Death of the Inpatient-Only List is NOT the Death of Medical Necessity

The Medicare IPO list was doomed years ago.

For readers of and listeners to RACmonitor and Monitor Mondays, overthinking things is what we do. It’s the only explanation for our hand-wringing over the death of the Medicare inpatient-only (IPO) list. 

To be clear, ending the IPO list is completely about spending less money. The last presidential administration made it remarkably clear: the goal is to push procedures out of hospitals, where costs are higher, to lower-cost venues, under the banner of “price transparency” and safety, although the latter is spectacular in its unexplained logic. 

In the managed care arena, this has been years in the making. Plans always had their own dwindling IPO lists. Because of this, InterQual’s IPO list is divided into procedures that are “appropriate” for inpatient admission, based on InterQual criteria, and others considered appropriate, but for which there are no specific criteria sets. Support for inpatient admission is conditional, conditioned on what else is going on with the patient, not just the procedure.

There are ways for the good guys – us, of course – to come out OK, and not on a technicality, either, but because we earned it. You see, there is still the medical necessity matter. No overthinking required, it’s very simple. 

Because corollaries are helpful, consider MS-DRGs. Instituting the MS-DRG system was as big of a sea change as ending the IPO list. For those who only know the current DRG system, here is a quick history lesson. A community hospital could admit a patient with, say, community-acquired pneumonia. Treatment and recovery followed a predictable course. But there were patients who, because of unstable co-morbidities, required much more resource-intensive management. The same DRG was paid to both. Tertiary hospitals felt cheated (they were), because many of those complex patients were transferred from community hospitals for a higher level of care. MS-DRGs took this into account, allowing for complex care, as captured in the physician documentation, to increase reimbursement for a given DRG. The system was built to be budget-neutral, meaning the money to pay for complex care came out of the reimbursements to community hospitals. 

But that’s not the end of the story. I worked at one of those small community hospitals. Seeing that it might become hard for my employer to meet my bloated salary, I got together with the coder (a very good coder) to see how we would capture some of the money intended for the big guys, cutting our losses. After understanding the necessary elements, we went to medical staff with clinical documentation improvement recommendations. (Did I mention this was a physician-owned hospital?  Think what you will, but that environment is the perfect incubator for innovation, because it’s always about the money, people.) Our reimbursements did not hold at pre-MS-DRG levels. They went up, a lot. Through the clinical documentation, we proved we deserved the money, playing completely by the rules.

There’s one more thing. Transfer DRG expansion has been chipping away at the IPO list’s financial benefits for years anyway. Our friend Dr. Ronald Hirsch has laid out more than once how to make as much from one admission status as another, depending on how you leverage the coverage benefits. I recommend folks read his excellent reporting on the subject from a couple years back.  

Now, here are three simple steps to thrive in the post-IPO list world:

• If it’s an OP procedure, control your costs. If a stay goes overnight, don’t assume you are entitled to get more money for post-op observation. Physician practice patterns are what they are. Most orthopedic surgeons, for example, still like having their patients stay overnight. If not for that, those hip and knee replacements would be done at an ambulatory surgical center (ASC).
• Nobody cares about ASA risk factors. Potential instability doesn’t matter to payors. What matters is actual instability resulting from those risk factors. Did the patient’s chronic kidney disease slow recovery? Was there a complication directly or indirectly related to the surgery (bleeding, infection, or pain)?
• If the answer is yes, will the instability resolve within 24 hours? If yes, consider placing the patient in observation. Is the instability significant enough that the stay will last two midnights or longer? If yes, consider inpatient admission.

Coming back to my first point about InterQual’s take on the IPO list and my corollary example of MS-DRGs: rising to the level of inpatient admission for a surgical procedure is conditioned on proving old-fashioned medical necessity. The question that must be asked is: how well does the clinical documentation describe the severity of post-op instability and the expenditure of resources – (InterQual’s “Intensity of Service”)?

The Medicare IPO list was doomed years ago. Transfer DRGs already saw to that. Medical necessity has always been what must be proven. Doing that is the only way to overcome the financial implications of the death of the IPO list.