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The IPO list is gone: What you need to know about the 2021 Outpatient Final Rule

December 3, 2020

    by Shay Pratt, Rob Lazerow, Eric Fontana, and Lauren Robinson

    On Wednesday, CMS released the finalized rules for hospital outpatient departments (HOPDs) and ambulatory surgical centers (ASCs) for calendar year (CY) 2021. While our team continues to analyze the rules—especially the impact of eliminating the Inpatient Only List (IPO)—here are our three initial takeaways.

    1. CMS continues the trend of elevated payment rate updates

    CMS' final rule will increase hospital outpatient payments by 2.4%, a -0.2-percentage point reduction from the proposed rule update of 2.6%. CMS estimates that total payments for providers will increase by $7.541 billion compared to CY 2020 for a total of $83.888 billion in CY 2021.

    HOPPS rule image

    Overall, CMS is continuing the recent trend of healthy payment updates—especially compared to the years that included the Affordable Care Act's productivity adjustments—and the agency does not appear to be eying providers' reimbursement rates as the primary mechanism to control spending at this point. Following the trend from CY 2020, the final outpatient update for 2021 is 0.5 percentage points lower than the inpatient update—2.9% for inpatient care versus 2.4% for outpatient care. Given the rapid growth of outpatient care (further fueled by the site-of-care shifts we'll discuss momentarily) leaders will need to monitor these growth rates for any signs of further divergence in the future.

    2. CMS is accelerating site-of-care shifts

    Finalized elimination of inpatient-only (IPO) List

    CMS' finalized proposal to eliminate the IPO list over three years represents a continuance of a broader trend in rule-making across the last decade to shift care to lower cost sites. CMS finalized the change despite an onslaught of criticism from the American Hospital Association (AHA) that cited the initiative as a threat to patient safety and hospital finances. This rule will phase out the IPO list, which consists of 1,740 services, by 2024, beginning with the removal of 266 musculoskeletal-related services in CY 2021. CMS sided with past commenters who suggested physicians should use their own clinical expertise to determine the appropriate setting for services, rendering the IPO list unnecessary.

    Our data and analytics team has modeled the financial implications of this move, and we will provide a more detailed analysis in coming weeks. While elimination of the IPO list chips away at the site-of-care protections hospitals have traditionally enjoyed, we expect this rule to affect pricing more than volume, particularly if outpatient price growth continues to lag behind inpatient price growth moving forward. For volume risks, leaders should monitor additions to the ASC covered procedures list, which allows shifts away from the hospital altogether.

    Beyond the reimbursement reductions themselves, eliminating the IPO list will have several other implications that are worth considering:

    • Likelihood of greater audit scrutiny downstream as "IPO" is no longer standard for certain procedures;
    • Increased administrative requirements for documentation to support inpatient level care;
    • Potential for further site shifts and per-case revenue reductions if commercial payers or Medicare Advantage plans follow suit; and
    • Required updates and adjustments to billing systems.

    One key difference in the final rule was a shift from a guaranteed two-year exemption from certain medical review activities for procedures newly removed from the IPO list, to a much looser "indefinite" exemption period. All procedures that came off the IPO List prior to CY 2021 will maintain that two-year exemption, as finalized in prior rules. However, for all code removals going forward, the exemption will be "indefinite," until CMS has enough data to conform that 50% of volumes for a given procedure were performed in the outpatient setting. CMS will then revisit, in rulemaking, whether and when an exemption for a procedure should end. This modification will allow providers more time to adjust billing Medicare for newly allowed services in the outpatient setting. Keep in mind that Beneficiary and Family-Centered Care Quality Improvement Organization (BFCC-QIO) will still have the opportunity to review exempted claims for educational purposes, but claims identified as noncompliant will not be denied. After the grace period has elapsed for each service, thorough documentation of clinical necessity will be the only backstop against claim denials for short-stay inpatient cases due to "two-midnight" rule compliance.

    Eleven procedures added to ASC-CPL, including THA

    CMS also finalized the proposal to add eleven procedures to the ASC covered procedures list (CPL), including total hip arthroplasty (THA). With THA and TKA now both reimbursed in ASCs individual surgeons can perform many more joint replacement cases outside of the hospital setting. As a result, hospitals should consider their joint replacement volumes at risk of outmigration, and should develop scenario plans and action steps for current and future ASC activity in their markets.

    Outpatient total joint replacement (TJR) shift calculator

    3. CMS scaled back additional 340B cuts and held current levels steady

    340B eligible hospitals continue to challenge existing reimbursement cuts with limited success. On October 19, the U.S. Court of Appeals for the District of Columbia denied the request to reassess a 2-1 decision that upheld the cuts in July 2020. Although the American Hospital Association is considering a Supreme Court petition, this decision effectively preserves the existing cuts for the foreseeable future. In the final CY 2021 rule, CMS scaled back their proposal to increase cuts to 340B reimbursed drugs to average sales price (ASP) -28.7% and finalized maintaining the current ASP -22.5%. The change represents an expected drug cost savings to CMS of over $300 million in CY 2021.

    Additional changes to note

    CMS' final rule contained several other changes that hospital and health system executives should take note of, including:

    • Expanding prior authorization requirements for two additional services: cervical fusion with disc removal and implanted spinal neurostimulators to curb unnecessary utilization;
    • Approving five out of five device pass through payment applications;
    • Changes to the level of supervision for non-surgical extended duration therapeutic services, cardiac rehab, and pulmonary rehab in hospitals and critical access hospitals;
    • More changes to the overall hospital quality star rating methodology;
    • Refining hospital OQR and ASCQR program requirements to limit compliance burden (not proposing any additions or removals for either program); and
    • Creating two new C-APCs-APC 5378 (Level 8 Urology and Related Services) and C–APC 5465 (Level 5 Neurostimulator and Related Procedures) for a total of 69 C-APCs.

    Next, access the Outpatient TKA Shift Calculator


    Use the outpatient TKA shift calculator to estimate the risk of your inpatient Medicare TKA volumes shifting outpatient. The calculator provides volume and financial projections based on the national ratio of TKAs to MS-DRG 470 volumes sized to a given program, and accounts for patient complexity and common clinical exemption criteria.

    Download the Calculator

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