HFMA NJ Chapter Journal: Keep Your Eye on the Ball - Fee Schedules are Missing the Mark

Dr. Ronald HirschOctober 19, 2021

Doctor with clipboard

When the Centers for Medicare & Medicaid Services (CMS) finalized the 2021 Outpatient Prospective Payment System Final Rule, they included their plan to abolish the inpatient-only list over the next four years, starting this year with the removal of all orthopedic procedures and most spine procedures. This shift of common procedures off the inpatient-only list began in 2018 when CMS removed total knee arthroplasty from the list, creating quite a bit of confusion amongst orthopedists and hospital utilization review staff.


Despite some of the early commentary, the issue with the shift of surgeries from inpatient to outpatient has nothing to do with patient safety. The surgery performed as outpatient at the hospital uses the same operating room, the same nurses, the same implants and has the same recovery as the surgery performed as inpatient. The only difference is in reimbursement. For Medicare patients, the hospital’s facility payment will be based on the outpatient Comprehensive Ambulatory Payment Classification (C-APC) instead of the Medicare Severity Diagnosis Related Grouping (MS-DRG). The payment differential can vary. The C-APC is only adjusted for the hospital’s wage index, whereas the MS-DRG payment includes indirect medical education (IME) funds, disproportionate share payment, payment for uncompensated care, and more. If the patient or surgery is part of a bundled payment program, such as Bundled Payment for Care Improvement (BPCI), their status as outpatient may make them ineligible for participation in the program, with loss of ability to share in the accrued savings.


The surgery weighting also varies between inpatient and outpatient. While CMS tries to assign surgeries to the most appropriate C-APC when they remove it from the inpatient-only list, until they receive cost reporting from hospitals, they are merely making an educated guess. For joint arthroplasties, the base C-APC and MS-DRG weights are similar but once the additions to the MS-DRG are made, the difference can be over $10,000 per case in large academic medical centers. For some spine surgeries, the weights are considerably different and the base payment rate for many common outpatient spine surgeries is over $10,000 less than inpatient
so the differential is worsened once the IME, DSH and other additions are made.


While payments for Medicare beneficiaries are set by CMS and not negotiable, the same cannot be said for almost any other payer, including Medicare Advantage plans and commercial payers. For all of these, the payment rates are set by contract negotiations between the payer and the provider. And as surgeries are shifting from the inpatient setting to outpatient, those contract negotiations become even more


Medicare Advantage and commercial payers are not obligated to follow the CMS inpatient-only list and in fact, can allow surgeries on the inpatient-only list to be done as outpatient at the hospital and at ambulatory surgery centers. Some will only allow surgery at the hospital if the patient is complex and at high risk. Some payers will use inpatient-only lists developed by commercial entities and others will develop internal lists. As a result of this, along with the increasing difficulty in getting medical patients approved for inpatient admission, it is no longer sufficient to focus contract negotiations on inpatient rates.


Every day in every hospital around the country, utilization review staff struggle getting the appropriate status determination for patients. For scheduled surgeries, the task should be relatively simple. In the perfect world, clinical information is conveyed to the payer, the payer reviews that information, determines if medical necessity is met, then provides the surgeon authorization to proceed with the surgery and provides the hospital the approved status for the patient once hospitalized. But rarely is it that easy. While Medicare allows physicians to consider the patient’s comorbidities and the complexity of the surgery in their designation of status, most payers do not and rely strictly on the expected length of the hospital stay. But even then, many payers refuse to acknowledge that some patients may require a longer stay than the average patient or to approve inpatient admission when the patient develops a complication or delayed recovery that will extend their hospital stay.


As noted above, there is no clinical difference between a surgery performed as inpatient or outpatient. And only Medicare fee-for-service patients require a 3-day inpatient stay to qualify for admission for a covered skilled nursing facility stay. That
means much of the time and effort and aggravation trying to get inpatient admission approved is done with the goal of getting the inpatient payment. Yet if you ask any utilization review staff person what the payment differential between inpatient and outpatient actually is, every one of them will tell you they do not know but assume inpatient admission pays more.


It is fair to ask if there should be a payment differential between an inpatient and an outpatient if the same surgery is being performed by the same surgeon. Medicare acknowledges that patients who are admitted as inpatient are those whose length of stay is expected to be longer or whose surgery or peri-operative care will be more complex as clearly such patients will incur higher costs and reimbursement should be higher, although they provide no explanation as to why IME is only attached to inpatient admissions since trainees also participate in the care of outpatients. Commercial insurers on the other hand generally feel the outpatient payment is adequate even for the more complex or longer length of stay patient, perhaps because they feel the majority of costs are from the time spent in the operating room and recovery room and that the extra nursing care for a more complex patient or
an extra day in a hospital bed cost relatively little, even if the cost reports do not support this.


To address this dilemma, the first step for finance professionals is to take a deep dive into your most common procedures to find out what you are actually being paid. If you have a great inpatient rate for a common surgery but the payer is always authorizing outpatient, that inpatient rate does no good. If your outpatient rate is comparable to, or even higher than, the inpatient rate, then inform your utilization review staff so they know to accept outpatient status. No sense fighting for inpatient if it will result in a lower payment. But if the outpatient rate is inadequate, it is time to talk to the payer. Likewise, parameters should be developed around the patient who requires additional time in the hospital. Those extra days add up and if the patient
is continuing to require hospital care beyond the expected recovery, as opposed to a prolonged stay for convenience, the hospital should be paid more, be it allowing a change to inpatient status or an extra per diem payment in addition to the outpatient surgery payment.


Utilization review staff cannot get water out of a rock no matter how hard they squeeze. If a payer will never authorize inpatient admission, they cannot influence the payment, but finance can. Invite them to your contract negotiations. Ask them for data. Together this shift of surgeries from inpatient to outpatient can be navigated with success.

Author Bio: Dr. Ronald Hirsch is Vice President of the Regulations and Education Group at R1 RCM Inc. Dr. Hirsch was a general internist and HIV specialist and practiced at Signature Medical Associates, a multispecialty practice located in Elgin, IL. He was Medical Director of Case Management at Sherman Hospital in Elgin, IL from 2006 to 2012, where he was Chairman of the Medical Records Committee from 1995 to 2012, and also served on the Medical Executive Committee. Dr. Hirsch is certified in Health Care Quality and Management by the American Board of Quality Assurance and Utilization Review Physicians, certified in Revenue Integrity by the National Association of Healthcare Revenue Integrity, and on the Advisory Board of the American College of Physician Advisors. He is on the editorial board of RACmonitor.com. He is the co-author of The Hospital Guide to Contemporary Utilization Review, with the third edition published in 2021.