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Orthopedic Implant Reimbursement Trends for ASCs

By Scott Allen, SVP Managed Care Contracting 

Complex payer trends and advanced payment models are reshaping the way ambulatory surgery centers (ASCs) receive reimbursement for orthopedic implants.  

During a webinar on managed care contracting best practices for orthopedic ASCs, I explain how these trends have progressed and why they’ve become extremely challenging in their specificity.   

Unlike other healthcare sectors, such as the professional side (RBRBS) or hospitals (DRG based), the ASC reimbursement landscape has grown into an environment that offers multiple methodologies for payments, often in one area, such as orthopedic medical devices.  

Depending on where your ASC is located, you may encounter a variety of these methodologies, if not all of them. With a lack of standardization, it’s crucial to understand how these terms dictate your claim submission process, plus how each payer processes and adjusts those claims based on the specific terms.  

This blog offers a breakdown of ASC payment methodologies and how they apply to implants. 

Percentage of Billed Charges

About 20 years ago, ASC contract rates were structured based on a percentage of billed charges. This was a very easy methodology for surgical organizations, particularly for billing implants, since you could mark them up to account for full cost and apply profit margins.

Cost+ and Threshold

As payers moved away from percentage of billed charges to a cost+ structure for implants, ASCs were reimbursed for the invoice cost plus an additional 5% or 10% to cover overhead expenses. Overall, this methodology typically meant less reimbursement than what ASCs could receive with percentage of billed charges.  

Under the cost+ structure, contracts can also have thresholds to limit how much ASCs can charge in total per implant. Due to rising prices for surgical devices, the cost+ fee structure can result in a slim profit margin, especially in the case of thresholds. ASCs are often forced to charge out implants at cost because in many instances, adding 5% or 10% to cover overhead costs would put them above the allotted threshold. 

Groupers, APC/Percentage of Medicare

Around 2006, payers began transitioning to the Medicare grouper system, which assigns every code and fee schedule to a group, such as groups one through nine, and then a rate is applied to each of those groups. Each payer provides a crosswalk to identify what codes go into what group, and they may or may not update that crosswalk annually. 

Over time, this system evolved into the APC (Ambulatory Payment Classification) system, featuring hundreds of grouper categories for more precise payments. This complexity requires ASCs to stay updated with payer crosswalks that detail code-group assignments.

EAPG

The EAPG (Enhanced Ambulatory Patient Grouping) system, developed by 3M, further refines payment methodologies. It categorizes services into Significant Procedure, Medical Visit, and Ancillary Service, using specific weights to determine reimbursement. Payers may customize EAPG packaging to bundle services or apply discounts, which adds another layer of complexity.  

Since the reimbursement amount can vary based on the resources required for each visit, thoroughly understanding the EAPG classification system is necessary to ensure accurate and proper reimbursement. 

COPPS

COPPS (Comprehensive Outpatient Payment System) is derived from Medicare’s OPS payment system, offering ASCs similar reimbursement to hospital outpatient departments (HOPDs). Typically, implants are not paid separately, and codes may be bundled to streamline outpatient service billing. 

Inclusive and Bundling

Under inclusive and bundled agreements, payers may still want to understand what payment is being applied to the implant cost versus how much is applied to the cost of the surgery. In some bundling contracts, a payer may want you to include the implant cost as an overhead cost with the procedure. This is why it’s important to know your contract language to ensure you have a full understanding of what the payer defines as overhead costs, and if that includes, for example, multiple anchors or other implantable devices.

Value-Based Care and Risk Based Agreement

ASCs represent only one part of a patient’s care, so if a facility isn’t involved with a larger group or health system, it’s not necessarily conducive for ASCs to get involved in value-based care arrangements.  

However, value-based care agreements are slowly emerging in the ASC sector, particularly for high-cost procedures like total joints and spine surgeries. 

If your ASC is looking to participate effectively in these agreements, you must have a comprehensive understanding of your own costs, contracts, and current rates, as well as detailed knowledge of the facilities and providers involved. For instance, when engaging in a bundled care arrangement for a 90-day episode, it is crucial to evaluate how many providers will be billing for services within that period and to estimate their respective reimbursement portions as well as your own. Advanced planning will help ensure you receive adequate compensation for your role in patient care/

Carve Outs

Carve out is a term for taking a procedure or case and carving it out within the terms of your contract or methodology. For example, if you had a contract that was grouper-based and you want to carve out for total joints, you could take that procedure out of the grouper methodology and develop a separate carve out rate.  

Just like with value-based care, the carve-out will be a locked-in rate. Knowing your costs and margins before going into a carve-out arrangement is critical.  

Technology changes, as does the cost of supplies, and OR time could fluctuate. If you have carve-outs, you are limited to a reimbursement rate regardless of these factors, so you might want to look at some of those overhead costs before agreeing to a carve-out rate. 

Which ASC Payment Model is Best for Implants? 

For ASCs, the impact of these payer methodologies depends on contract specifics and implant billing requirements.  

With respects to implants, there can also be instances where a third-party implant company will handle reimbursement, and ASCs will have to submit directly to the company. In these situations, the payer and the third-party company have pre-negotiated the rate.  

Ultimately, ASCs will need to carefully evaluate the potential benefits and challenges of each payer’s methodology to determine whether the terms are a good fit or if contract terms should be negotiated further.  

Access Our Webinar to Learn More 

Managed care contracts play a crucial role in the financial success of ASCs. Contract terms dictate reimbursement rates, and a poorly negotiated rate can undercut your bottom line.   

To help you optimize your ASC’s contract management and reimbursement process, I’ve outlined three essential contract management strategies in our on-demand webinar Enhance Your Financial Success with a Managed Care Contracting Checklist for Orthopedics. 

Learn step-by-step best practices for: 

  • Contract management   
  • Chargemaster analysis   
  • Case analysis and case costing 
  • Contract negotiation 

Click here to access the webinar. With these strategies, you’ll turn complex managed care contracting methodologies for orthopedics into a checklist for success.