Devastation of Site-Neutral Payment: October 2020 Update

For those who have been following our work and research during much of the past decade, you have heard us continue to express our concern for the transition to site-neutral payment and the associated impact on many of our community hospital clients.  In our Devastation of Site-Neutral Payment video blog, we quantified that impact on the “average” community hospital.  I would encourage you to watch that brief video blog if you haven’t had a chance to do so already.

CMS PROPOSED 2021 PAYMENT RULE

The movement toward site-neutrality continues to accelerate over time.  One has to look only at CMS’s CY2021 Medicare Hospital Outpatient Prospective Payment System Proposed Rule for examples of this continued acceleration.  Specifically, CMS has proposed to phase-out its current Inpatient Only (IPO) list over the next three years as it is interested in “increasing choice and encouraging site neutrality” for both patients and physicians.  The proposed rule also includes a provision to expand the number of procedures that Medicare will pay for in an ASC setting.

INPATIENT ONLY LIST

CMS created the IPO list 20 years ago in an effort to identify those services that they viewed to require an inpatient stay for “services that require inpatient care because of the invasive nature of the procedure, the need for at least 24 hours of postoperative recovery time, or the underlying physical condition of the patient who would require the surgery.”  The current list includes just over 1,700 procedures; however, the proposed plan would begin phasing out those procedures over a three-year period, starting with an orthopedic focus and the elimination of 266 orthopedic-related procedures in 2021.

Within their comments CMS notes that they “have concluded that we no longer believe there is a need for the IPO list in order to identify services that require inpatient care. Instead, we agree with past commenters that the physician should use his or her clinical knowledge and judgment, together with consideration of the beneficiary’s specific needs, to determine whether a procedure can be performed appropriately in a hospital outpatient setting or whether inpatient care is required for the beneficiary, subject to the general coverage rules requiring that any procedure be reasonable and necessary. We believe that this change will ensure maximum availability of services to beneficiaries in the outpatient setting.”

CMS goes on to say that they “also believe that since the IPO list was established, there have been significant developments in the practice of medicine that have allowed numerous services to be provided safely and effectively in the outpatient setting.”

IMPLICATIONS

Despite potential objections to the contrary, the proposed rule is just one more step toward an inevitable future…a future where most, if not all, cases and procedures are reimbursed the same regardless of place of service.  We suggest that you carefully consider and account for this payment change within any business plan or hospital strategic plan, particularly those whose payback horizon extends into the latter half of this decade.

As part of our strategic healthcare consulting practice, Ascendient has experience modeling the financial impact of site-neutral changes, accounting for not only reimbursement implications but also the associated effect on hospital-based volumes as more and more cases shift to an outpatient setting. Please let us know if we can assist with a more detailed understanding as to how these and other potential changes might impact your current and projected operating and financial performance.