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Increasing Choice and Site Neutrality: CMS Finalizes Elimination of Inpatient Only List and Modifications to ASC Covered Procedures List

Payment Matters – Supplemental Edition
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On December 2, 2020, CMS issued a Final Rule finalizing revisions to the Medicare Hospital Outpatient Prospective Payment System (OPPS) and the Medicare Ambulatory Surgical Center (ASC) payment system for Calendar Year (CY) 2021. Among other policies addressed in the rulemaking, CMS finalized its proposals to eliminate the Inpatient Only (IPO) list over a three-year transitional period, phase out the list completely by CY 2024, add new surgical procedures to the list of covered procedures in an ASC, and revise the process to add to the list of ASC covered procedures (see Baker Donelson analysis of proposals here).

CMS explains that these changes are meant to ease regulatory burdens so that hospitals and ASCs can operate with increased flexibility as well as to permit patients to be more active healthcare consumers and allow physicians to make determinations as to the appropriate site of care for beneficiaries. The changes could result in a shift in the provision of key surgical procedures, including total hip replacements, from the hospital setting to ASCs. The Final Rule is expected to be published in the Federal Register on December 29, 2020 and is effective January 1, 2021.

Elimination of IPO List

As proposed, CMS is eliminating the IPO list over the course of a three-year transition, beginning with the removal of approximately 300 musculoskeletal-related services, with the list eliminated in its entirety by CY 2024. The 300 services consist of 266 musculoskeletal-related services, 16 related anesthesia codes that are billed with services that were proposed to be removed from the IPO list for CY 2021, and 16 additional procedures recommended by the Advisory Panel on Hospital Outpatient Payment (HOP) Panel.

CMS emphasizes that the removal of a service from the IPO list does not require the service to be performed only on an outpatient basis; instead, it allows for payment under the OPPS when the service is performed on a registered hospital outpatient. The service could also still be performed on individuals who are admitted as inpatients. CMS acknowledges commenters' concerns regarding the elimination of the IPO list and the potential for safety risks for Medicare beneficiaries, but the agency notes that it continues to believe that physicians will use their clinical knowledge and judgment to appropriately determine whether a procedure can be performed in a hospital outpatient setting or whether inpatient care is required for the beneficiary based on the beneficiary's specific needs and preferences, subject to the general coverage rules requiring that any procedure be reasonable and necessary. CMS instructs that the following considerations safeguard the physician's assessment of the risk of the procedure or service to the individual beneficiary and their selection of the most appropriate setting of care based on this risk:

  • An acknowledgement of the evolving nature of the practice of medicine, which has allowed more procedures to be performed on an outpatient basis with a shorter recovery time;
  • Physician judgment;
  • State and local licensure requirements;
  • Accreditation requirements;
  • Hospital conditions of participation (CoPs);
  • Medical malpractice laws; and
  • CMS quality and monitoring initiatives and programs.

CMS asserts that the elimination of the IPO list is meant to offer providers enhanced flexibility and choice in determining the safest, most efficient setting of care for Medicare beneficiaries.

Exemption from Specific Denials and Audits

Beginning on January 1, 2021, CMS will exempt procedures that are removed from the IPO list from the following types of denials and audits:

  • Site-of-service claim denials under Medicare Part A;
  • Beneficiary and Family-Centered Care Quality Improvement Organization (BFCC-QIO) referrals to the Recovery Audit Contractor (RAC) for persistent non-compliance with the two-midnight rule; and
  • RAC reviews for "patient status" (site-of-service)

CMS is permitting this exemption to continue indefinitely until there is data that the procedure removed is "more commonly performed" in the outpatient setting than in the inpatient setting; "more commonly performed" is defined as being performed more than 50 percent of the time in the outpatient setting. This indefinite exemption will continue until terminated in future rulemaking and will only apply to procedures removed from the IPO list on or after January 1, 2021. In explaining its rationale for the indefinite exemption, CMS posits that providers might be anxious about balancing a new landscape for services with their concerns about claim denials or RAC referrals. However, CMS notes that the BFCC-QIOs will continue to review claims in order to provide education for practitioners and providers regarding compliance with the two-midnight rule. And, CMS will still maintain the ability to conduct medical reviews where there is evidence of systematic fraud or abuse.

Application of Two-Midnight Rule to Services Eliminated from IPO List

For services removed from the IPO list, CMS will continue to apply the two-midnight rule (which includes both the two-midnight benchmark and two-midnight presumption) or case-by-case exceptions under 42 C.F.R. § 412.3(d)(3). The two-midnight benchmark provides that an inpatient admission will be considered reasonable and necessary for Medicare Part A payment when the physician expects the patient to require hospital care that crosses at least two midnights and admits the patient to the hospital based upon that expectation. The two-midnight presumption is a separate medical review policy whereby inpatient hospital claims with lengths of stay longer than two midnights are presumed to be appropriate for Medicare Part A payment, absent evidence of systematic gaming, abuse, or delays in the provision of care.

CMS asserts that providers retain the flexibility to provide services no longer included on the IPO list in the inpatient setting and that these services would remain payable under Medicare Part A when appropriate in accordance with the two-midnight rule and general coverage rules. Specifically, CMS explains that procedures may still be provided in either the inpatient or outpatient setting. In response to commenters concerned about the impact of the elimination of the IPO list on the three-day stay requirement for skilled nursing facility (SNF) care (pursuant to section 1861(i) of the Social Security Act, beneficiaries must have a prior inpatient hospital stay of no fewer than three consecutive days to be eligible for Medicare coverage of inpatient SNF care), CMS believes that many beneficiaries identified as appropriate candidates to receive a surgical procedure in the outpatient setting instead of being admitted as an inpatient would not be expected to require SNF care following surgery.

CMS believes that the two-midnight benchmark provides "clear" guidance on when a hospital inpatient admission is appropriate for Medicare Part A payment, while respecting the role of physician judgment. CMS lists the following criteria as relevant to determine whether an inpatient admission with an expected length of stay of less than two midnights is nonetheless appropriate for Medicare Part A payment:

  • Complex medical factors such as history and comorbidities;
  • Severity of signs and symptoms;
  • Current medical needs; and
  • Risk of an adverse event.

CMS explains that the exceptions for procedures on the IPO list were for "rare and unusual" circumstances designated by CMS as national exceptions; it was expected that the medical reviewer's clinical judgment involved a synthesis of all submitted medical record information (e.g., progress notes, diagnostic findings, medications, nursing notes, and other supporting documentation) to make an independent medical review determination. To be certain, CMS expressly indicates that providers are expected to bill in compliance with the two-midnight rule even if the procedure is exempt from medical review activities.

Additions to ASC Covered Procedures List

Under the Final Rule, CMS finalizes its proposals to cover additional surgical procedures in ASCs, both through a routine update to the ASC covered procedures list (CPL) as well as through changes to the process for adding new procedures to the CPL. CMS pointed to changes in clinical practice and medical advancements to justify the expansion of covered surgical procedures, acknowledging that ASCs can safely provide a greater range of services than previously was the case. CMS also highlighted the fact that beneficiaries can pay lower out-of-pocket costs in an ASC, as compared to a hospital outpatient department (HOPD). In addition, CMS pointed to the COVID-19 pandemic and its impact on ASCs, with ASCs temporarily closing or scaling back operations, and the need to create increased options for beneficiaries to access care.

Eleven New Procedures, Including Total Hip Replacements

CMS finalized its proposal to add 11 procedures to the ASC CPL for CY 2021 using the agency's standard review process. Current regulations, at 42 C.F.R. § 416.166(b), require covered surgical procedures to be those: (1) that are separately paid under OPPS, (2) would not be expected to pose a significant safety risk to a Medicare beneficiary when performed in an ASC, and (3) for which standard medical practice dictates that the beneficiary would not typically be expected to require active medical monitoring and care at midnight following the procedure. Regulations also require that a procedure not be excluded under criteria outlined in 42 C.F.R. § 416.166(c).

The 11 new procedures that CMS finds meet the current regulatory criteria include total hip arthroplasty (THA) (total hip replacements), vaginal colpopexy, transcervical uterine fibroid ablation, and intravascular lithotripsy procedures, among other procedures. CMS indicated that, based on its review of the 11 new procedures using the safety criteria included in the ASC CPL regulations, CMS determined that the procedures can be safety performed in the ASC setting. Further, CMS specified that physicians should determine whether a beneficiary should undergo one of the procedures in an ASC versus a hospital setting.

Discussion in the preamble to the Final Rule included a focus on the proposal to add THA to the CPL (CPT 27130). Some commenters indicated that physicians can safely perform THA in the ASC setting and patients do not require active medical monitoring. Other commenters opposed adding THA to the CPL, raising concerns over patient safety and a potential to increase beneficiary out-of-pocket costs, given that cost-sharing for THA in the ASC could exceed cost-sharing when the procedure is provided in an HOPD because, unlike in the HOPD setting, ASC cost-sharing is not capped at the inpatient deductible.

In response, CMS acknowledged the risk of beneficiaries facing higher out-of-pocket costs in the ASC setting, noting that this risk could apply to other procedures as well, not just THA. In addition, CMS highlighted the agency's Outpatient Procedure Price Lookup tool, which beneficiaries can use to compare cost-sharing obligations for procedures performed in different settings. CMS also indicated the agency does not believe concerns related to beneficiary safety warrant a delay in adding THA or the other new procedures to the CPL.

New Process to Identify ASC Covered Procedures

In the Proposed Rule, CMS put forward two alternative policies to revise the procedures CMS uses to identify new ASC covered procedures. CMS is finalizing elements of both alternative policies. The Final Rule revises the ASC CPL regulations (42 C.F.R. § 416.166) to maintain the current, general standard criteria for adding new procedures and to eliminate five general exclusion criteria. The five exclusion criteria that will be removed include the current requirements that covered surgical procedures not include those surgical procedures that:

  1. Generally result in extensive blood loss;
  2. Require major or prolonged invasion of body cavities;
  3. Directly involve major blood vessels;
  4. Are generally emergent or life-threatening in nature; or
  5. Commonly require systemic thrombolytic therapy.

Based on the changes to the regulatory criteria, with the above five exclusion criteria no longer included in the regulations, CMS has identified 267 procedures that CMS will add to the ASC CPL for 2021.

CMS believes the five exclusion criteria are no longer necessary for CMS to consider in determining whether to add procedures to the CPL given the medical advances that make providing services in ASCs safer. However, CMS recognizes that physicians should consider certain safety factors when determining the appropriate site of care for patients. As such, although CMS will no longer use the five above exclusion criteria when determining new procedures to add to the CPL, CMS is adding a new regulatory provision that will include the five criteria for physicians to consider in determining the most appropriate site of care for patients.

CMS is also creating a new regulatory provision directing physicians to consider whether a surgical procedure would pose a significant safety risk for a specific beneficiary or is a procedure for which a beneficiary would require active medical monitoring and care at midnight following the procedure. The regulations previously directed CMS to take these considerations into account when deciding to add new procedures to the CPL. Moving forward, physicians will take these considerations into account instead of CMS.

Further, CMS is finalizing a process for CMS to add new procedures to the CPL based on feedback from the public. CMS proposed to allow external stakeholders to nominate procedures to be added to the ASC CPL through the annual rulemaking process. CMS would have solicited recommendations from medical specialty societies and other external stakeholders.

Instead of adopting a nominations process, CMS is adding a new regulatory provision through which the Medicare program will cover new surgical procedures in ASCs either based on the agency's own determination that a new procedure meets the regulatory criteria for a procedure to be added to the CPL or based on a notification from the public of a new procedure that a stakeholder believes meets the criteria to be added. CMS will allow stakeholders to notify CMS of new procedures at any time, and CMS will confirm whether the procedure meets the regulatory criteria. If CMS adds the procedure to the CPL, physicians will then make their own determinations as to whether a patient should receive the procedure in the ASC setting, based on the new regulatory considerations for physicians.

Key Takeaways

CMS expects that the elimination of the IPO list will cause the volume of services currently performed in the inpatient setting to gradually shift as physicians and providers gain experience furnishing more services in hospital outpatient departments. The fact that CMS has agreed to indefinitely exempt site-of-service claim denials under Part A, BFCC-QIO referrals to the RACs for persistent non-compliance with the two-midnight rule, and RAC reviews for patient status (site-of-service), offers some assurances with respect to auditing activity. However, there will certainly be an increased reliance on the two-midnight rule and on physicians to exercise their complex medical judgment to determine the appropriate setting on a case-by-case basis, whether that be as an inpatient or on an outpatient basis. Further, it is unclear whether beneficiaries undergoing certain procedures as an outpatient instead of an inpatient would really not require post-operative SNF care, as CMS predicts.

The changes to the ASC CPL and process for adding new procedures to the list will also have significant implications for health care providers and beneficiaries. The revisions to the regulatory criteria used to determine new procedures to add to the CPL will shift key patient safety considerations from CMS to physicians. Allowing physicians and patients to choose ASCs as their preferred site of care could lead to shifts in the provision of key surgical procedures, including total hip replacements, from the hospital setting to ASCs. However, although CMS has added a significant number of new procedures to the list of services covered in an ASC, whether a beneficiary will ultimately receive a covered service in an ASC instead of a hospital setting will depend on whether a physician concludes the ASC is an appropriate setting based on the new regulatory criteria. It will be important for physicians to carefully document in a patient's medical record the consideration of the regulatory safety criteria and the decision-making process behind a determination to provide a covered service in an ASC setting.

The elimination of the IPO list and new procedures being permitted in ASCs may have unintended consequences on fraud and abuse protections for physician-owned ASCs. The ASC safe harbor establishes different tests for surgeon-owned/single-specialty ASCs as well as multi-specialty ASCs. The focus of these tests is on "procedures" which are defined as "any procedure or procedures on the list of Medicare-covered procedures for ambulatory surgical centers…." 42 C.F.R. 1001.952(r). The expansion of what constitutes a "procedure" should allow more physicians to hold ownership interests in surgeon-owned/single-specialty ASCs because the test for these ASCs is whether one-third of the physician's medical practice income is from performing "procedures" that may be performed in an ASC. For multi-specialty ASCs, the impact is less certain. Physician investors in multi-specialty ASCs must perform one-third of the "procedures" that can be performed in an ASC in the investment ASC. Given the shift to more of a case-by-case assessment of whether a particular procedure is appropriate for an ASC, it may become quite challenging for ASCs to determine whether a physician is satisfying this one-third procedure test.

For further information, please contact Deborah Samenow, Jeff Davis, or any member of Baker Donelson's Reimbursement Team.

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