The Demise of the Inpatient Only List – CMS Tries Again

The Centers for Medicare & Medicaid Services (CMS) is once again proposing to eliminate the inpatient only list starting in January 2026, repeating the process they used back in 2021 by starting with orthopedic surgeries.

Let me start by saying I agree the need for an inpatient only list is no longer present. Whether the patient is an inpatient or an outpatient in the hospital, they use the same operating rooms, get the same care, the surgeons use the same implants, and they stay hospitalized as long as is medically necessary.

This is different than a surgery at a hospital compared to a surgery center where safety and availability of services varies significantly. But there are two differences between inpatient and outpatient in a hospital, and they are significant.

First, clinically, we all know about the three inpatient days necessary to access Part A skilled nursing facility (SNF) care under Medicare. And as Medicare patients age and have more comorbid conditions and increased debility, the need for recovery in a skilled setting is likely to increase.  And inpatient only surgeries allowed that inpatient admission to start on the day of surgery when the inpatient admission order is activated.

The other difference is, of course, the payment for that care. Outpatient surgery is paid based on the Medicare-approved amount as indicated on Addendum B with an adjustment for the hospital’s wage index whereas inpatient surgeries are paid by DRGs with adjustments for wage index, medical education, uncompensated/undercompensated care and more. While some of those extra payments get settled up at year end, and my attempts to completely understand exactly how was unsuccessful, education money is based on the number of inpatient admissions per year.

Each inpatient admission, medical or surgical generates a payment that is added on to the base payment. Hospitals also submit “shadow” claims to CMS for Medicare Advantage  (MA) admissions that result in a payment for that medical education amount, regardless of the payment from the MA plan. These payment are the major source of funding to cover the costs of education including salaries for the interns, residents, fellows and teaching physicians along with the infrastructure for medical education. Major teaching hospitals may be paid over $10,000 per surgery. That’s a lot of potentially lost revenue and would have a significant effect on the ability of many hospitals to sustain a teaching program, worsening the impending physician shortage.

Now of course we will have months to prepare for this and with surgeons you probably want to use just-in-time education but here are some things to think about. First, we still have three years to transition completely so you still need to screen surgeries by the planned CPT® code in case it still is inpatient only. And getting that CPT code is crucial for getting that prior approval from the MA plans, which, by the way, will still need to abide by the two midnight rule for surgery status and cannot simply only approve outpatient for every surgery.

Then you must start working with your non-orthopedic surgeons to think about the expected length of stay, the planned discharge destination, and any risks that could influence the hospital care. Once every surgery is subject to the two midnight rule, you will need to know how long the in-hospital recovery will take, which patients will require SNF care for recovery, and whether any of the surgeries warrant inpatient admission based on the case-by-case exception. For those cases, you want those factors documented pre-operatively to support the inpatient admission decision.

Now just to reassure you, I have already asked CMS to directly address inpatient admission for SNF access for surgical patients. As you may know, when total knee arthroplasty CMS specifically said that patients needing SNF care after that surgery could be admitted as inpatient to get their qualifying stay.

With the whole list disappearing I want to ensure CMS will continue to allow such admissions, regardless of the surgery, as long as the need for SNF care is legitimate and documented. And of course I will also remind them that the three-day rule is obsolete and really needs to go away but that will take Congressional action to amend the Social Security Act.

I am sure we will be talking more about this and my next RACmonitor webinar in September will be all about this so keep your eyes on RACmonitor.com for more information.