News | Medicare Payment and Reimbursement

Medicare phases out the inpatient-only list, backs off further 340B payment cuts

News | Medicare Payment and Reimbursement

Medicare phases out the inpatient-only list, backs off further 340B payment cuts

  • Medicare will start a three-year phase-out of the inpatient-only list.
  • CMS backed off of steeper payment cuts to the 340B discount drug program.
  • Hospitals will have new COVID-19-related reporting requirements to meet.

Medicare will phase out the inpatient-only (IPO) list over three years but won’t implement further cuts that were proposed for the 340B discount drug program, according to a CY21 final rule issued this week.

The CMS Outpatient Prospective Payment System final rule confirmed the elimination of the 1,700-procedure IPO list over three years, starting with 300 primarily musculoskeletal-related services in 2021. The IPO list will be completely phased out by 2024.

The change will allow Medicare to pay for those procedures in either hospital outpatient settings or inpatient settings, as determined by the treating physician.

“In the short term, as hospitals face surges in patients with complications from coronavirus disease 2019 (COVID-19), being able to provide treatment in outpatient settings will allow non-COVID-19 patients to get the care they need,” CMS stated in a release.

CMS also touted lower beneficiary copays for procedures done in outpatient settings.

But the IPO decision drew concern from hospital advocates.

“The services on the inpatient-only list are often complex and complicated surgical procedures that require the close care and coordinated services provided in a hospital inpatient setting,” Tom Nickels, executive vice president for the American Hospital Association (AHA), said in a written statement.

For procedures removed from the IPO list, CMS will “indefinitely” exempt them from:

  • Site-of-service claim denials under Medicare Part A
  • Eligibility for referrals to recovery audit contractors (RACs) for noncompliance with the 2-midnight rule
  • RAC reviews for “patient status”

Those exemptions “will last until we have Medicare claims data indicating that the procedure is more commonly performed in the outpatient setting than the inpatient setting,” CMS stated.

“While we have concerns about CMS finalizing the phase out of the IPO list, we appreciate CMS providing an indefinite moratorium from site of service reviews for procedures removed from the IPO,” said Chad Mulvany, director of healthcare financial practices, perspectives and analysis, for HFMA.

In a related move, CMS provided a 2.4% increase in ambulatory surgical center (ASC) rates for ASCs that meet quality reporting requirements in 2021. CMS linked the increase to a 2.4% projected rise in the market basket combined with a 0% adjustment for multifactor productivity.

The ASC rate increase “will help to promote site-neutrality between hospitals and ASCs and encourage the migration of services from the hospital setting to the lower cost ASC setting,” CMS stated in a fact sheet.

No new 340B cuts

CMS backed off its proposal to pay for drugs acquired under the 340B program at average sale price (ASP) minus 28.7%. Instead, Medicare will maintain the 2018 formula of ASP minus 22.5%. It also will continue to pay for biosimilars acquired through the 340B program at the biosimilar’s ASP minus 22.5%.

“Based on feedback from stakeholders, we believe maintaining the current payment policy of paying ASP minus 22.5 percent for 340B drugs is appropriate in order to maintain consistent and reliable payment for these drugs both for the remainder of the PHE [public health emergency] and after its conclusion to give hospitals some certainty as to payments for these drugs,” CMS wrote in the final rule.

CMS said it plans to further analyze its survey data from 340B hospitals “for potential future use for 340B drug payment.”

The 2018 cut was challenged by hospitals but ultimately upheld by a federal appeals court. Hospitals continue to oppose the reduction, saying it has eliminated revenue that supports other patient initiatives.

“Amid a COVID-19 surge that again is testing the capacity of many 340B hospitals to care for all their patients in need, CMS is choosing to plow ahead with steep cuts that will only cause pain for safety-net hospitals and the low-income patients they serve,” Maureen Testoni, president and CEO of 340B Health, which represents hospitals in the program, said in a written statement.

Star ratings get updated

In the OPPS final rule, CMS updated the methodology for calculating the Overall Hospital Quality Star Rating.  However, CMS dropped its proposal to stratify readmission measures based on dually eligible patients.

The new approach drew hospital support.

“We are encouraged to see the administration took steps toward improving its hospital star ratings system and responding to stakeholder concerns about the ratings,” Beth Feldpush, DrPH, senior vice president of policy and advocacy for America’s Essential Hospitals, said in a written statement.

CMS said it will continue to study the dually eligible readmission issue “to find the best way to convey quality of care for this vulnerable population.”

COVID-19 provisions also included

CMS finalized a new requirement for the nation’s 6,200 hospitals and critical access hospitals to report information about their inventory of therapeutics used to treat COVID-19.

“This reporting will provide the information needed to track and accurately allocate therapeutics to the hospitals that need additional inventory to care for patients and meet surge needs,” CMS wrote.

Another new requirement for PPS hospitals and critical access hospitals will be to report information about the impact of acute respiratory illnesses, such as seasonal influenza, on hospital resources. 

“Treatment of acute respiratory illnesses uses many of the same resources necessary for treatment of COVID-19, and this new reporting requirement will provide the necessary information to distribute resources to hospitals under strain,” CMS wrote.

Allowances made for some physician-owned hospitals

CMS tweaked restrictions on physician-owned hospitals that qualify as “high Medicaid facilities.” Changes included:

  • Removing the cap on the number of additional operating rooms, procedure rooms and beds that can be approved in an exception
  • Removing the restriction that an expansion must occur only in facilities on the hospital’s main campus.
  • Allowing such hospitals to apply for an exception without waiting at least two years from the time of a decision by CMS
  • Including state-licensed beds when determining the number of beds in a hospital’s baseline number of operating rooms, procedure rooms and beds.

AHA criticized the loosened restrictions.

“The Congressional Budget Office, Medicare Payment Advisory Commission and independent researchers all agree that physician self-referral to facilities in which they have an ownership stake leads to greater utilization of services and higher costs,” Nickels said. “In addition, physician-owned hospitals have a tendency to cherry-pick their patients, which leaves sicker and less-affluent patients to community hospitals, threatening the health care safety net.”

About the Author

Rich Daly, HFMA Senior Writer and Editor,

is based in the Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare

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