Increasing Choice and Site Neutrality: Proposals to Eliminate Inpatient Only List and Revise Ambulatory Surgical Center Covered Procedures List

Baker Ober Health Law

Baker Ober Health Law

In an effort to provide beneficiaries with an increased choice of care and in another nod toward CMS' policy of increasing choice and its site neutrality initiative, CMS has proposed the elimination of the Inpatient Only (IPO) list over a three-year transitional period, phasing out the list completely by Calendar Year (CY) 2024 and has proposed significant additions to the surgical procedures covered in ambulatory surgical centers (ASCs). CMS proposed the changes as part of the CY 2021 Outpatient Prospective Payment System (OPPS) Proposed Rule. The proposals are part of a broader effort by CMS to increase choices for where Medicare beneficiaries may access care and to promote care in less costly settings, including ASCs.

IPO List

Historically, CMS has identified services that are typically only provided in an inpatient setting and will not pay for these services through the OPPS. The IPO list was created to identify services "that require inpatient care because of the invasive nature of the procedure, the need for at least 24 hours of postoperative recovery time, or the underlying physical condition of the patient who would require the surgery and, therefore, the service would not be paid by Medicare under the OPPS." 85 Fed. Reg. at 48908. CMS reviews the IPO list yearly to determine whether or not any services should be added or removed. Currently, there are approximately 1,740 services on the IPO list.

While some stakeholders have requested the elimination of the IPO list over the years, CMS acknowledges that other stakeholders "have suggested that when a service is removed from the IPO List, it creates an expectation among hospitals that the service must be furnished in the outpatient setting, regardless of the clinical judgment of the physician or needs of the patient." 85 Fed. Reg. at 48909. CMS explains further that some stakeholders have supported the use of the IPO list because it carves out these services from review by Beneficiary and Family Centered Care Quality Improvement Organizations (BFCC-QIOs) for site-of-service audits. CMS exempts procedures that have been removed from the IPO list from certain medical review activities for two calendar years following their removal from the IPO list. For CY 2021 and subsequent years, CMS proposes to continue this two-year exemption from site-of-service claim denials, BFCC-QIO referrals to Recovery Audit Contractors (RACs), and RAC reviews for "patient status" (site of service) for procedures that are removed from the IPO list under the OPPS beginning on January 1, 2021. CMS seeks comment on whether a two-year exemption continues to be appropriate, or if a longer or shorter period may be more warranted.

Elimination of the IPO List

CMS has concluded that it "no longer believe[s] there is a need for the IPO list in order to identify services that require inpatient care." 85 Fed. Reg. at 48909. Instead, CMS explains that the physician should use his or her clinical knowledge and judgment, together with consideration of the beneficiary's specific needs, to determine whether a procedure can be performed appropriately in a hospital outpatient setting or whether inpatient care is required for the beneficiary, subject to the general coverage rules requiring that any procedure be reasonable and necessary. CMS believes this change will ensure maximum availability of services to beneficiaries in the outpatient setting. And, CMS notes that as "medical practice continues to develop, we believe that the difference between the need for inpatient care and the appropriateness of outpatient care has become less distinct for many services." 85 Fed. Reg. at 48910. Therefore, CMS concludes that the IPO list is no longer necessary to identify services that require inpatient care.

Recognizing that providers may need time to adjust to the removal of procedures from the list, prepare and update their billing systems, and gain experience with newly removed procedures eligible to be paid under either the inpatient prospective payment system or outpatient prospective payment system, CMS has proposed eliminating the IPO list over a transitional period beginning in CY 2021, with the full list completely eliminated by January 1, 2024.

Among the reasons cited for the elimination of the IPO list, CMS includes:

  • 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 proposes to continue a two-year exemption from site-of-service claim denials for procedures that are removed from the IPO list under the OPPS beginning on January 1, 2021. CMS explains that BFCC-QIOs will continue to conduct initial medical reviews for both the medical necessity of the services and site of services, and will also continue to be permitted and expected to deny claims if the service itself is determined not to be reasonable and medically necessary as noted in the CY 2020 OPPS/ASC final rule. CMS seeks comments regarding evidence on what effect, if any, stakeholders believe eliminating the IPO list may have on the quality of care.

For CY 2021, CMS proposes that musculoskeletal services would be the first group of services that would be removed from the IPO list for service reasons, identifying 266 musculoskeletal services it proposes to remove from the IPO list for CY 2021. CMS requests comment on whether three years is an appropriate time frame for the transition, whether there are other services that would be ideal candidates for removal from the IPO list in the near term given known technological and other advances in care, and the order of removal of additional clinical families and/or specific services for each of the CY 2022 and CY 2023 rulemakings, until the IPO list is completely eliminated. CMS also seeks comment on whether it should restructure or create any new ambulatory payment classifications to allow for OPPS payment for services that are removed from the IPO list and whether any of the musculoskeletal codes proposed for removal from the IPO list for CY 2021 may meet the criteria to be added to the ASC Covered Procedures List.

Eventual Application of 2-Midnight Rule to Services Eliminated from IPO List

In light of the proposed elimination of the IPO list, CMS also proposes that any of the removed services would be subject to the 2-midnight rule (which includes both the 2-midnight benchmark and 2-midnight presumption) after two years.

The 2-midnight benchmark provides that surgical procedures, diagnostic tests, and other treatments are generally considered appropriate for inpatient hospital admission and payment under Medicare Part A when the physician expects the patient to require a stay that crosses at least two midnights and admits the patient to the hospital based upon that expectation. If a procedure was designated as an IPO, then the services would generally be appropriate for payment under Medicare Part A, regardless of the hour that the beneficiary came to the hospital or whether the beneficiary used a bed.

The 2-midnight presumption, on the other hand, is a separate medical review policy under which inpatient hospital claims with lengths of stay greater than two midnights after the formal admission following the order are presumed to be appropriate for Medicare Part A payment and are not the focus of medical review efforts, absent evidence of systematic gaming, abuse, or delays in the provision of care in an attempt to qualify for the 2-midnight presumption. For purposes of the 2-midnight presumption, the "clock" starts at the point of admission as an inpatient, whereas for the 2-midnight benchmark, the starting point is when the beneficiary begins receiving hospital care either as a registered outpatient or after inpatient admission.

CMS clarifies in the Proposed Rule that just as for services removed from the IPO list, "the elimination of the IPO list would mean that any service that was once on the IPO list would be subject to the 2-midnight benchmark and 2-midnight presumption." 85 Fed. Reg. at 48939. CMS explains:

With more services available to be paid in the hospital outpatient setting, it would be increasingly important for physicians to exercise their clinical judgment in determining the generally appropriate clinical setting for their patient to receive a procedure, whether that be as an inpatient or on an outpatient basis. Importantly, removal of a service from the IPO list has never meant that a beneficiary cannot receive the service as a hospital inpatient – as always, the physician should use his or her own complex medical judgment to determine the generally appropriate setting.

85 Fed. Reg. at 48938.

Currently, procedures removed from the IPO list are not eligible for referral to RACs for noncompliance with the 2-midnight rule within the first two calendar years of their removal from the IPO list; these procedures are also not considered by the BFCC-QIOs in determining whether a provider exhibits persistent noncompliance with the 2-midnight rule for purposes of referral to the RAC. Nor are these procedures reviewed by the RACs for "patient status." As CMS explains, during the two-year period, BFCC-QIOs have the opportunity to review these claims "in order to provide education for practitioners and providers regarding compliance with the 2-midnight rule," but BFCC-QIOs would not deny claims with respect to the site of service under Medicare Part A. 85 Fed. Reg. at 48939.

CMS believes that retaining the existing two-year exemption is appropriate but because many more services would be removed from the IPO list during the proposed transition to elimination of the list, CMS seeks comment on whether this two-year period is appropriate or whether a longer or shorter period may be more appropriate in order for providers to gain experience with applying the 2-midnight rule to these services.

Proposed Additions and Changes to the Process of Identifying ASC Covered Surgical Procedures

CMS also proposes to cover additional surgical procedures in ASCs, both through a routine update to the ASC covered procedures list (CPL) as well as through two alternative proposals that would change the process for adding new procedures to the CPL.

As required by the Medicare statute, CMS must specify surgical procedures that are appropriately performed in a hospital inpatient setting but can be safely performed in an ASC or other setting and must review and update the ASC CPL at least every two years. Under the current ASC system, implemented in 2008, CMS excludes procedures from the ASC CPL that would impose a significant safety risk in the ASC setting.

In the Proposed Rule, CMS acknowledges that ASCs can safely provide a greater range of services than previously was the case. CMS also recognizes that beneficiaries can pay lower out-of-pocket costs in an ASC, as compared to a hospital outpatient department (HOPD). As an example, CMS highlights in a fact sheet accompanying the Proposed Rule a common cataract surgery, that on average costs a beneficiary $101 when performed in an HOPD, compared to $51 in an ASC.

In addition, CMS recognizes the impact of the COVID-19 pandemic on ASCs, with ASCs temporarily closing or scaling back operations, and the need to create increased options for beneficiaries to access care. CMS believes that covering additional procedures in ASCs would increase flexibility for physicians and beneficiaries to use ASCs for care and address concerns about limited access to emergency care in HOPDs.

Proposal to Add New Procedures Under Standard Review Process

CMS proposes 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).

CMS proposes to add to the list total hip arthroplasty (THA) (total hip replacements), vaginal colpopexy, transcervical uterine fibroid ablation, and intravascular lithotripsy procedures, among other procedures.

CMS also proposes two alternative policies to further expand the services CMS will pay for in ASCs, outlined in more detail below.

First Alternative: Nomination Process to Add Procedures

CMS proposes to modify the process by which CMS will add a procedure to the ASC CPL. As part of the proposed process, external stakeholders would be able to nominate procedures to be added to the ASC CPL through the annual rulemaking process. CMS would solicit recommendations from medical specialty societies and other external stakeholders. CMS would conduct the nomination process through notice and comment rulemaking and would issue determinations in the final payment rule.

As part of the nomination process, CMS proposes to adopt parameters for stakeholders to consider and address when proposing new procedures to add to the ASC CPL. The parameters include:

  • Does the procedure involve a risk of life-threatening complications?
  • Is there a need for specialized resources, not generally available in an ASC, to mitigate the risk of one or more life-threatening complications?
  • What is the average length of time for patients to be stabilized for transport to another facility? Example: If a complication occurs, can the patient generally be stabilized in transport for at least 90 minutes?
  • Are resources and providers required for intervention generally available at nearby facilities for intervention?

Second Alternative: Broader Regulatory Approach

CMS proposes to revise 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 to 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.

CMS specifies that the five exclusion criteria may no longer be necessary in light of the increased ability of ASCs to safety provide services. Further, CMS indicates that the general standards, combined with the judgment of physicians, would be appropriate to identify procedures for the CPL that may be performed safely in an ASC

Under this proposal, CMS would add 270 potential surgery or surgery-like procedures to the ASC CPL that CMS believes would meet the revised criteria. CMS solicits feedback from stakeholders on whether CMS should revise the ASC conditions for coverage, under this alternative proposal.

Key Takeaways

The elimination of the IPO list may increase patient choice, but increased reliance on the 2-midnight rule might pose different challenges for providers; the eventual removal of the approximately 1,740 services on the IPO list means that after two years (or whatever timeframe is subsequently finalized), the BFCC-QIOs can begin to refer these procedures to the RACs for "patient status" (site of service). RACs may begin to focus attention on these services as well. In other words, auditing activity on these claims may begin after the finalized endpoint for exemption.

The question of whether a claim for a service is properly submitted as an inpatient or outpatient service is not always straightforward. CMS itself proclaims that claims submitted for payment under Part A are always subject to the "clinical judgment of the medical reviewer." 85 Fed. Reg. 48938. And, while CMS states that the 2-midnight benchmark "remain[s] an important metric to help guide when Part A payment for inpatient hospital admissions is appropriate," it also notes the importance of a physician using his or her complex medical judgment to determine the generally appropriate setting. It is unclear how long would be sufficient to "allow providers time to update their billing systems and gain experience with respect to newly removed procedures eligible to be paid under either the [Inpatient Prospective Payment System (IPPS)] or OPPS, while avoiding potential adverse site-of-service determinations." 85 Fed. Reg. 48938. Thus, while these proposed changes may help increase patient choice and provide hospitals and ASCs with an ability to operate with increased flexibility, providers may face increased scrutiny through auditing on these types of services that is bound to resume after the required pause.

The ASC PCL proposals will also have significant implications for health care providers. Changes that allow physicians and patients to choose ASCs as their preferred site of care could lead to shifts in the provision of surgical procedures from the hospital setting to ASCs. The proposal to add THA as a covered procedure in ASCs is particularly significant and continues a trend that began last year, when CMS removed THA from the IPO List. CMS specifies in the Proposed Rule that there are "at least a subset of Medicare beneficiaries who may be suitable candidates to receive THA procedures in an ASC setting based on the beneficiaries' clinical characteristics." CMS indicates that "physicians should continue to play an important role in exercising their clinical judgment when making site-of-service determinations, including for THA."

Comments may be submitted until 5:00 p.m. EST on October 5, 2020. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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