Original Notice.

     Preproposal statement of inquiry was filed as WSR 00-14-072.

     Title of Rule: Chapter 296-23B WAC, Ambulatory surgery center payment.

     Purpose: To revise the payment methodology for ambulatory surgery centers (ASCs) and other nonhospital surgical suites that provide surgical services to Washington injured workers and crime victims. To define the minimum standards required for an ASC to provide surgical services to Washington injured workers and crime victims.

     Statutory Authority for Adoption: RCW 51.36.080, 51.04.030, 51.36.010, 51.04.020.

     Statute Being Implemented: Chapters 51.32 and 51.36 RCW.

     Summary: This WAC will clarify the standards that an ASC must meet to become a provider of surgical services to Washington injured workers and crime victims. This WAC will also revise the payment method used to determine reimbursement for services provided in an ASC.

     Reasons Supporting Proposal: This rule will allow L&I to purchase ASC services cost-effectively and to ensure that injured workers and crime victims receive care in facilities that meet minimum standards for quality care.

     Name of Agency Personnel Responsible for Drafting: Anaya Balter, Tumwater, (360) 902-5021; Implementation and Enforcement: Doug Connell, Tumwater, (360) 902-4209.

     Name of Proponent: Department of Labor and Industries, governmental.

     Rule is not necessitated by federal law, federal or state court decision.

     Explanation of Rule, its Purpose, and Anticipated Effects: Explanation: This rule explains the requirements for an ambulatory surgery center (ASC) to obtain a provider account number from the Department of Labor and Industries and therefore to receive payment for surgical services provided. This rule also establishes the use of a fee schedule for reimbursement for services provided in an ASC.

     Purpose: To revise the payment methodology for ambulatory surgery centers (ASCs) and other nonhospital surgical suites that provide surgical services to Washington injured workers and crime victims. To define the minimum standards required to become an ASC provider for Washington injured workers and crime victims.

     Anticipated Effects: This rule will ensure that injured workers and crime victims receive outpatient surgical services from facilities that meet recognized standards of quality. This rule will allow L&I to manage medical costs related to providing surgical services to injured workers and crime victims. The rule will also make L&I's payment for ASC services more consistent with its payment methods for other types of providers and with other federal and state agencies.

     Proposal does not change existing rules.

     A small business economic impact statement has been prepared under chapter 19.85 RCW.

     The number of ASC service claims rose 64% during the five-year period from 1995 through 1999, compared to a 2% rise for hospital outpatient department claims and a slight decrease in overall medical claims. Over this same time period, L&I expenditures for services provided in (ASCs) rose by 181% and cost per ASC procedure rose 63%. In addition, the number of procedure types rose by 37% during this time period from 393 to 539. Total medical expenditures rose just 14% during the same period. In 1999 L&I spent $7.6 million for ASC services compared to $2.7 million in 1995.

     Because of the rapid rise in both the costs per ASC procedure and total expenditures for ASC services, the department has concluded that it is necessary to adopt a payment method that will allow better management of these services. To accomplish this goal the department has undertaken rule making, which will establish new payment requirements for ASC services.

     Development of the proposed ASC rule: Department staff evaluated several ASC payment plan options. Two options met the requirements of ease of implementation for both providers and the department and effectiveness in managing costs for ASC services. These plans were the current Medicare 8 Grouping system, and a hybrid method of set fees for high cost and high volume codes with the remainder of codes at a discount of charges. The department selected the Medicare 8 Grouping system for the following reasons:

•	It is a method that ASCs are familiar with.
•	It makes L&I consistent with other state agencies and the Health Care Financing Administration.
•	The system is already developed and could be used in the interim with only a modest amount of effort.

     Summary of the proposed ASC rule and policy changes: The principle requirements of the proposed rule are:

•	An ambulatory surgery center is defined as an outpatient facility where surgical services are provided and which meets the following requirements:

     1. Must be licensed by the state(s) in which it operates, unless that state does not have licensure.

     2. Must have at least one of the following credentials:

     a. Medicare Certification OR

     b. Accreditation by a nationally recognized agency acknowledged by the Medicare Program (HCFA).

     3. Must have a provider account with the Department of Labor and Industries in accordance with WAC 296-20-015.

•	Ambulatory surgery centers must submit bills for services on the national standard HCFA 1500 or electronically using department file formatting specifications.

     The principal policy modifications are:

•	The department intends to use the Medicare 8 Grouping system developed by HCFA as a basis for payment policies. Surgical services (CPT codes) are assigned to groups that correspond to maximum fees.
•	Specific modifications to this system have been made for the department's payment methodology.

     1. Instead of eight groups there are nine groups.

     2. Most artheroscopies have been moved to group 9. Some have been moved to group 7.

     3. Group 9 will have the same maximum fee as group 6.

     4. Procedures considered inpatient by Medicare and covered by the department in an outpatient setting will have maximum fees set or be paid as billed. They will not be placed in a group.

     5. Other procedures that Medicare does not group that the department allows payment for in an outpatient setting will either be placed in an appropriate group or paid as billed.

•	Generally, payment includes services and items furnished in connection with providing surgical services that are allowed in an ASC. Payment for the facility shall include the following:

     1. Nursing, technician and related services.

     2. Use by the patient of the facility (including operating and recovery room).

     3. Drugs, biologics, surgical dressings, supplies, splints, casts, appliances, and equipment directly related to the provision of a surgical procedure.

     4. Diagnostic or therapeutic services or items directly related to the provision of a surgical procedure.

     5. Administrative, record keeping, and housekeeping items and services.

     6. Intraocular lenses (including new technology lenses).

     7. Materials for anesthesia.

     8. Blood, blood plasma, platelets, and other blood products related to the provision of a surgical procedure.

•	Payment for the facility shall not include the following:

     1. Physician professional services.

     2. Laboratory services and tests.

     3. Radiologic or diagnostic procedures not directly related to the performance of a surgical procedure.

     4. Prosthetic devices (except intraocular lenses).

     5. Leg, arm, and neck braces.

     6. Artificial limbs and eyes.

     7. Durable medical equipment (DME) for use in the patient's home.

     8. Ambulance services.

•	Payment that an ASC can expect for providing services?

     The department pays the lesser of charges or the fee schedule. The fee schedule for ASCs is found in the Medical Aid Rules and Fee Schedule. The proposed fee schedule will be phased in over three years. The proposed fee schedule categories are shown in Table 1 below.

Table 1: Proposed ASC Fee Schedule
Group*	Medicare Fee schedule	Year 2002	Year 2003	Year 2004
1	$337	$843	$758	$674
2	$452	$1,130	$1,017	$904
3	$517	$1,293	$1,163	$1,034
4	$639	$1,598	$1,438	$1,278
5	$727	$1,818	$1,636	$1,454
6	$843	$2,108	$1,897	$1,686
7	$1,009	$2,523	$2,270	$2,018
8	$993	$2,483	$2,234	$1,986
9	--	$2,108	$1,897	$1,686
*Medicare has eight groups, L&I has an additional category, group 9 with the same rate as group 6.

•	Updating of rates and policies.

     The fee schedule, codes, and policies for ASCs will be updated annually in January and published annually in July in the Medical Aid Rules and Fee Schedule. From time to time the department will publish Provider Bulletins to clarify, update, and inform ASCs about changes in policies or fees.

     Small Business Economic Impact Statement (SBEIS) Analysis: The Regulatory Fairness Act, chapter 19.85 RCW, requires that the economic impact of proposed regulations on small businesses be examined relative to their impact on large businesses. The act outlines the requirements for a small business economic impact statement (SBEIS). For the purposes of an SBEIS the term small business is defined as a business entity that has the purpose of making a profit and has fifty or fewer employees. The agency must prepare an SBEIS when a proposed rule, or rule amendments, have the potential of placing a more than minor economic impact on business. The Guide for Facilitating Regulatory Fairness (1993) lists the minor impact costs thresholds from 50 to 288 dollars (1990 dollars) per business. These values are calculated as 0.1% of profits for a business of fifty employees. The results in Table 4 below reveal that the minor cost threshold is exceeded for the proposed changes and that an SBEIS analysis is necessary.

     Current (1999) ASC Expenditures: Table 2 below shows how L&I expenditures for ASC type services would have been grouped assuming utilization at 1999 levels and the Modified Medicare Grouping system proposed by L&I. The total expenditure for calendar year 1999 was $8.6 million.

Table 3: Summary of ASC Study Population*

Category	Total Study Population	Small Business	Large Business
Number	30	24	6
1999 expenditures/payments	$4,581,930	$3,494,420	$1,087,510
ASC employment	440	336	104
Study pop. expenditures as percent of total 1999 expenditures	53%	41%	13%
*Approximately 160 ASCs in the state (SIC 8011), 76 of which conducted business with L&I in 1999.

     The study population involved 440 ASC employees and accounted for 53% of total ASC expenditures in 1999.

     The proposed ASC fee schedule from Table 1 was applied to the ASC procedure information (1999) extracted for the study population. Under the proposed rule changes the department will pay the lessor of billed charges or the fee schedule. This means that payments that exceeded the fee schedule will be reduced to the fee schedule rate, while those below the fee schedule will be paid at the billed rate (the lessor of billed charges). The difference between the 1999 payments to ASCs (no fee schedule) and the anticipated payments to be made during each year of the fee schedule phase-in using the 1999 procedure utilization mix are shown in Table 4. The calculated net change between actual 1999 payments and the anticipated future payments represents the impact that the proposed rule could have on ASC businesses. Due to several payment policy conditions future expenditures might be slightly more or less than the anticipated expenditures given in Table 4.

Table 4: Anticipated Impact of ASC Fee Schedule on ASC Business

Year	Business Category	Actual 1999 L&I Expenditures	Anticipated L&I Expenditures	Net Change Actual to Anticipated	% Change Actual to Anticipated	Net Change per ASC FTE*	% Change per ASC FTE
2001	Small	$3,494,420	$2,906,897	-$587,524	-16.8%	-$1,749	-16.8%
	Large	$1,087,510	$931,955	-$155,554	-14.3%	-$1,503	-14.4%
	Total	$4,581,930	$3,838,852	-$743,078	-16.2%	-$1,691	-16.2%
2002	Small	$3,494,420	$2,748,360	-$746,060	-21.4%	-$2,226	-21.4%
	Large	$1,087,510	$881,877	-$205,632	-18.9%	-$1,987	-19.0%
	Total	$4,581,930	$3,630,237	-$951,692	-20.8%	-$2,169	-20.8%
2003	Small	$3,494,420	$2,549,470	-$944,950	-27.0%	-$2,810	-27.0%
	Large	$1,087,510	$806,550	-$280,960	-25.8%	-$2,715	-26.0%
	Total	$4,581,930	$3,356,020	-$1,225,910	-26.8%	-$2,787	-26.8%
						3-yr average	3-yr average
TOTAL	Small	$10,483,261	$8,204,727	-$2,278,534	-21.7%	-$2,261	-21.7%
	Large	$3,262,529	$2,620,382	-$642,147	-19.7%	-$2,068	-19.8%
	Total	$13,745,789	$10,825,109	-$2,920,681	-21.2%	-$2,216	-21.3%

     The RFA suggests that the impact of a proposed rule on large and small businesses be assessed on a per employee basis, or per one hundred dollars of sales. We expressed the impact on large and small ASCs in an analogous manner: A percent decrease in L&I expenditures or payments to ASCs, similar to an impact per 100 dollars of sales, and a decrease in L&I revenue per ASC employee. While some ASC businesses may be impacted more than others the results in Table 4 reveal that the maximum impact of the proposed changes on large and small business categories will be roughly the same. The three-year average annual change for small business was $2,261 per ASC employee, versus an average annual change for large business of $2,068. While the payment reduction appears to be slightly greater (10% or $193/year) for the small business category, statistical analysis of these two results shows that the changes for both business size categories are indistinguishable. Calculation of the 95% confidence intervals around the two average annual values presented above results in upper and lower confidence intervals of $2,902 and $1,622 for the small business average and $3,050 and $1,065 for the large business average. This analysis indicates that the two average annual values ($2,261 and $2,068) cannot reasonably be interpreted as statistically different.

     Conclusions: The results shown in the previous sections indicate that the anticipated compliance costs for the proposed ASC rule change will impose a more than minor impact on businesses and that an SBEIS analysis is required. The SBEIS analysis reveals a maximum annual reduction in ASC expenditures of $2,068 per ASC employee for large businesses and $2,261 per ASC employee for small businesses. In addition a statistical analysis reveals that the impacts of the proposed ASC rule changes are essentially the same for large and small business categories. The department concludes that the proposed changes will not have a disproportionate impact on small ASC businesses, and that mitigation steps are not necessary.

     A copy of the statement may be obtained by writing to Greg Nothstein, Office of Legislative Liaison, Department of Labor and Industries, P.O. Box 44001, Olympia, WA 98504-4001, phone (360) 902-6805, fax (360) 902-4202.

     RCW 34.05.328 applies to this rule adoption. This is a new rule which makes significant changes to a current department policy.

     Hearing Location: Department of Labor and Industries, 7273 Linderson Way, Tumwater, WA 98501, on August 21, 2001, at 2:00 p.m.

     Assistance for Persons with Disabilities: Contact Anaya Balter by August 14, 2001, TDD 1-800-833-6388, or (360) 902-5021, or e-mail bala235@lni.wa.gov.

     Submit Written Comments to: Anaya Balter, Department of Labor and Industries, Health Services Analysis, P.O. Box 44322, Olympia, WA 98504-4322, e-mail bala235@lni.wa.gov, fax (360) 902-4249, by August 28, 2001.

     Date of Intended Adoption: October 1, 2001 (effective date January 1, 2002).

July 5, 2001

Gary Moore

Director

OTS-4934.1

     An ambulatory surgery center is an outpatient facility where surgical services are provided and that meets the following three requirements:

     (1) Must be licensed by the state(s) in which it operates, unless that state does not require licensure.

     (2) Must have at least one of the following credentials:

     (a) Medicare Certification; or

     (b) Accreditation by a nationally recognized agency acknowledged by the Health Care Financing Administration (HCFA).

     (3) Must have an active provider account with the department of labor and industries.

Note:

A provider account application may be obtained from Department of Labor & Industries, Provider Accounts, P.O. Box 44261, Olympia, WA 98504-4261, 360-902-5140. A copy can also be obtained online at www.wa.gov/lni.

[]

Note:

Copies of billing manuals, billing instructions and the Medical Aid Rules and Fee Schedule may be obtained from Department of Labor & Industries, Warehouse, P.O. Box 44843, Olympia, WA 98504-4843 or 360-902-5754. The Medical Aid Rules and Fee Schedule may also be viewed online at www.wa.gov/lni.

[]

     The department will allow some procedures to be covered in an outpatient setting that HCFA only covers in an inpatient setting. The department will cover these procedures in an ambulatory surgery center if the following criteria are met:

     (1) The surgeon deems that it is safe and appropriate to perform such a procedure in an outpatient setting; and

     (2) The procedure meets the department's utilization review requirements.

     Procedures that are safely performed in an office setting will not be covered in an ambulatory surgery center.

     All procedures allowed in an ambulatory surgery center are listed in the Medical Aid Rules and Fee Schedule, Ambulatory Surgery Center Payment Policies section.

Notes:	For information on the utilization review program please see the following:
	WAC 296-20-024 for utilization management authority.
	WAC 296-20-01002 for definition of utilization review.
	WAC 296-20-02700 through 296-20-03002 for medical coverage policies.
	Provider bulletins describing the utilization review program.
	These may be viewed online at www.wa.gov/lni.

[]

[]

[]

© Washington State Code Reviser's Office