Blog Post February 19, 2018 The Implications of CMS Removing Total Knee Replacements from the Inpatient Only List Authors Jim Donohue Erika Mortenson On January 1, the 2018 final rule regarding payment for Medicare services under the Hospital Outpatient Prospective Payment System went into effect. The Centers for Medicare & Medicaid Services (CMS) removed knee replacements from the inpatient-only list and defined an outpatient hospital reimbursement rate for these cases. In doing so, Medicare is allowing knee replacement cases to be performed on an outpatient basis when clinically appropriate. Medicare-defined reimbursement for an outpatient knee replacement case is about 18% below the reimbursement for an inpatient case. Preparing for Commercial Payers to Follow Medicare’s Lead While we anticipate that the majority of knee replacements will continue to be performed in the inpatient setting, the Medicare change could result in commercial plans implementing policies that will allow or encourage their patients to have these procedures conducted in an outpatient setting. To prepare for this, we recommend that hospitals providing these services proactively review their commercial contracts to understand how they would be reimbursed if these procedures were performed as outpatient cases. We expect that under most commercial payer agreements, the magnitude of change in knee replacement reimbursement will be significantly greater than the 18% decrease implemented by Medicare unless the reimbursement rate is explicitly addressed through a contract amendment (e.g., negotiating a carve-out case rate). Anticipated Changes for Additional Procedures and ASC Settings of Care Other joint replacement procedures, such as shoulders and hips, remain on the inpatient-only list, but many anticipate that these will be removed in the future as well. Additionally, it is likely that CMS will approve total knee replacements for ambulatory surgery centers (ASCs) in the near future. When and if that occurs, providers will need to review the adequacy of their reimbursements and, as necessary, renegotiate carve-out rates.