Original Post from Modern Healthcare.
Authored by Alex Kacik 

The Centers for Medicare and Medicaid Services is walking back its push to pay for more complex services without inpatient stays, a move that will dent revenues for health systems that have boosted investment in outpatient facilities.

The agency announced during the Trump administration that it would phase out its list of around 1,700 services Medicare would only pay for on an inpatient basis due to the complexity of the procedure, the underlying physical condition of the patient or the need for at least 24 hours of postoperative recovery time. CMS began that phase-out in 2021 by removing 298 services from the list.

But after heavy lobbying from hospital and physician associations over safety concerns, the Biden administration’s CMS said it would pause the phase-out plans and add back almost all the services it removed from the inpatient-only list last year. CMS also removed most of the more than 260 procedures that had been added to a separate ambulatory surgical center-covered procedures list in the 2021 rule.

The delay, as outlined in the Outpatient Prospective Payment System final rule issued last week, represents a stark change from CMS’ typical messaging. The agency has largely been proposing regulations that would move care from high-cost inpatient treatment to ambulatory surgery centers and other outpatient facilities.

CMS said in the 2022 final rule that it realized the three-year timeframe for phasing out the list was too short and that it needs more time to evaluate whether the services removed in 2021 should actually be taken off the list.

“It seems like a complete 180,” said Susan Maupin, vice president at the healthcare consultancy Advis. “But whenever there are safety concerns expressed by providers, CMS should rightfully take a step back and reevaluate if there are any legitimate concerns.”

That earlier push to move away from inpatient care, in part, has prompted health systems to increase investment in outpatient facilities. But those new surgery centers will likely take a financial hit as CMS reworks its approach.

“Business plans for those trying to build an ASC will be blown out of the water for a little bit of time, but I don’t think it will be a permanent change,” said Monica Hon, vice president at Advis, who was supportive of regulators taking a step back.

While the Ambulatory Surgical Center Association strongly opposed CMS’ removal of most services added to the ASC-covered procedures list in 2021, the organization was on board with the agency’s announced pause. In comments on the proposed rule, the group expressed concerns with completely changing course on the policy. Although ASCs can’t always immediately perform procedures removed from the inpatient-only list, allowing a service to be performed at a hospital outpatient department could be a precursor to adding it to the ASC list.

ASCA asked CMS to keep three services that have been performed in ASCs on other patient groups off the inpatient-only list in 2022, which the agency agreed to do in the final rule.

But CMS also said 131 of the 298 services taken off the inpatient-only list in 2021 appeared in one or no OPPS claims through May 21, 2021, indicating that the prior year’s policy didn’t change clinical practices much.

“One of the barriers is that if you don’t incent care to be done in an outpatient setting, there is no incentive to make it a high-quality place,” said Dr. Sricharan Chalikonda, Allegheny Health Network’s chief medical operations officer.

Allegheny Health is keeping its plans to move even more procedures into its growing ambulatory surgery center network. Surgeries were up around 10% in 2020 at the Pittsburgh-based integrated health system’s 11 ASCs, Chalikonda said.

“Every market maybe isn’t ready to move to outpatient, but we can only speak to what we’re doing. In how we are designing our ASCs, it would be a step back for us to move more things to the inpatient setting,” he said. “If anything, I think what impacts quality the most is volume.”

Many health systems, similar to Allegheny, will not slow their investment in outpatient care despite CMS’ pause. Regardless of Medicare reimbursement, commercial insurers will still try to incentivize care outside of the hospital, where appropriate, industry observers said.

“Lots of procedures will still be driven in the outpatient direction, especially orthopedic services,” said Lynn Collins, senior manager at consultancy LBMC. “It will just move at a slower pace now, which will be a challenge initially for newer ASCs.”

Federal regulators have taken aim at hospital and hospital outpatient department facility fees, which they charge Medicare for certain emergency department overhead and staffing costs. They have battled the American Hospital Association in court over a federal site-neutral policy, which eliminates the payment differential for evaluation and management services provided at hospital-owned outpatient departments and independent physician offices.

While moving more care outside of the hospital would reduce healthcare costs, hospitals’ and medical associations’ warnings that quality would suffer seemed to trump cost concerns.

Eliminating the inpatient-only list would create “inappropriate safety risks for Medicare beneficiaries, impose administrative burdens on physicians and hospitals, increase the financial burden for beneficiaries and erode the value of Part A coverage,” the Texas Hospital Association wrote in a comment to CMS last year.

While Dartmouth-Hitchcock Health generally supported eliminating the inpatient-only list, it told CMS it would be confusing to have a surgery off the inpatient-only list while having anesthesia for the same procedure on the list.

The New Hampshire-based provider noted payment differentials between inpatient DRG and outpatient codes can vary by at least $10,000. Also, the bundled payment programs that will move from inpatient to outpatient surgery will upset physicians who have honed treatment protocol and stand to lose their shared savings, it wrote in a comment to the agency.

But aside from administrative ambiguity, the safety argument doesn’t hold much water, industry observers said. The COVID-19 pandemic reinforced that ambulatory and home-based care can be a safe substitute for many inpatient procedures, they said.

“I don’t understand the safety argument,” said Jeff Goldsmith, founder and president of healthcare consultancy Health Futures. “There is a further downward lurch in inpatient utilization and people are trying to postpone the inevitable. As a patient, I’m not persuaded that outpatient care is less safe.”

Allegheny Health has been improving its preoperative and postoperative care to shorten inpatient stays or avoid hospitalization altogether. Rehabilitation starts immediately in the post-anesthesia care unit and clinicians regularly check in with patients at home via virtual visits, Chalikonda said.

“We think it is best for patients. Provided that you put a good support system through virtual health and other resources, I think it is the future,” he said. “If anything came out of COVID-19, we found that transitioning from extended inpatient recovery to ambulatory care didn’t change quality.”