive from physicians is, "How much of my ASC do I need to sell to the hospital to get HOPD rates?" To sum it up, the answer is, "All of it." In order for an ASC to successfully transition to an HOPD, and enjoy those rates, the hospital must own 100% of it (more on this in question #2).
- An ASC can be located anywhere whereas Medicare has specific requirements for the location of an HOPD relative to the hospital's location.
- As an HOPD, a hospital must control its operations while an ASC's operations can be overseen by different parties (more on this in question #6).
- CMS applies different measures of inflation to update each provider's payment system. ASC Medicare payment rates are adjusted based on the Consumer Price Index for All Urban Consumers (CPI-U) while HOPDs are adjusted based on the hospital market basket. The CPI-U measures the cost of goods while the hospital market basket measures medical expenses. The hospital market basket inflation update is historically higher than CPI-U.
- According to figures published by the ASC Association in the past few years, ASCs are paid, on average, 58% of the amount paid to HOPDs for similar procedures. For example, when a cataract procedure such as CPT 66984 (Extracapsular cataract removal with insertion of intraocular lens prosthesis (stage one procedure), manual or mechanical technique (e.g., irrigation and aspiration or phacoemulsification)) is performed in an ASC this year, Medicare pays about $976. In an HOPD, the payment rate is $1,766. Note: We anticipate that, down the road, HOPD rates will come down while ASC rates may continue to go up, and the difference won't be as dramatic as it is now and has been in the past.
Note: Review my 2012 column for specific Medicare policy citations concerning provider-based entities.
2. Can a group of physicians sell part of their freestanding ASC to a hospital so they can bill at HOPD rates?
A: As ASCs have seen their reimbursement tightened over the past several years, it is not surprising that physician owners are examining ways to increase their revenue. Many ASCs will explore whether to bring in a hospital partner. One issue frequently debated is whether bringing in a hospital partner and converting the ASC to an HOPD — to receive the higher HOPD rates — is justification to have a hospital as a partner.
This issue, however, is really a non-issue, and is one of the most common misconceptions concerning turning an ASC into an HOPD.
As noted in question #1, physicians must divest any equity prior to the ASC becoming a provider-based department, meaning if physicians want to maintain any ownership in an ASC, the ASC cannot be converted to an HOPD. And once the ASC is converted to an HOPD, and the physicians are no longer owners, they would not directly receive any investment benefit from the increase in reimbursement.
3. Without converting an ASC to an HOPD, how can physician owners of an ASC receive higher reimbursement rates?
A: While it is true that ASCs cannot receive an increase in reimbursement from Medicare without converting the facility to an HOPD, surgery centers can certainly negotiate higher rates with private payors.
Payors can pay a physician-owned ASC close to what they would pay a hospital even without any hospital ownership if the payor felt the ASC was valuable enough to their network. In short: ASCs can receive as good of a rate from a payor as they can negotiate.
Remember, in today's healthcare environment, there is tremendous focus on procedure costs —from payors, patients and the media. So if you are looking to improve an ASC's bottom line, it makes more sense to focus on lowering the expense side of your profit and loss statement. That way your ASC can sustain its operations regardless of what the government and private payors do.
4. If a group of physicians can't maintain ownership of the ASC and bill at the higher HOPD rates, what financial incentive is there to partner with a hospital, and why would a hospital want to partner with the physicians?
A: If physicians are interested in maintaining ownership in their ASC and receiving higher reimbursement rates, a hospital partnership may still be worth exploring even without the HOPD designation as an option. In addition to aligned interests and increased community presence, the leverage a hospital may have in negotiations with payors can be significant.
Once partnered, the hospital and surgeons both now have a single, more appropriate setting for elective, lower acuity procedures than the hospital's ORs and those cases would most likely migrate to the ASC. In this scenario, even with an increase in the typical ASC rate, the payor (and patient) would often enjoy a reduction on what would otherwise be paid to the hospital and the ASC realizes higher reimbursement . The hospital may also benefit from increased capacity in its ORs and a bump in physician satisfaction because this scenario benefits the hospital's physician partners.
5. Are there any reasons why a hospital would not want to convert an ASC it acquires into an HOPD?
A: Not long ago, the answer to this question — assuming the hospital met the requirements to convert the ASC to an HOPD — was a definitive "no." But that's not necessarily the case anymore.
Awhile back, we were engaged by a hospital that had purchased a freestanding GI/endoscopy center from its original physician investors. The hospital had us work to get the ASC licensed as a provider-based entity (HOPD) to capture the hospital reimbursement and help relieve pressure from the hospital's ORs.
After some time, the hospital received letters from payors indicating the payors would no longer reimburse the hospital for uncomplicated GI procedures performed in a hospital setting, such as the HOPD. The payors were essentially requiring these procedures be performed in a freestanding ASC setting, so the hospital leaders brought us back in to help them convert the HOPD back to a freestanding ASC.
We're seeing such a development — payors no longer willing to pay for routine outpatient procedures performed in an HOPD — happen all across the country. This is especially true in ASC to HOPD conversions where payors often balk at paying more for a procedure done in the same building at the same address where in the past they paid significantly less. We anticipate this trend of payors encouraging low-acuity elective surgeries to be performed in non-acute settings will spread to more markets.
Where a hospital may really benefit from buying all or part of an ASC is if the hospital is at max capacity in its ORs and looking for a way to relieve OR pressure and increase capacity for higher acuity/higher reimbursing cases. But to buy an ASC just to flip it to an HOPD doesn't have as much strategic value for a hospital as it once did.
6. If a hospital recently acquired an ASC with a management contract, and is now planning to convert the ASC to an HOPD, should the hospital keep the management contract in place?
A: Many ASCs have management contracts with management companies. It is not unusual to see a transaction where a hospital acquires an ASC from a group of physicians and as a condition of the sale, even after converting the ASC to an HOPD, the physicians want to keep the ASC's management company in place. Often physicians and sometime hospital leadership are concerned — and justifiably so — that once the ASC is under the direct ownership of the hospital, it will lose the efficiencies and high customer satisfaction it enjoyed as an ASC.
The decision as to whether to continue the use of outside management is one that should be thought through fully. As an HOPD, as noted in the first question, the hospital must control the facility's operations. Therefore, how much impact an outside management company may have on operations is questionable and may not be worth the cost of the management contract.
The scope of work the management company is contracted to perform should be reviewed in light of what services it can truly provide and how much impact it can make once the facility is integrated into the hospital management, as required by the provider based rules. Also, note that if the fee associated with a management contract is based on a percentage of revenue, it will increase dramatically once the facility is billing as an HOPD.
Proceed With Caution
If you read the 2012 article and this piece, a few things should now be quite apparent concerning ASC to HOPD conversions:
- Regulations can make conversions rather tricky and even prevent them from occurring.
- Conversions aren't often in the best interest of physicians
- Conversions may not even be in the best interest of a hospital.
- Payors may respond negatively to a conversion.
- Conversions can provide a number of benefits when done for the right reason and with the support of the parties involved.
If you're considering converting an ASC to an HOPD, proceed carefully, and do your due diligence. Take the time that's needed to learn and understand the rules, and weigh the pros and cons of maintaining the facility as an ASC or converting it to an HOPD.
If you are still unsure whether a conversion is the right step to take, consider seeking out experts in this area who can not only help ensure any conversion is compliant but is also the right decision to make for the ASC.
Joan Dentler is president and CEO of Avanza Healthcare Strategies, which provides healthcare organizations with strategic guidance, with a focus on outpatient services and population health management. For more than 25 years Ms. Dentler has been consulting on, developing or operating hospital outpatient services, ambulatory surgery centers and community health initiatives.
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