CMS began phasing out the Medicare Inpatient Only (IPO) list on Jan. 1, 2021, starting with 282 mainly musculoskeletal-related procedures. The remaining ≈1,400 procedure codes on the list will be phased out completely by 2024.

When we analyzed how the policy would affect providers, we found that impact will be concentrated on joint replacements and spinal fusions during the first year of the phase-out, totaling up to $7.3 billion of inpatient revenues potentially at risk of lower reimbursement nationwide.

Calculator: Outpatient shift estimator

The second phase of removal will have similar aggregate impacts at the national level, but will affect a much broader range of services. In the long term, we expect secondary effects such as shifts in commercial coverage, administrative burden, and future competition from ambulatory surgical centers (ASCs) to have an equal if not greater financial impact.

While this analysis quantified the national impacts of the policy, individual hospitals can use our methodology to identify inpatient cases related to the IPO list that might now be susceptible to shifting outpatient.

A deep dive into our approach

To conduct our analysis, we first acknowledged two complications that arise when you try to calculate impact:

Build a sustainable outpatient joint replacement program

• Identifying vulnerable volumes: Procedures removed from the IPO list are denoted by CPT codes—but inpatient claims are associated with MS-DRGs. This means you need to crosswalk codes between settings to identify which inpatient claims might be affected.
• Pinpointing likely shifts: Even after identifying affected procedures, only some of the encounters will be good candidates for outpatient care delivery and/or have a likelihood to shift.

To solve for these complications, we converted all CPT/HCPCS codes on the Medicare IPO list into a comparable set of inpatient procedure codes (ICD-10-PCS). We cross-walked a sample of relevant physician claims (Part B) to their related inpatient claims (Part A), then referenced the primary ICD-10-PCS procedure codes billed on those Part A claims.

Using this crosswalk, we identified all Medicare fee-for-service claims that had one of these ICD-10 codes listed as the primary procedure.

We also used the following parameters to isolate those encounters that had the highest likelihood to shift:

Resources to enhance your cardiovascular ambulatory strategy

• Uncomplicated cases: Claims without a complication or comorbidity (CC) or a major complication or comorbidity (MCC), as specified by MS-DRG codes
• Short-stay patients: Length of stay (LOS) of two days or less

How to identify vulnerable volumes at your hospital

You can apply a similar methodology to find even more precise and facility-specific results at your hospital.

Specifically, follow these steps to identify your organization's Medicare volumes and associated inpatient revenues now potentially at risk of losing inpatient payment status:

1. Identify all professional/outpatient (Part B) claims with a either a CY 2021 or CY 2022-2023 CPT code coming off the IPO List.
2. Link relevant Part B claims to their corresponding inpatient claims (Part A), ensuring full capture of relevant claims for a given facility.
3. Apply similar exclusions employed in this analysis (see appendix on p.16 here) to isolate relevant, uncomplicated, short-stay cases most at-risk.
4. Calculate optimistic, pessimistic, and most likely scenarios for the volume that could shift over time, and the resulting financial impact.
5. Repeat steps one through four to estimate impact among commercial payer segments if similar shifts occur.

What do consumers want from orthopedic care?

This approach will provide you and your analytics team with full visibility into your claims affected by the rule change. You can then assess the volumes, and associated revenues, that are most likely to shift.

Local market factors such as clinician behavior, patient preferences, and competitor strategies will affect how much you may stand to lose. Use our Outpatient Shift Estimator to evaluate the impact of these factors on procedural volumes.

Evaluate secondary impacts and local market factors

After identifying which volumes might be at-risk as a result of this policy change, you should assess the likelihood of secondary implications, both within and beyond the Medicare domain.

When CMS deems a service reimbursable in the outpatient setting, it can lead to commercial payers adopting the outpatient setting as their default setting (if they haven't done so already). It can also propel broader shifts in site of care preferences among clinicians.