Best Practices To Grow Ambulatory Surgery Center Profitability

A freestanding ambulatory surgery center (ASC) is a unique entity. It’s not a hospital, not a hospital outpatient surgery center, and not a physician’s in-office surgery center. It is in a separate category, with separate rules, regulations, and modes of operation.

Unlike most hospitals, a freestanding surgery center is permitted to profit. How much an ASC profits depends on many factors, including its revenue cycle performance. The guidance included on this page is focused solely on freestanding ASCs, particularly their revenue cycle, and how to achieve and grow profitability.

This page will be expanded in the coming months as we add more guidance and expert recommendations. Use this navigation menu to go to your particular area of interest.

Chargemaster (Fee Schedule)

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One of the first tasks when opening an ASC for business is to develop the chargemaster. The chargemaster, also known as the fee schedule, is a comprehensive listing of services/supplies that may be billed to a patient or their health insurance provider. This entails deciding what procedures are to be performed in your ASC and then determining the fee for each of these procedures.

Chargemaster Development

To begin, you will need to:

• Prepare a list of the planned procedures and assign the appropriate CPT code for those procedures.

• Determine the case cost of each of these procedures.

• Decide which method to use in determining the fees.

After accomplishing steps 1 and 2, determine the method to assign fees to the list of planned procedures. There are several ways to develop a chargemaster, and there is no one way or wrong way.

Most ASCs will create their initial chargemaster using a percentage of Medicare reimbursement fees. This is because the Medicare fees are published, and typically new surgery centers do not yet have managed care fee schedules for comparison. An alternative method is basing your fee schedule on case cost.

1. For a model based on Medicare reimbursement fees, most new centers start by using a multiplier of 3-4x Medicare rates to establish their charges. When using Medicare as the basis for building a chargemaster, there are some exceptions to this model that need to be considered. Depending on your specialties or types of procedures planned, it is important to realize that Medicare is not an all-inclusive list, and depending on the type of services, you may find some of your procedures are not on the Medicare fee schedule.

Here are three exceptions you should know about.

• The first exception lies with those ASCs that plan to offer pain management, spine or complex orthopedics and may encounter the issue of procedures not on the Medicare fee schedule, as compared to ophthalmology or gastroenterology centers, for example. For those procedures not covered by Medicare, you will need to establish a fee. Other payers may still reimburse you for procedures that Medicare does not cover. To determine the fee for these procedures, use a combination of the case cost for the procedure and an evaluation of the ASC's market area.

• The second exception concerns your facility's use of implants. Medicare does not pay separately for implants. They do, however, have several procedures that are considered "device-intensive." This means Medicare has included the cost of the implant in the procedure fee. When developing your fee schedule using 3-4x multiplier of Medicare reimbursement rates, including the device-intensive codes, these codes will reflect rates that appear unusually high. Consider removing the device allowance from these procedures and multiply only the procedure portion, as other carriers may allow for separate reimbursement of implants.

• The third exception concerns a minimum fee. This fee should reflect the minimum amount for which you can afford to provide the required care, including direct and indirect costs. Once you have determined your Medicare multiplier and developed your fee schedule, review the rates. For any fee that falls below the established minimum, raise the fee to that rate.

2. For existing surgery centers or those that have access to managed care contract rates, most will build their chargemaster based on a percentage of the highest managed care fee schedule. For example, if your highest fee schedule is Blue Cross Blue Shield (BCBS), you may choose to build the chargemaster based on 1.5-2x BCBS reimbursement rates. Keep in mind, you will still need to establish a minimum fee.

3. Case-cost chargemasters are based on all direct and indirect costs involved with a specific procedure. After arriving at a specific cost for a procedure, allocate a fee above those costs. This is a less popular approach to create a chargemaster in part because of the length of time to develop it and the constant need to update based on changes in costs.

Importantly, to remain compliant with state and federal regulations, you may only have one chargemaster and it must be uniformly applied to all payers. You are not allowed to charge different rates to different payers.

Chargemaster Maintenance

Completion of the chargemaster is a large step in ensuring your center's healthy revenue stream. However, it is important to analyze the fee schedule at least annually to confirm the rates are still current.

Depending on how your managed care contracts are negotiated, they have the possibility of updating annually. For example, if some of the managed care contracts are based on a Medicare percentage, these rates will change annually as Medicare updates. If the managed care contracts are based on a grouper rate, there may be built-in escalators or groupers may change based on new codes. If the contracts are based on a percentage of charges, then you may find that you have been grossly undercharging. If you developed your chargemaster at the time of opening your ASC and have not changed the rates since then, or have not reviewed it for several years, then you may discover you are underbilling and also find opportunities to negotiate better contract rates or carve-outs for certain procedures.

When performing a chargemaster analysis, create one spreadsheet showing all your reimbursement rate schedules (e.g., Medicare, managed care organization contracts, workers’ compensation) side by side. The first column should be your chargemaster. Identify the highest reimbursement rate for each procedure and compare it to your chargemaster. Any chargemaster rates that are lower than the highest fee schedule rate will need to be reviewed and increased. Upon increasing the fee, ensure you provide yourself with an adequate cushion for payer updates, such as a percentage of an increase or a specific dollar amount above your highest reimbursement rate schedule.

The following key factors should be checked prior to increasing or changing your established chargemaster.

1. Review each payer's contract. Some payers will have specific language built into their contracts that will either limit the percentage you can increase and/or how often an increase can be made. Also, there may be specific guidelines requiring you to notify payers of the intent to increase.

2. Review your center's policy on contractual adjustments. Even though your chargemaster needs to be higher than the highest negotiated rate, you do not want your fees to be so high that your adjustments are excessive. This is very important if your center chooses to take contractual adjustments at the time of payment instead of billing, meaning your accounts receivable will always reflect the gross amount. This gross amount does not include the contractual adjustments, so it does not accurately indicate expected reimbursement.

One of the main reasons for performing an annual analysis of your chargemaster is that you may not be receiving the full reimbursement that you negotiated or anticipated. For example, if your agreed-upon rate with Cigna for a knee procedure is $5,000 but your chargemaster reflects a charge of $3,500, Cigna technically needs to only pay the $3,500 because that is what you billed.

Another example is if you originally carved out a rate with Aetna for a specific procedure for $11,000, but many years later, due to Medicare updates/changes, Medicare is now allowing $11,500, you may be able to negotiate a better rate with Aetna. One of the key indicators that it is time to review your chargemaster is observing payers beginning to allow 100% of your charge. This typically indicates your charge is under the payer's agreed upon allowance.

A chargemaster analysis will help maintain your center's consistent cash flow and provide a quick and simple way to see where you can increase revenue. It also allows you to take a good, long look at your contracts to see where improvements can be made.

In conclusion, using one of the methods described above, establish the chargemaster early in your ASC's development, have it approved by the governing body, and load it in your billing software program. It is imperative to analyze the chargemaster at least annually to ensure the facility charges are high enough to meet all your negotiated fee schedules.

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