Last month, we discussed the changes made by the Centers for Medicare & Medicaid Services (CMS) to the Inpatient Prospective Payment System that affect orthopaedics. This month, we review the fiscal year (FY) 2009 program updates to the Outpatient Prospective Payment System (OPPS), the Ambulatory Surgical Center (ASC) Payment Program, and the Medicare Physician Fee Schedule (PFS).

Outpatient Prospective Payment System
The Balanced Budget Act of 1997 (BBA) authorized CMS to implement a prospective payment system under Medicare for hospital outpatient services. Later modified by the Balanced Budget Refinement Act of 1999 (BBRA), this system is now known as the Outpatient Prospective Payment System (OPPS). All services paid under OPPS are organized into Ambulatory Payment Classifi­cations or APCs, which group services based on clinical similarity and resource requirements. Each APC has an established payment rate.

The OPPS update for FY 2009 implements a 3.9 percent inflation adjustment. Outpatient imaging is under increased scrutiny, as evidenced by the addition of four imaging efficiency measures for quality reporting (calculated from Medicare claims data), and the development of five new composite APCs for two or more imaging procedures of the same modality. The new APCs address multiple sessions of the following modalities: ultrasound, computed tomography (CT), CT angiography with or without contrast, magnetic resonance (MR) imaging, and MR angiography with or without contrast. APC payment is increasingly important to orthopaedic providers because most orthopaedic services are now provided in the outpatient setting.

ASC Payment System
Medicare has covered surgical procedures provided in freestanding or hospital-based ASCs since 1982. By 2008, CMS had approved 3,390 different procedures for ASC reimbursement.

ASC reimbursement is moving toward a payment rate that is 65 percent of the OPPS reimbursement, due to the lower cost of care in an ASC compared to a hospital outpatient department. For 2009, procedure reimbursements for ASCs, which use the same APCs as the OPPS, were adjusted to keep Medicare ASC expenditures constant, without an increase for inflation. The final ASC rule estimates that reimbursement specific to orthopaedic procedures will have a net increase of 19 percent, despite a 7 percent reduction in payment for pain management procedures, which account for a significant portion of overall ASC volumes.

Notable increases were seen in the following high-volume ASC-based procedures:

• knee arthroscopy (CPT 29880 and 29881)—17 percent payment increases
• carpal tunnel release (CPT 64721)—13 percent payment increase
• hammertoe repair (CPT 28285)—15 percent payment increase

In addition, 27 surgical procedures were added to the ASC payment list for 2009, including two external fixation codes (20696 and 20697) and eight office-based procedures. The lists of device-intensive procedures (which are reimbursed differently to account for high device costs) and ancillary services permitted in ASCs were also updated. For more information and a complete list of payable procedures for 2009, visit the Ambulatory Surgery Center Association Web site at www.ascassociation.org/list2009.pdf

Overall, CMS is trending to increase the number of procedures reimbursed in ASCs. ASC payments, however, continue to be discounted from the hospital OPPS fee schedule. The Medicare Payment Advisory Commission (MedPAC) has recommended a 0.6 percent increase in ASC payments for next year.

PFS and quality reporting
The Medicare PFS is the program that pays professional fees to physicians. Since 1997, a sustainable growth rate (SGR) formula has been used to determine physician payment rates. The SGR is based on the 10-year annual average growth in real domestic product per capita and was intended to control the growth in aggregate Medicare expenditures for physicians’ services.

Under the Medicare Modernization Act of 2003, CMS is required to provide an estimate of the SGR and conversion factor applicable to Medicare payments for physicians’ services for the following year to MedPAC. In 2010, an approximate 21 percent reduction in physician reimbursements is anticipated. In the past, however, the government has prevented such drastic changes from going into effect (Table 1).

The Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) circumvented the SGR mandated 10.6 percent cut of the physician fee schedule and mandated an overall 1.1 percent inflation adjustment for 2009. Other significant changes affecting the PFS have been made to the Physician Quality Reporting Initiative (PQRI), which was extended indefinitely beyond 2008.

The PQRI measures pertaining to e-prescribing have been removed and a new 5-year Electronic Prescribing Incentive Program has been implemented. This program will reward “successful electronic prescribers” (those who report e-prescribing in at least 50 percent of applicable cases) with 2.0 percent payment increases for 2009 and 2010, and 1.0 percent increases for 2011 and 2012. If a physician has not implemented e-prescribing by 2012, payment penalties of 1.0 percent in 2012 and additional 0.5 percent annual penalty increases thereafter will apply.

The PQRI incentive for 2009 and 2010 has also increased to 2.0 percent with the addition of 52 new quality measures (bringing the total to 153 measures that can be reported). Some of the new measures specifically address osteoarthritis and back pain.

Future payment expectations
CMS has made a clear move toward value base purchasing of health care services, which will result in more transparency on cost and quality to ensure optimal care for Medicare beneficiaries. Providers will continue to be under pressure to provide performance data to CMS, which is likely to affect future provider reimbursements. Financial “rewards” are likely to be replaced by financial “punishment” for those providers who don’t meet CMS’ standards.

This strategy is a move toward improving efficiency and effectiveness of care, while creating a patient-focused, results-oriented, market-driven environment. CMS’ strategy continues to evolve and adapt in response to an unsustainable healthcare funding structure. Orthopaedic surgeons should expect more change in the future, and the AAOS will continue to advocate for favorable changes for orthopaedic patients and their providers.

John Cherf, MD, MPH, MBA, is a member of the AAOS Health Care Systems Committee, under the Council on Advocacy, and a clinical advisor to Sg2, a healthcare intelligence company. He can be reached at jcherf@neuro-ortho.org

Kathleen Cox is an orthopaedic analyst with Sg2; she can be reached at kcox@sg2.com