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I've never been enthusiastic about state-based medical fee schedules but my experience with ambulatory surgical centers is making me change my mind. Here's why.

Surgery may consume 10 percent of medical costs of workers' comp. The most common types of surgeries are often performed at ambulatory surgical centers, which have been around for years. Yet they remain something of a financial black box and until we know more about the finances of these medical providers, we can't say whether we are effectively managing surgical interventions.

An ambulatory surgical center is an operating room outside a hospital. The ones we are discussing here -- which make up 90 percent of all such facilities -- are owned and operated by surgeons without hospital participation, but often with outside investors. Surgeons have demonstrated that they do not need hospital-based operating rooms. A facility located next to a strip mall can do just as well.

But ambulatory surgical centers may not take on high-severity patients, such as those with other medical complications. An operation will produce separate charges. Some charges are billed by the surgeon and some are billed by the facility. State fee schedules for the surgeons vary wildly. For some procedures, the cost in a high-fee state can be four times of that in a low-fee state, which is exactly what bothers me about fee schedules.

But charges billed by ambulatory surgical centers typically don't have fee schedules. Compared with a hospital, which shovels the cost of everything from Band-Aids to ear swabs into huge overhead allocations, the more stripped-down surgical centers have a chance of reducing facility costs, in some cases by as much as 50 percent. We should be enjoying a fair share of these savings -- if we only knew. ASC owners can feel happy when states fail, as they have, to enact fee schedules for ambulatory surgical center costs, or when states fail in their demand that surgical centers open their books to scrutiny

Workers' comp provider networks have done their part in negotiating down ASC surgical and facility charges. But such networks are no match for state fee scheduling. California, for example, recently set maximum reimbursement rates for ambulatory surgical center charges at 120 percent of Medicare rates.

A consultant at Fairpay Solutions, which audits and negotiates surgical center reimbursements for insurance carriers and other claims payers recently told me that surgical centers repeatedly block disclosing their operating results. But that's not all. When Medicare has tried to collect cost data on such operations, the centers have resisted. Even where states, such as Florida, have the data, the centers have been granted injunctions to block the information.

Operating room bills can be difficult to control. An operation can create up to seven or more invoices, and many more from ancillary services such as imaging and physical therapy. Ambulatory surgical center owners may even have a financial stake or two in these services. You don't have to dig deep to find a lot of waste surrounding operating room costs.

One firm, Sagebush, retained by health plans found that among all overpayments they caught during a review, 77 percent of the overpaid invoices and 90 percent of the dollars paid were tied to patients who had undergone surgery.

State regulators may be wary about taming the surgical center tiger. Surgeons and investors in such centers are a determined lobbying force. This is one black box that needs to be opened.

PETER ROUSMANIERE, Vermont-based consultant and writer, is the workers' comp columnist for Risk & Insurance®.

April 15, 2006

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