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New Research Shows ASC Growth Slowed After 2008 Medicare Changes

Growth continued to slow years after the payment change

BY ALEX TAIRA | AUGUST 2021

On July 27, researchers from the University of Louisville and Baylor University, Elizabeth L. Munnich and Michael R. Richards, published a research brief, Long-run growth of ambulatory surgery centers 1990–2015 and Medicare payment policy, in Health Services Research. The brief examines how growth in the ASC industry was affected by Medicare payment changes in 2008. The research found that ASC growth slowed significantly post-2008, which might have been the result of lowered reimbursement rates from the payment reforms.

Medicare first started paying for procedures performed in ASCs in 1982 and by 2007, was paying for roughly 2,500 procedures. The rates for those procedures were determined using a simplistic fee schedule; all 2,500 procedures were arranged into nine groups, with all procedures within each group being paid the same rate. In 2003, the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) included a provision that directed the secretary of the US Department of Health & Human Services (HHS) to implement a revised payment system for ASCs no later than January 1, 2008. The new payment system was finalized in November 2007 and officially tied ASC rates to rates paid to hospital outpatient departments (HOPD). Although the change made 790 new procedures payable by Medicare in ASCs, it also dropped the average ASC rate to 65 percent of the HOPD rate for the same procedure. Nuances in annual updates to ASC payments have caused that disparity to grow; today, on average, ASCs are paid 50 percent of the HOPD rate for the same procedure.

Munnich and Richards can track the exact number of ASCs before and after the 2008 payment changes thanks to Medicare Provider of Service files. They found “a clear plateauing of ASC supply immediately following the fee schedule transition in 2008.” Whereas the total number of ASCs generally grew by 5 percent to 10 percent each year from 1990 to 2007, 2008 to 2015 saw only 1 percent growth or less in the total number of ASCs. The early 2000s saw as many as 370 new Medicare-certified ASCs each year, but by 2015 the number was down more than 50 percent to roughly 150 new ASCs, barely outpacing the number of ASC closures, which was roughly 100 each year. Munnich and Richards found it notable that growth continued to slow years after the payment change, even during robust expansion in the overall economy after 2010.

Munnich and Richards note that they cannot say with certainty that the 2008 Medicare payment changes directly caused the slowed growth of the ASC industry. However, the timing seems to match almost perfectly, and slower growth continues even as the economy and outpatient surgery grow in the 2010s. Using Florida claims data, they show that the median price change per procedure due to the 2008 changes was roughly -$40. Their calculation is weighted by volume to place more importance on those procedures commonly performed in ASCs. If many high-volume procedures were seeing negative payment adjustments as the result of the 2008 changes, “ASCs could have expected markedly thinner Medicare margins” despite the same fixed startup costs.

While Munnich and Richards cannot say for certain that the slowed ASC growth affected the larger healthcare ecosystem and outpatient surgery market, they note that constricting ASC growth likely caused more procedures to be performed in the higher-cost HOPD setting. Restricting entry to the market concentrated outpatient surgery supply, likely to the detriment of consumers and payers. The study is currently available for purchase on the Health Services Research site.

Please write Alex Taira with questions.