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Payors Pick up Pace in Curbing Preventable Spending on Surgical Care

In 1982, the ambulatory surgery center (“ASC”) model began to proliferate when Medicare approved this type of provider as an appropriate site of care for approximately 200 surgical procedures.  Yet, despite their lower cost, nearly 40 years later, commercial and government payors have not forced the migration of outpatient surgical care to ASCs.  As such, outpatient surgical procedures remain a mainstay for many health systems to ensuring hospitals maintain a healthy financial position.  However, recent trends in Centers for Medicare and Medicaid Services (“CMS”) regulations as well as commercial payor reimbursement policies demonstrate new enthusiasm from payors to guide their enrolled providers and plan beneficiaries to lower-cost settings outside of the hospital and relatedly to restrict health systems and physicians from retaining elective outpatient surgical services in the hospital setting. 

Illustrating this trend, some payors, such as UnitedHealthcare (“UHC”) and Anthem, have promulgated policies that restrict the site of care for elective surgical procedures.  UHC’s policy took effect in November 2019 for fully insured groups in most states.[1]  Pursuant to this policy, UHC only pays for surgical procedures performed in an outpatient hospital setting if such setting is medically necessary based on the acuity of the patient.  For example, the freestanding ASC setting can be a riskier setting for patients who, based on their health condition, may have complications with anesthesia.  UHC may also permit elective surgical care in the hospital setting if ASC services are not geographic accessible.  UHC stated its intent to reduce costs with this new requirement.  UHC estimated that steering beneficiaries toward the lower-cost setting would save beneficiaries $500 million in 2020 and would save UHC over 20 percent in reimbursement to providers. 

Similarly and more recently Anthem, which has insurance products in fifteen states, published a Clinical UM Guideline on August 20, 2020, which also limits the use of outpatient hospital surgical facilities.[2]  The Anthem guidelines consider the use of outpatient hospital facilities medically necessary only if: (a) the procedure is of a level of complexity that it cannot be safely performed in a less intensive setting; or (b) the individual has a clinical condition that may compromise the safety of a lower cost setting, such as conditions that require enhanced anesthesia monitoring, medications, or prolonged recovery or where the patient is at an increased risk for complication due to severe comorbidity.  All other uses of an outpatient hospital facility are not medically necessary under the policy.

Outside of value-based care initiatives, CMS has not yet adopted outpatient surgical procedure site of care policies that restrict certain cases to a non-hospital setting.  CMS has, however, developed new payment policies to find ways to reduce the increasing costs associated with healthcare services.  More specifically, for calendar year 2021, CMS added eleven procedures to the ASC-covered procedures list, including more total joint replacement procedures.[3]  This is significant in multiple respects.  From the hospital perspective, joint replacement procedures, which are generally considered elective and tend to have a better payor mix, have been a profitable source of income for hospitals.  From a CMS program integrity perspective, the fiscal burden of joint replacements on the Medicare program is high and, along with other rising costs, threatens program solvency particularly as longevity of seniors increases and some patients begin to outlive their first joint replacement needing a second procedure later in life. As CMS has an urgent need to address the trust fund’s solvency, moving surgical care that can be performed in an ASC, rather than the hospital, may be one of several crucial endeavors for the future of Medicare.

As suggested by several studies, the potential savings of moving total joint replacement procedures to ASCs is substantial, with the cost of treatment being about 40 percent less in an ASC when compared to hospital surgical care for the same procedure.  The estimated average cost for joint replacement surgery per patient was about $12,000 for the ASC and almost $20,000 for the same procedure in the hospital.  In keeping with these findings, a report from UnitedHealth Group also found that migrating half of routine total joint replacements to ASCs could yield $1 billion in savings for Medicare, and moving patients requiring joint replacement procedures to ASCs could minimize the rate of hospital-acquired infections in this population.[4]  It is unsurprising, then, that certain projections suggest that by 2028 approximately 57 percent of joint replacement procedures will be performed at ASCs.

As in recent years, reducing the health care spend will remain a priority for federal and state government, other payors, employers and patients alike, and health systems will need to focus their surgical programs on developing and expanding strategies for lower cost ambulatory surgical care.

[1] UHC, Outpatient Surgical Procedures – Site of Service (eff. Nov. 1, 2019), https://www.uhcprovider.com/content/dam/provider/docs/public/policies/index/commercial/outpatient-surg-procedures-site-service-11012019.pdf.

[2] Anthem, Ambulatory or Outpatient Surgery Center Procedures (CG-SURG-10) (last rev. Nov. 5, 2020) https://www.anthem.com/dam/medpolicies/abcbs/active/guidelines /glpwa051150.html.

[3]See CMS, Fact Sheet: CY 2021 Medicare Hospital Outpatient Prospective Payment System and Ambulatory Surgical Center Payment System Final Rule (CMS-1736-FC) (Dec. 2, 2020), https://www.cms.gov/newsroom/fact-sheets/cy-2021-medicare-hospital-outpa....

[4] See UnitedHealth Group, New Research Highlights the Safety and Cost Savings Associated with Ambulatory Surgery Centers (Dec. 10, 2020), https://www.unitedhealthgroup.com/newsroom/research-reports/posts/2020-1....

© Polsinelli PC, Polsinelli LLP in CaliforniaNational Law Review, Volume XI, Number 55

About this Author

Kara M. Friedman Health Care Attorney Polsinelli Law Firm

Kara Friedman’s extensive understanding of the health care industry allows her to offer advice on service line development activities and assist clients in developing feasible strategies to enhance the delivery of health care in a collaborative way.

Kara's practice is devoted to the general representation of health care providers and includes advising clients regarding the structures around and the relationships among health care providers within the complex federal and state regulatory environment. She has an active Certificate of Need practice...


Brittany’s practice focuses on transactional and regulatory health care law. She has experience representing complex matters affecting a wide range of clients in the health care industry, including health systems, hospitals, physician groups, clinical laboratories and pharmacies. While working alongside seasoned Polsinelli attorneys, Brittany is committed to delivering clients with strategic solutions tailored to their specific needs.

In addition to earning her Juris Doctor, Brittany also received an M.B.E. degree in Bioethics from the Perelman School of Medicine at the University...