The APG Corner

Lobbying efforts improve orthopedic Medicare rates

[Kevin McHugh, chief executive officer of the Washington Orthopedic Center in Centralia, WA, was involved in a grassroots effort to show the Health Care Financing Administration (HCFA) how orthopedic surgeries need a higher reimbursement than the current system. Washington Orthopedic surgery center has more than 1,000 cases a year. McHugh enlisted a mentor at a large orthopedic group in Colorado and surveyed 18 nationwide orthopedic centers; presenting the findings to HCFA. The result is while many specialty centers are looking at ambulatory payment classifications (APCs) that would reduce current reimbursement levels, orthopedic centers will see an overall increase of about 46% under the proposed system. McHugh discusses orthopedic reimbursement under APCs, and how the small group got HCFA’s attention.]

ORM: So what is the good news for orthopedic surgery centers?

McHugh: We saw rate increases of 46% overall on muscle-skeletal procedures. For instance, most of the orthopedic procedures are high volume procedures. Our No. 1 procedure is CPT 29881, which is a knee arthroscopy repair. Now we’re being paid $595, and that will increase to $807, a 36% increase. That procedure is No. 9 on the list of all Medicare procedures, according to HCFA data compiled by McDermott, Will, and Emery law firm in Washington, DC.

The No. 10 procedure, carpel tunnel, a CPT code 64721, went from $422 to $600. Also, HCFA added endoscopic carpel tunnel. The CPT is 29848, they call it arthroscopic.

ORM: How did you convince HCFA to raise reimbursements for orthopedic procedures?

McHugh: We published a study, surveyed single specialty orthopedic centers around the country, and did an in-depth cost study by CPT codes and presented that to HCFA. (The study was published in-house, and copies are available from McHugh for a $30. See source box, below.) We presented our 24 most frequent orthopedic procedures in an ASC [ambulatory surgery center], and did a cost study, and it showed that the average reimbursement was underpaid anywhere from $238 on up. Most were underpaid by $500 to $600, with the top range underpaying by $1,633, all based on our costs. So we presented that data in a daylong meeting in September of 1996 to HCFA in Baltimore. They took the data, that’s why I believe we received such a significant increase. Orthopedics doesn’t have a big lobby, and we’re not a well-oiled machine. We’re just out there doing the work.

That grassroots effort of getting involved, providing good data, and being part of the solution was what I think got us such favorable increases where everyone else has gotten decreases. Plus the fact that we were actually in the trenches doing the day-in, day-out work gave us a lot of credibility when we met with HCFA.

ORM: What is the downside of the APCs for orthopedic procedures?

McHugh: Even though we got those increases, not all centers can provide those services and still be profitable. The increases were significant, but for many centers it still won’t be enough to cover their actual costs. If you’re a rural center with a high Medicare population of 20% or more, you don’t have enough commercial business to offset these costs. If you’re in a metropolitan area with a relatively small Medicare population and a healthy commercial mix, then you’ll probably be able to continue to deliver surgical services to a Medicare population.

The unknown is what impact [will] the APCs have on commercial payers, who in the past, have mirrored their rates to Medicare.

ORM: How did you conduct the study?

McHugh: We tried to do a snapshot cost analysis, looking at fixed and variable costs along with specific supply costs, staff costs, and other costs. Then we looked at a procedure in terms of time units and came up with 15-minute increments for a procedure, and we looked at fixed costs per time unit. We added in variable costs and came up with a procedural cost.

HCFA had spent a lot of time looking at procedural cost methodology back in 1994, but the one they did was a disaster because it was so complex. No small center could devote their resources to really do the study, so only a few centers responded. No one was looking at the same thing the same way, so they threw out the entire study. To date, they haven’t developed a good way of doing a simplified procedural cost analysis.


For more information on how to conduct a cost analysis or how ambulatory payment classifications affect orthopedic procedure reimbursement, contact:

Kevin McHugh, Chief Executive Officer, Washington Orthopedic Center, 1900 Cooks Hill Road, Centralia, WA 98531. Telephone: (360) 736-2889. Fax: (360) 737-3136. E-mail: