CMS rulings on inpatient surgery: Better for physicians and patients?

By Naveed Saleh, MD, MS | Fact-checked by Barbara Bekiesz
Published June 13, 2022

Key Takeaways

  • The Inpatient Only (IPO) list was on its way out at the Centers for Medicare and Medicaid Services (CMS). This proposed change was supposed to make the landscape more efficient, flexible, and competitive, with ambulatory surgery centers (ASCs) hosting more procedures covered by CMS.

  • CMS quickly changed course and brought the IPO list back after announcing plans to phase it out, citing stakeholder backlash as a reason. The Two-Midnight rule is also back on, with medical review needed for all surgeries on the IPO list.

  • ASCs, which were anticipating a financial boon, now have to reassess their business models.

Wondering which Medicare/Medicaid patients should receive inpatient surgery or receive surgery in an ambulatory surgery center (ASC) instead? You’re not alone.

It’s been a confusing year of flip-flops at the Centers for Medicare & Medicaid Services (CMS).

The implications of contrary policy changes are significant regarding how CMS covers surgery, and warrant closer analysis.

Inpatient Only (IPO) list

CMS has adhered to the Inpatient Only (IPO) list from the outset of the Outpatient Prospective Payment System. The IPO list includes procedures that CMS will pay for only if done in an inpatient setting due to their complexity.

In calendar year (CY) 2021, CMS finalized a policy to phase out the IPO list over a 3-year period, with 298 services on this list to be jettisoned during the first elimination phase. Apparently, stakeholders were displeased with this change.

“CMS received a large number of stakeholder comments throughout the CY 2021 rulemaking cycle and following issuance of the final rule with comment period that opposed the elimination of the IPO list primarily due to patient safety concerns, stating that the IPO list serves as an important programmatic safeguard,” CMS wrote.[]

Reversal of phase-out

In an unprecedented move, CMS decided to walk back its plans to phase out the IPO list.

As of November 2021, it was finalizing a proposal to halt elimination of the IPO list, adding back services removed in 2021 sans CPT codes 22630 (lumbar spine fusion), 23472 (reconstruct shoulder joint), and 27702 (reconstruct ankle joint), as well as the corresponding anesthesia codes.

CMS’s explanation: “This change in policy promotes transparency and ensures that any service removed from the IPO list has been reviewed against Medicare’s long standing IPO list criteria to determine if it is appropriate for Medicare to pay for the provision of the service in the outpatient setting.”

Two-Midnight rule

In 2013, CMS enacted the Two-Midnight rule, which offers higher-reimbursed inpatient payment for care expected to span 2 or more midnights. If less time is required, the stay should be classified as an observation stay.

With the phasing out of the IPO list, the procedures on this list removed after January 1, 2021, would be exempt from the Two-Midnight rule’s medical review component.

Now that the IPO list has risen from the dead, the Two-Midnight rule medical review will also be resurrected.

Implications of IPO changes

The scope of the IPO list’s proposed elimination was large. Starting on January 1, 2022, 298 services would be removed, with an additional 1,500 surgeries forthcoming.

CMS initially promoted the move as cost-saving and more flexible for physicians and patients. It would also bolster competition between hospitals and ASCs.

According to an article published in Health Affairs Forefront, the move away from the IPO list allowed for surgeries to be performed in settings without infectious disease (eg, COVID), and it legitimized ASCs as a good option for low-risk surgery.[]

The move to reinstate the IPO list puts ASCs in a bind, with these organizations having to reconsider their operations and business models.[]

The reversal also reinstates the medical review inherent in the Two-Midnight rule. And, according to research, the Two-Midnight rule hasn’t been all that effective.

A Health Affairs study reported that the Two-Midnight Rule has been a burden for hospitals tasked with making status determinations about how long a patient should stay after surgery.[]

Although inappropriate short inpatient stays initially dropped by two stays per 1,000 beneficiaries, and more appropriate short outpatient stays went up by 1.8 stays per 1,000, these improvements plateaued.

"Given the steady state and ongoing administrative resources needed, it is time to reconsider the value of status determination required by the Two-Midnight rule. "

Poon, et al.

What this means for you

With the anticipated phasing out of the IPO list, CMS made a big change but quickly reversed it before it could be enacted, citing public backlash. Doctors who may think that an increasing number of surgeries involving Medicare/Medicaid patients will be covered may be in for a surprise and should advise patients to expect inpatient stays for many interventions. Also keep in mind that medical review is still in place for the Two-Midnight rule.

Related: Upcoming CMS changes that could hit physicians’ wallets

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