The Washington Compass

Despite Reinstatement of the Medicare Inpatient-Only List, Health Systems Should be Cautious of Longer-Term Implications

The start of the year typically marks the “implementation” of many health reforms. Several payment changes finalized to the Medicare program in 2021 took effect as of January 1, 2022. Among these changes is CMS’s reversal of the elimination of the Medicare inpatient-only (IPO) list through the calendar year (CY) 2022 Hospital Outpatient Prospective Payment System and Ambulatory Surgical Center (ASC) Payment System final rule. This reversal reinstates 298 procedures that are once again only reimbursed by Medicare when delivered in the inpatient setting. Patient safety and a more defined procedure removal process were cited as primary reasons for CMS’s decision to reverse elimination of the IPO list.

The IPO list reinstatement was lauded by hospital and health system associations and special interest groups, but it limits procedure types that would have become reimbursable in ASC settings. The original phased-approach elimination of the IPO list for CY 2021 would have allowed more surgical procedures to be delivered in outpatient and ambulatory settings, aligning with the broader shift from inpatient to outpatient care. Our prior research utilizing data from the Medicare Payment Advisory Commission showed that ASC growth is attributed to services that are more susceptible to consumer choice. The most common procedures (e.g., cataract surgeries) are “commodity-like” services for which Medicare is the price setter. Illustratively, in 2019, cataract surgeries accounted for 23% of surgeries delivered in ASCs, reinforcing the prevalence of commodity surgical procedures in ambulatory settings.

Understanding the most common procedures rendered from the IPO list is instrumental in assessing the downstream impacts of potential surgeries in outpatient and ambulatory settings. Thus, we analyzed the volume distribution and average Medicare payment rate for the most common procedures on the IPO list between 2019 and 2021 (inclusive of Traditional Medicare and Medicare Advantage) within inpatient settings. Nine procedures accounted for approximately 80% of the IPO list volume in each year (Figure 1). Across years, Pelvis and Hip Joint Fractures/Dislocations (37.1% in 2020), Spinal Fusions (11.7% in 2020), and Spine/Spinal Cord Surgery (11.1% in 2020) constituted the highest volume procedures. The top nine procedures (in terms of volume) have a three-year average Medicare payment rate (per procedure) ranging from $10,115 to $23,557.

Figure 1_01.05.22_TWC-2While a permanent elimination of the IPO list could have broadened the surgical procedure types delivered in outpatient and ASC settings, the reinstatement ensures certain profitable services will remain within the inpatient setting, at least for now. While securing the volumes of a handful of highly profitable procedures may appear to be a win for traditional providers in a negative-sum health economy, hospitals and health systems must consider the trade-off. Amid pandemic-induced inpatient capacity constraints, increasingly more elective surgeries and procedures will migrate to ambulatory settings.

As individuals become more accustomed to receiving care for these additional services outside of the hospital, what guarantee is there that these volumes will shift back into the hospital when the surge settles? As payers try to limit costs, will disparities in price and quality among a limited number of inpatient providers be a catalyst for payers to adopt narrow networks for the highest volume procedures, creating a “winner takes all” opportunity for the most efficient hospital in a market? The economics of higher volumes of lower charge services will inevitably surpass the gains of retaining a smaller number of highly profitable surgeries. Hospitals and health systems may have won this battle, but will they win the war?