Medicare's facility payment rates for an ambulatory surgical procedure differ among settings. These differences raise questions about how Medicare should pay for the same procedure in various settings. In exploring this issue, it is important to look at whether the type of patients treated varies by setting. The recent growth in specialty facilities offers another reason to analyze the mix of patients. This study compares the medical complexity of Medicare beneficiaries treated in ambulatory surgical centers (ASCs) and outpatient departments. Outpatient departments treat beneficiaries who are more medically complex, so ASCs might incur lower costs when providing similar procedures.

This paper looks at whether physicians' investment in heart hospitals during 1997-2001 was followed by an increase in the number of relatively profitable cardiac surgeries paid for by Medicare or in a shift toward operating on healthier (more profitable) Medicare patients. Although markets with physician-owned hospitals had slightly above-average growth rates in profitable cardiac surgeries during this period, the magnitude of the increase was small and statistically significant only for bypass surgery. There was no increase in the proportion of surgeries performed on healthier patients. These findings contrast with earlier studies of less-invasive services such as diagnostic imaging.

This paper describes the rapid growth of imaging services in Medicare and recent changes in how Medicare pays for these services. Certain imaging services may still be overvalued because the Centers for Medicare and Medicaid Services (CMS) uses assumptions for calculating imaging equipment costs that may be inaccurate and uses newer practice-cost data for some, but not all, specialties. In addition, the CMS's method of adjusting for geographic differences in input prices may overpay for imaging services in high-cost areas and underpay in low-cost areas. We explore issues related to improving the accuracy of imaging payments.

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