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News Alert: CMS Says OK to Admit Total Knee Replacements as Inpatient

CMS requires that all total knee replacements performed on fee-for-service Medicare beneficiaries are performed in a hospital. 

AUTHOR’S NOTE: Since the release of the 2018 Outpatient Prospective Payment System (OPPS) Final Rule, there have been many varying opinions on how to determine the proper status for patients undergoing total knee replacement. This article represents the author’s personal interpretation of the regulatory guidance released by the Centers for Medicare & Medicaid Services (CMS). It should not be viewed as an endorsement by MedLearn Media, RACmonitor, or R1 RCM, Inc. Every facility/health system should review the regulations and develop their own policies.

In the 2018 Outpatient Prospective Payment System Final Rule, CMS made an unprecedented change by removing total knee replacement (TKR) from the Medicare inpatient-only list. At first glance, it appears that this change could result in devastating consequences for your patients who have the potential to lose access to post-surgical rehabilitation in a skilled nursing facility (SNF) – and to your hospital finances, with reimbursement declining between 25 and 60 percent for the same surgery.

But as I will describe, the picture is much less dire than this may seem.

Total Knee Replacement is Different

There are many elective surgeries performed every day in hospitals, and many of these are not on the inpatient-only list. The vast majority of these non-inpatient-only surgeries should be performed as outpatient, and the patient should be discharged prior to the second midnight. But TKR is different. Many patients spend more than two midnights in the hospital as part of their routine recovery, and many patients require post-surgical care in a skilled nursing facility.

CMS has acknowledged that this situation as outlined in the OPPS Final Rule is unique by going into great detail in its commentary and responses to questions. Whereas 247 words were used to discuss the removal of laparoscopic prostatectomy from the inpatient-only list, CMS used 5,000 words to discuss the removal of TKR. And as will be described in detail below, CMS did something never seen before in making specific reference to co-morbid conditions, post-acute care, and family support as factors to be considered.

That means that the analysis that follows applies specifically to TKR and cannot be extrapolated to the status determination for any other non-inpatient-only surgery, nor to any medical condition warranting hospital care.

The Finances of Joint Replacement

Financially speaking, when a TKR is performed as an inpatient service, the payment is made via the diagnosis-related group (DRG) system. The DRG system pays a base amount that is then adjusted for several factors, including indirect medical education, disproportionate share payments, uncompensated care payments, and other factors. That same surgery performed as outpatient is paid via the ambulatory payment classification, which sets a base payment and then only adjusts for the hospital’s wage index. If a TKR is performed as outpatient rather than inpatient, a community hospital with little or no medical education would see a decline in payment of 25 percent, while a academic medical center would see declines up to 60 percent. For a hospital with a busy orthopedic program, it would translate into the potential of millions of dollars of lost revenue on Jan. 1, 2018.

The Patient Perspective

For the patient, the out-of-pocket costs are nearly the same. The Part A deductible for inpatient admission and the 20 percent coinsurance for outpatient surgery will be the same. The outpatient may incur some costs for self-administered medications. But the ability to access post-surgical rehabilitation in a SNF requires that he or she be admitted as an inpatient for the surgery and then spend three days in the hospital, unless the hospital is a participant in one of the bundled payment programs that allow a waiver of the three-day requirement.

All TKRs Must be Performed in a Hospital

The first fact to understand in this analysis is that CMS still requires that all TKRs performed on fee-for-service Medicare beneficiaries be performed in a hospital. They are not (yet) allowing patients to have TKRs performed in ambulatory surgery centers (ASCs). That means we are solely debating the difference between an inpatient TKR in a hospital and an outpatient TKR in a hospital. Both of those surgeries still would take place in a hospital operating room, would have the same surgeon performing the surgery, and would use the same surgical implants and supplies. Both inpatient and outpatient TKR patients would recover in the hospital recovery room and perhaps spend one or more days in a hospital bed as part of their recovery.

In other words, there is no clinical difference between inpatient and outpatient TKR; it is purely a payment issue. The exact same surgery will be performed on Dec. 29, 2017 and Jan. 2, 2018 – you’ll just be getting reimbursed significantly less. (There will soon be a debate about performing total joint replacements on Medicare patients in ASCs; that debate will include clinical issues such as patient safety.)

Not Inpatient Only ≠ Only Outpatient

So realizing that we are solely determining which status should be chosen for a patient undergoing TKR, we now must look to what CMS has told us about how it expects that determination to be made. And for that we turn to the OPPS proposed and final rules as published in the Federal Register.

Rule No. 1 from CMS is that “the removal of any procedure from the IPO list does not require the procedure to be performed only on an outpatient basis.” This is so important to CMS that it repeated it three times in the rule. That means that some patients will have their TKR surgery as inpatient and some as outpatient.

CMS also indicated that “the decision regarding the most appropriate care setting for a given surgical procedure is a complex medical judgment made by the physician based on the beneficiary’s individual clinical needs and preferences.” And while they do give deference to the physician’s determination, all of us have learned from the Recovery Audit Contractor (RAC) program that the physician decision can and will be second-guessed. But note that CMS also tells physicians in this statement that it may consider the beneficiary’s “preferences.” That means that the decision can be influenced by factors that we generally do not consider. CMS is indicating that this situation is not the same as reviewing a patient for inpatient or outpatient treatment of an exacerbation of heart failure, wherein only clinical circumstances should be considered.

The Two-Midnight Rule Applies, as does Physician Judgment and Individual Needs

CMS of course also reminded us that the two-midnight rule remains in effect, but it then went on to state that “for stays for which the physician expects the patient to need (fewer) than two midnights of hospital care, an inpatient admission is payable under Medicare Part A on a case-by-case basis if the documentation in the medical record supports the admitting physician’s determination that the patient requires inpatient hospital care.”

In other words, the two-midnight expectation is in effect unless the physician assesses a case and determines that inpatient admission is warranted for other reasons. It should be noted that when this “case-by-case” exception was first introduced, it was added to the “rare and unusual” section of the CMS policy. But CMS did clarify that although the exception is part of that section, it did not mean to imply that the use of the exception should be rare or unusual. That means every patient can and should be considered on a case-by-case basis for factors other than a two-midnight expectation.

We then need to look at what CMS said in the proposed rule about hip replacement.

“Like most surgical procedures, hip replacement needs to be tailored to the individual patient’s needs. Patients with a relatively low anesthesia risk and without significant co-morbidities who have family members at home who can assist them may likely be good candidates for an outpatient procedure,” the guidance read. “These patients may be determined to also be able to tolerate outpatient rehabilitation in either an outpatient facility or at home post-surgery.”

Once again, it is crucial to note that CMS is discussing the difference between performing the surgery in the hospital as an outpatient or inpatient procedure, and not discussing whether to perform the surgery in a hospital or an ASC. They are asking the physician to consider all those factors when choosing the correct status.

Outpatient Surgery Appropriate for the Healthy Patient?

What CMS is saying to physicians is that only if a patient has low anesthesia risk, few or no comorbidities, and family at home to support them would they consider outpatient surgery to be appropriate. That means that if any of those factors are present, inpatient admission for surgery could be warranted and should be considered.

CMS backs this up in the final rule by stating that “we would expect that Medicare beneficiaries who are selected for outpatient TKA would be less medically complex cases with few co-morbidities and would not be expected to require SNF care following surgery.” Once again, if the patient has co-morbid conditions that are medically complex, or are expected to require post-surgical rehabilitation in a SNF, they can be admitted as inpatient.

You Can Consider Need for Skilled Nursing Care

Are physicians really allowed to consider the need for post-surgical SNF care in making the admission decision? Are they only supposed to consider the need for hospital care and ignore post-acute needs? Well, for the vast majority of patients admitted to the hospital, this is true. But this rule specifically states that for TKR, “we agree that the physician should take the beneficiaries’ need for post-surgical services into account when selecting the site of care to perform the surgery.” Since most patients can only access their Part A SNF benefit and receive post-surgical rehabilitation in a SNF if they are admitted as inpatient and spend three days as such, CMS is telling physicians that patients who are expected to require care in a SNF may indeed be admitted as inpatient and kept in the hospital for three days to meet those criteria and qualify for that benefit.

CMS Does Not Expect Lots of Outpatients

Finally, CMS has all but come out and stated that it does not expect a wholesale switch involving TKR.

“We do not expect a significant volume of TKA cases currently being performed in the hospital inpatient setting to shift to the hospital outpatient setting as a result of removing this procedure from the IPO list,” the rule read. “At this time, we expect that a significant number of Medicare beneficiaries will continue to receive treatment as an inpatient for TKA procedures.”

And while CMS did not quantify “significant volume,” it does suggest that a small number of cases are anticipated to shift to outpatient.

Making it Work in Your Facility

So, how can this be operationalized? Each hospital should work with its orthopedic surgeons, primary care physicians, hospitalists, and anesthesiologists to develop a robust pre-operative program to determine the correct admission status for every TKR patient on a case-by-case basis. As instructed by CMS, each patient should be assessed for need for post-surgical rehabilitation in a SNF, and if it is present, inpatient admission should be considered. The patient’s co-morbid conditions should be assessed, and if an increased risk from surgery exists, then inpatient admission should be considered.

If the American Society of Anesthesiologists (ASA) classification system is used accurately, it appears that patients who are ASA class III or higher would qualify for consideration of inpatient admission.

If the rare Medicare beneficiary who has no or few co-morbid conditions presents, with a supportive family structure, and the patient is expected to leave the hospital in under two midnights, then performing the surgery as outpatient seems warranted. But that patient should be closely monitored in the hospital, and if they deviate from their expected recovery and require a second midnight in the hospital or will require care in a SNF, then inpatient admission should be considered.

Rules Change: Be Alert

It should also be noted that guidance from CMS occasionally changes. If you adopt some of these recommendations and there is a change or additional guidance released, hospitals have a year from the date of service to cancel an inpatient claim and re-bill as a Part B claim to get the full APC payment. If the patient was discharged to a SNF for rehabilitation, that re-bill process will not affect the payment to the SNF, since the hospital stay remains classified as an inpatient admission.

What Will AAOS Say?

CMS also suggested that professional societies develop guidelines for determining the appropriate admission status of patients having TKR. I would suggest viewing these with a very critical eye. As I related, there is no clinical difference between an inpatient and outpatient TKR, so while an orthopedic professional society would have expertise with clinical criteria, when the time comes to determine which surgeries can safely be done in ASCs and which should occur in a hospital, this financial decision warrants input from financial and compliance experts. Furthermore, again, in the near future the debate on allowing joint replacements in ASCs will begin, wherein the orthopedic specialty societies and hospitals may be on opposite sides of the argument. If the orthopedists argue for more inpatient admissions now, then they are going to restrict their ability to perform such surgeries in ASCs in the near future.

In summary, the many predictions that all but a few TKRs need to be performed as outpatient services appears to be overblown. CMS has set a reasonable standard that can benefit both patients and providers. A careful reading of the regulations and the context in which they were written and presented should allow every hospital and health system to adopt policies that are not only compliant, but patient-centered.

PROGRAM NOTE: Register to listen to Monitor Monday, Jan. 15, 10-11 a.m. EST when Dr. Hirsch reports on this developing story.

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Ronald Hirsch, MD, FACP, CHCQM, CHRI

Ronald Hirsch, MD, is vice president of the Regulations and Education Group at R1 Physician Advisory Services. Dr. Hirsch’s career in medicine includes many clinical leadership roles at healthcare organizations ranging from acute-care hospitals and home health agencies to long-term care facilities and group medical practices. In addition to serving as a medical director of case management and medical necessity reviewer throughout his career, Dr. Hirsch has delivered numerous peer lectures on case management best practices and is a published author on the topic. He is a member of the Advisory Board of the American College of Physician Advisors, a member of the American Case Management Association, and a Fellow of the American College of Physicians. Dr. Hirsch is a member of the RACmonitor editorial board and is regular panelist on Monitor Mondays. The opinions expressed are those of the author and do not necessarily reflect the views, policies, or opinions of R1 RCM, Inc. or R1 Physician Advisory Services (R1 PAS).

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