One year after deciding to phase out the inpatient only (IPO) list entirely, the Centers for Medicare & Medicaid Services (CMS) reversed course. Noting stakeholders’ concerns related to patient safety in rendering certain procedures on an outpatient basis, CMS concluded that the IPO list should remain in effect. Effective January 1, 2022, CMS returned the vast majority of services removed from the IPO list in 2021 (except for CPT codes 22630 (Lumbar spine fusion), 23472 (Reconstruct shoulder joint), 27702 (Reconstruct ankle joint) and their corresponding anesthesia codes) and halted the phase out of the IPO list.
January 26, 2022
The Inpatient Only List Reinstated
Jessica L. Gustafson, Esq. and Abby Pendleton, Esq.
The History of the IPO List
The IPO list was established in the first Medicare Program Prospective Payment System for Hospital Outpatient Services final rule in 2000. The IPO list identifies services for which Medicare will only make payment if they are performed in the inpatient hospital setting due to the nature of the procedure, the underlying physical condition of the patient, or the need for at least 24 hours of postoperative hospital care for recovery or monitoring before the patient can be safely discharged. The procedures included on the IPO list include services that, in the view of CMS, “would not be safe, appropriate, or considered to fall within the boundaries of acceptable medical practice” if they were performed in the outpatient setting. Although the inclusion of a service on the IPO list does not prohibit the service from being rendered in the outpatient setting, Medicare will not render payment for the service if it is performed in the outpatient setting. On the other hand, if a service is not included on the IPO list, the service is not precluded from being reimbursed in the inpatient hospital setting; rather, the procedure may be provided, and CMS may provide reimbursement for the procedure, in either the inpatient or outpatient settings.
In establishing the IPO list, CMS noted that, “In the future, as part of our annual update process, we will be working with professional societies and hospital associations, as well as with the expert outside advisory panel…to reevaluate procedures on the ‘inpatient only’ list and we will propose to move procedures to the outpatient setting when we determine it to be appropriate.” Historically, CMS has effectuated such removals from the IPO list gradually, based on the evolution of acceptable medical practice. The criteria for evaluating whether to remove a procedure from the IPO list included the following:
- Most outpatient departments are equipped to provide the services to the Medicare population.
- The simplest procedure described by the code may be performed in most outpatient departments.
- The procedure is related to codes [CMS has] already moved off of the inpatient list…
- [T]he procedure is being performed in numerous hospitals on an outpatient basis; or
- [CMS has] determined that the procedure can be appropriately and safely performed in an [Ambulatory Surgery Center (ASC)] and is on the list of approved ASC procedures or proposed by us for addition to the ASC list.
Not all criteria need to be met for CMS to determine that a procedure may be appropriately removed from the IPO list.
CMS Moves Towards Complete Elimination of the IPO List
In its Calendar Year 2021 Hospital Outpatient Prospective Payment Systems and Medicare Ambulatory Surgical Center Final Rule (CY 2021 OPPS/ASC Final Rule), CMS finalized a proposal to eliminate entirely its IPO list incrementally over a three-year period, beginning with 298 codes (including 266 musculoskeletal-related procedures). Because CMS determined to eliminate the IPO list entirely, CMS’ criteria to evaluate whether to remove procedures from the IPO list were not applied to the 298 codes removed. CMS concluded that the IPO list was no longer necessary due to the evolving nature of the practice of medicine, which had allowed more procedures to have a shorter recovery time, supporting coverage on an outpatient basis. In addition, CMS rationalized that physicians’ clinical judgment, state and local licensure requirements, accreditation requirements, hospital conditions of participation (CoPs), medical malpractice laws, and CMS quality initiatives provided sufficient guardrails to ensure that patient safety would not be compromised in the absence of an IPO list. CMS acknowledged that the difference between the need for inpatient care and the appropriateness of outpatient care had become less distinct.
CMS Reverses Course, Halting (for Now) Elimination of the IPO List
In its CY 2022 OPPS/ASC Final Rule, CMS decided to halt the elimination of the IPO list, and, after applying its criteria to evaluate whether to remove procedures from the IPO list, CMS determined to return the majority of the 298 procedures removed from the IPO list in CY 2021 to the IPO list beginning in CY 2022 (except for CPT codes 22630 (Lumbar spine fusion), 23472 (Reconstruct shoulder joint), 27702 (Reconstruct ankle joint) and their corresponding anesthesia codes). CMS also finalized a proposal to codify its criteria for determining whether a procedure should be removed from the IPO list in a new 42 C.F.R. § 419.23.
In making these decisions, CMS acknowledged that providers needed more time to adjust to the removal of so many procedures from the IPO list. To properly prepare for the elimination of the IPO list, providers needed more time to develop patient selection criteria and other protocols to identify whether a procedure can be safely provided in the hospital outpatient setting. CMS reiterated that “the removal of a particular procedure from the IPO list does not require that all beneficiaries be treated in the outpatient setting.” Because procedures removed from the IPO list may be appropriately performed in both the hospital outpatient and inpatient settings, physicians and clinical care teams must “exercise complex medical judgment to determine the appropriate setting of care in accordance with the two-midnight rule.”
CMS sought comment on whether it ought to maintain a long-term objective of eliminating the IPO list, or whether it should be maintained and systemically scaled back in accordance with applicable standards of practice.
Importance of the Two-Midnight Rule
The two-midnight rule is codified at 42 C.F.R. § 412.3 (d) and is the regulatory criteria for inpatient hospital admissions. Under the two-midnight rule, unless an exception applies, an inpatient hospital admission is generally appropriate where the admitting physician expects a patient to require hospital care that will cross two midnights. There are two regulatory exceptions to this general rule: (1) inpatient hospital admissions for patients undergoing procedures on the IPO list; and (2) inpatient hospital admissions for patients expected to require hospital care that will cross less than two midnights but nonetheless require inpatient care (oftentimes referred to as the case-by-case physician judgment exception).
In the CY 2022 OPPS/ASC Final Rule, CMS summarized the following:
Regardless of the status of the IPO list, we believe that the 2-Midnight benchmark remains an important metric to help guide when Part A payment for inpatient hospital admissions is appropriate. As technology advances and more services may be safely performed in the hospital outpatient setting and paid under the OPPS, it is increasingly important for physicians to exercise their clinical judgment in determining the generally appropriate clinical setting for their patient to receive a procedure, whether that be as an inpatient or on an outpatient basis. Importantly, removal of a service from the IPO list has never meant that a beneficiary cannot receive the service as a hospital inpatient — as always, the physician should use his or her complex medical judgment to determine the appropriate setting on a case by case basis.
As stated previously, our current policy regarding IPO list procedures is that they are appropriate for inpatient hospital admission and payment under Medicare Part A regardless of the expected length of stay. Halting the elimination of the IPO list would mean that this will remain true for all services that are still on the list. As in previous years, any services that are removed from the list in the future will be subject to the 2-Midnight benchmark and 2-Midnight presumption. This means that for services removed from the IPO list, under the 2-Midnight presumption, inpatient hospital claims with lengths of stay greater than 2 midnights after admission will be presumed to be appropriate for Medicare Part A payment and will not be the focus of medical review efforts, absent evidence of systematic gaming, abuse, or delays in the provision of care in an attempt to qualify for the 2-Midnight presumption. Additionally, under the 2-Midnight benchmark, services formerly on the IPO list will be generally considered appropriate for inpatient hospital admission and payment under Medicare Part A when the medical record supports either the admitting physician’s reasonable expectation that the patient will require a stay that crosses at least 2 midnights, or the physician’s determination that the patient required inpatient hospital care despite an expectation of a shorter length of stay.
Complicating the analysis for hospitals, CMS does not recognize a difference in the intensity of services performed in the inpatient hospital or outpatient hospital “settings.” In issuing the two-midnight rule, CMS explained, “we do not refer to ‘level of care’ in guidance regarding hospital inpatient admission decisions. Rather, we have consistently provided physicians with [a] time-based admission framework to effectuate appropriate inpatient hospital admission decisions.” The distinction between inpatient hospital care and outpatient hospital care is one of reimbursement. Regardless of whether a procedure is performed in the inpatient or outpatient “setting,” there should be no relative difference in the safety of a procedure performed in the hospital. From a compliance perspective, to mitigate potential audit risk, hospitals may choose to take a conservative position and admit a Medicare beneficiary as an inpatient to undergo a procedure formerly on the IPO list only if the admitting practitioner expects the beneficiary to require two midnights or more of hospital care and treat other beneficiaries on an outpatient basis.
Medical Review of Procedures Removed from the IPO List
When procedures are removed from the IPO list, providers oftentimes struggle to determine the proper status to assign patients undergoing the procedures (i.e., inpatient versus outpatient). In order to assuage provider concerns related to audit risk related to assigning patients with improper status, over time CMS has implemented various medical review exemptions for procedures removed from the IPO list:
- In its CY 2020 OPPS/ASC Final Rule, CMS finalized a policy to exempt procedures that had been removed from the IPO list from reimbursement denials based on patient status determinations for two calendar years following their removal from the IPO list. During this time:
- Although the Beneficiary and Family-Centered Care Quality Improvement Organization (BFCC-QIO) (i.e., the contractor assigned to perform most patient status reviews) was permitted to review these claims, it was not permitted to deny payment based on the patient’s status/setting of care (i.e., inpatient versus outpatient).
- Instead, the BFCC-QIO was tasked to provide education related to compliance with the two-midnight rule for such claims.
- The BFCC-QIO was prohibited from referring providers to the recovery auditors (RACs) for noncompliance with the two-midnight rule based on its reviews of such claims, and the RACs were prohibited from reviewing such claims for patient status.
- In its CY 2021 OPPS/ASC Final Rule, CMS expanded its exemption of medical review for claims removed from the IPO list on or after January 1, 2021 indefinitely, i.e., until such time as CMS acquired data to indicate the procedure was performed more commonly in the outpatient setting than in the inpatient setting. This expanded exemption period was thought to be necessary to allow providers to adjust to the 298 services removed from the IPO list.
- In its CY 2022 OPPS/ASC Final Rule, because CMS proposed to halt the elimination of the IPO list and return the services removed from the IPO list in CY 2021, it determined that an indefinite exemption period was no longer warranted. CMS returned to its two-year exemption and codified this exemption at 42 C.F.R. § 412.3 (previously, medical review exemptions were issued on a sub-regulatory basis).
Future rulemaking will determine whether CMS will maintain its longer-term objective of eliminating the IPO list entirely, or whether it will systemically scale back the IPO list as supported by standards of practice. With the return of most procedures eliminated from the IPO list in 2021 effective January 1, 2022, hospitals that implemented processes to perform certain procedures removed from the IPO list on an outpatient basis need to ensure that clinicians are educated that these procedures have returned to the IPO list, as procedures on the IPO list will be reimbursed only if the service is performed in the inpatient setting.