To knee, or not to knee? That is the question…

On November 2, the Centers for Medicare and Medicaid Services (CMS) released their final fee schedule updates for 2018 for ASCs and hospital outpatient departments (HOPDs).

The final rule included a modest 1.2% increase to ASC rates for 2018, which was less than the 1.9% increase included in the proposed fee schedule. This increase in ASC rates is also less than the 1.35% increase that HOPDs received, which further widens the reimbursement gap between ASCs and HOPDs.

However, in this final rule, CMS removed total knee arthroplasty from the inpatient-only list, paving the way for Medicare reimbursement in an ASC setting. This revives a CMS advisory panel recommendation in August 2016 to remove total knee arthroplasty from the inpatient-only list. In September 2017, the American Hospital Association (AHA) furnished its comments to the CMS proposed rule, once again opposing the removal of total knee replacement from the inpatient-only list. The AHA argued that these procedures are not clinically appropriate on an outpatient basis for the Medicare population. Despite objection from the AHA, CMS decided to remove total knee replacement from the inpatient-only list. However, CMS chose to leave partial and total hip arthroplasty procedures on the inpatient-only list.

How Could This Impact ASC Values?

This final rule continues the trend of surgical procedures migrating to the outpatient and ASC setting. With advancements in medical technologies, surgical techniques, and anesthesia procedures, more complex surgical cases can now be performed safely in an ASC setting. As a result, inpatient surgeries have declined over the last couple of decades while outpatient procedures have dramatically increased. This trend is expected to further accelerate as technology continues to advance and patients seek lower-cost procedures.

The addition of total knee replacements to the Medicare ASC-approved list could be a financial boon for ASCs providing orthopedic surgeries. However, the reimbursement rates that CMS sets for these procedures will be a large indicator as to how much Medicare total joint volume will migrate to ASCs. In addition to typical surgical costs, these procedures have large implant costs that must also be factored into the profit margin. If the Medicare reimbursement rates are set too low, ASCs might not be able to perform these procedures profitably, and therefore, might refrain from doing so. As a frame of reference, the average inpatient Medicare reimbursement for total knee replacement (without major complications or comorbidities) ranges from $23,000 to $27,000 based on geographic location. ASCs should expect a fraction of this reimbursement from Medicare, so it is imperative for ASCs to have a good handle on their costs for providing these procedures.

1 “AHA Comments to CMS on OPPS Proposed Rule for CY 2018,” American Hospital Association, September 11, 2017. http://www.aha.org/advocacy-issues/letter/2017/170911-let-nickels-verma.pdf
2 “Average Regional Historical Episodes from Proposed Rule,” Comprehensive Care for Joint Replacement Model, Centers for Medicare and Medicaid Services website. https://innovation.cms.gov/Files/worksheets/ccjr-avgreghistepisodes.xlsx

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