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The Next Volley in Site Neutrality: Elimination of Inpatient-Only Procedures

By Kimberly A. Hoy JD CPC  
   October 22, 2020

The shift in volume to ambulatory surgery centers will put pressure on outpatient hospital revenue, but the type of patients moving to ASCs is likely to be the bigger issue. 

This article appears in the September/October 2020 edition of HealthLeaders magazine.

CMS is proposing to eliminate the inpatient-only (IPO) procedure list in the outpatient prospective payment system update for FY2021. CMS' rationale for this proposal is to give patients and physicians more control over the setting and costs of procedures, but in fact, this sets the stage for more procedures to be moved to ambulatory surgery centers (ASC).

The proposal is likely to move volume from the inpatient setting to the outpatient setting, potentially cutting revenue, and shift lower-cost patients to ASCs, further eroding outpatient hospital department margins.

The IPO list is a list of procedures Medicare considers appropriate for inpatient admission regardless of length of stay.

CMS is proposing to eliminate this list over the course of three years, starting with 266 musculoskeletal procedures in 2021. This will not require the procedures to be performed on an outpatient basis, but allows them to be provided in the outpatient setting for clinically appropriate patients. 

CMS has previously stated they do not expect large volume shifts when procedures are removed from the IPO list, but past experience with total knee and hip arthroplasty has shown big swings in volume for some facilities as well as confusion regarding the correct status for patients.

This shift from inpatient to outpatient can erode revenue for these procedures, sometimes leaving them significantly underpaid.

Elimination of the IPO list is part of CMS' site neutrality initiative that has already cut into outpatient hospital revenues with policies that encourage volume to move to freestanding settings.

Procedures removed from the IPO list may be added to the ASC covered procedure list. In a separate section of the rule, CMS proposes adding 11 procedures to the ASC approved list for 2021, including total hip arthroplasty. This follows the addition of total knee arthroplasty and several cardiovascular procedures this year. 

The shift in volume to ASCs will put pressure on outpatient hospital revenue, but the type of patients moving to ASCs is likely to be the bigger issue.

CMS acknowledges only the least complex patients will be appropriate for the ASC environment, leaving the more complex and sicker patients for the hospital outpatient departments.

As ASCs siphon off the less acute patients and the acuity of patients in hospital outpatient departments rises, costs will also be driven up. But the payment system will lag behind because rates are based on cost data from two years prior. Not only will hospitals potentially lose volume to the ASCs over time, but the volume they retain will be more costly while payments will not keep up. 

If they haven’t done so already, now is the time for hospital executives to explore service delivery in freestanding settings.

These settings, such as ASCs and freestanding clinics, are generally less regulated, less expensive to operate, and are able to provide more and more profitable procedures. Instead of fighting site neutrality, it may be time to start finding the advantages in it.

Kimberly A. Hoy, JD, CPC, is the director of Medicare and compliance for HCPro, a division of Simplify Compliance. 

Photo credit: Sturti/

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