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2022 Healthcare Reimbursement Changes Reinstating Significant Inpatient Coverage

February 9, 2022
Mikki Fazzio, RHIT, CCS

Content Integrity Consultant, Principal

Article Summary


The Centers for Medicare and Medicaid Services (CMS) has long published a list of procedures that—for safety reasons—providers could only perform and receive reimbursement for in the hospital inpatient setting (the Inpatient-Only (IPO) list). However, in 2020, CMS announced a plan to phaseout the IPO list, which would have removed the inpatient requirement for certain services. More recently, a CMS ruling reversed the 2020 phaseout, thereby reinstating the IPO list. Many stakeholders consider the reversal of the phaseout a benefit to patients, providers, and hospitals in terms of improved patient safety, increased reimbursement, reduced physician burden, and more.

healthcare reimbursement changes

On November 2, 2021, the Centers for Medicare and Medicaid Services (CMS) released the 2022 Hospital Outpatient Prospective Payment System (OPPS) final rule, which reversed a three-year phaseout of the Inpatient-Only (IPO) list. This comes only a year after the 2020 phaseout of the IPO list began.

For years CMS has published a list of procedures that providers could only perform and receive reimbursement for in the hospital inpatient setting. Completing these procedures in a hospital outpatient department or an ambulatory surgical center (ASC) was considered unsafe, according to the rationale behind the IPO list.

Each year CMS has reviewed the IPO list (more than 1,700 services) and removes or adds procedures based on certain criteria. For example, if data showed a procedure can now be safely performed in the outpatient setting, CMS removed it from the IPO list. However, with the 2022 OPPS final rule, the IPO list will remain intact and continue to designate which procedures qualify for the out- or inpatient setting.

Healthcare Reimbursement Changes: The Phase-Out of the IPO List and the Two-Midnight Rule

In the 2021 OPPS/ASC final rule, CMS announced it was phasing out the IPO list, stating that the physician’s designation of the admission status of all surgeries would be based on the Two-Midnight rule, adopted in October 2013. CMS created the Two-Midnight rule to address the higher frequency of beneficiaries receiving treatment as hospital outpatients for extended (i.e., longer than reasonable) periods of time.

Compliance issues often arose from patients placed in extended “observation” status, meaning they received outpatient services while the provider determined whether to make an inpatient admission or discharge the patient. Extended observation services impact patient copays as well as a patient’s ability to qualify for skilled nursing facility (SNF) care through the SNF Three-Day IP Stay Rule.

The original Two-Midnight rule stated that inpatient admissions would generally be payable under Medicare Part A if the admitting physician expected the patient to require a hospital stay crossing two midnights, with documentation in the medical record supporting that expectation. CMS felt that physicians should consider the complexity of the planned surgery, the patient’s medical and psychosocial history, the time of day, and the expected perioperative course when deciding if they should admit the patient under inpatient status. 

The initial Two-Midnight ruling also eliminated almost 300 procedures from the IPO list, the majority of which were high-volume orthopedic and spine-orthopedic procedures. Many stakeholders disapproved of this ruling, with objectors stating that even though it was not the intent of CMS, the removal of procedures from the IPO list indicated that these procedures were not complex enough to warrant inpatient care for a generally healthy patient and that the physician had to “prove” the procedure justified an inpatient stay.

How Reinstatement of the IPO List Benefits Health Systems

Many stakeholders consider the reversal of the original Two-Midnight ruling in the 2022 OPPS Final Rule a major win for patients, providers, and hospitals in several significant aspects:

1. Improved patient safety: Services on the IPO list are often complex and sometimes invasive procedures that require close care and coordinated services in the hospital inpatient setting. The reinstatement of the IPO list ensures that patients do not return home prematurely and have the opportunity for a successful recovery.

2. Increase in reimbursement and/or case mix for some hospitals: Diagnosis-Related Group payment for inpatient procedures is often comparatively more than Ambulatory Payment Classification payment for the same procedure performed in the outpatient setting. Hospitals with high volumes of procedures eliminated from the IPO list saw a decline in both reimbursement and case mix index. This decline coupled with the financial impact of the COVID-19 pandemic presented some hospitals with a real financial threat to their security. Reinstated procedures on the IPO list mean an increase in reimbursement for many facilities.

3. Decrease in billing denials: Many stakeholders felt that commercial payers interpreted the Two-Midnight ruling as a restriction to appropriate care settings based on the cost alone. They worried the ruling promoted procedures in outpatient settings or ASCs, even in cases where outpatient care wasn’t appropriate. As a result, hospitals have had to devote time and resources to appealing these denials and have often had to accept lower payment even though the provider believes the patient was appropriately admitted as inpatients. With CMS regulating that the procedures on the IPO list should be performed in the inpatient setting, insurance companies are less likely to deny these cases based on patient status. The intended result is a decrease in denials and ultimately more timely and appropriate payment to the facility.

4. Reduced burden on physicians: The reinstatement of the IPO list means that the procedures are no longer subject to the Two-Midnight rule requirements. Although case managers assisted physicians deciding between inpatient versus outpatient care, it was ultimately the physician’s decision and obligation to order the correct status. Physicians no longer must worry about justifying an inpatient stay or having an outpatient stay unexpectedly exceed the appropriate amount of time, which can lead to more issues impacting the patient’s care.

Preparing for Reinstatement of the IPO List

Hospitals can prepare for the reinstatement of the IPO list as of January 1, 2022. For some health systems, inpatient volumes will increase at a time when many hospitals are already at inpatient capacity due to the pandemic, and some hospitals may see increased need for inpatient coders.

Cross-training between inpatient and outpatient coders can take some time and effort, but such preparation will support shifts in patient volumes anticipated with reinstatement of the IPO list. Case managers and physicians should be up to date on the reinstatement to avoid unnecessary work determining the correct setting for a procedure and/or denials for IPO procedures performed as an outpatient procedure.

In addition, revenue cycle teams may find it helpful to put an account check in place to hold accounts with IPO codes. This way, they can review the patient status before dropping the claim. Some systems may be sophisticated enough to hold a claim if an IPO procedure code is detected with any status other than inpatient.

Avoiding Denials and Payment Delays

Even healthcare reimbursement changes designed to improve the delivery of care for patients and experience for providers requires adjustment and adaptation that, without preparation, can interrupt operations and the revenue cycle. Therefore, understanding the updated rules and following the above preparation measures will help facilities code and bill in a timely manner and avoid denials and delays in payment.

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