Inpatient or Outpatient Surgery: Exclusive Two-Part Series

EDITOR’S NOTE: This is the first portion of a two-part series of articles by Erica Remer, MD, who routinely offers guidance for determining the correct surgery status for Medicare patients.

I have been doing documentation reviews for medical necessity, and I don’t understand why there is such confusion about statusing for surgical procedures. I am going to try to make it really simple in this two-part series. This first article will be about choosing the correct status, and the follow-up article will be about the documentation and coding.

There is a list for Medicare patients called the Inpatient Only (IPO) List. If a Medicare patient is on this list, they should be mandatorily status as an inpatient…even if they don’t even stay a single midnight! [Correction: More precisely, per Dr. Ronald Hirsch, “the patient must be admitted as an inpatient and an inpatient claim submitted.” A patient might have had the surgery as an outpatient and then someone realized that the procedure was on the IPO list or the procedure morphed during the surgery to an IPO operation, and the patient could be admitted as an inpatient after the fact. The claim will get paid.]

There has been talk about eliminating the IPO list but that has not come to fruition.

• The conditions on the IPO list change yearly, so providers and institutions should keep track to avoid missteps.
• Although many payers do respect and conform to the IPO list, commercial insurers do not have to follow it if their contract specifies something else. Medicare Advantage did not have to follow it either until the 2024 Medicare Advantage and Part D Final Rule (CMS-4201-F) established that MA plans must follow the 2-MN rule and case-by-case exception, and the IPO list.
• Providers should not misinterpret this and think they have to keep a patient in the hospital for 2 midnights. This is mixing medical Medicare inpatient apples with surgical oranges. Discharged from recovery, staying overnight, staying multiple nights…on IPO listà inpatient.
• If surgery is NOT on the IPO list, this does not mean that it is a mandatorily outpatient surgery (sorry for the double negatives, but they are necessary here).

Outpatient surgery can either be done in an ambulatory surgical setting or in a hospital setting (or in a doctor’s office, but I am not going to discuss that scenario in this series).

• An ambulatory surgery center (ASC) is a facility that operates exclusively for the purpose of providing surgical services to a patient not expected to require hospitalization. They are also referred to as “same-day surgical centers.”
  • Patients are anticipated to stay less than 24 hours. The procedures are deemed by CMS to “not pose a significant safety risk and are not expected to require an overnight stay.”
  • The ASC may be independent or hospital-operated. They cannot, however, share space with a hospital outpatient surgery department. There are other regulations, but that is more weedy than I care to get.
  • The Medicare Claims Processing Manual notes that ASC-covered surgical procedures do not include ones that:
    • generally result in extensive blood loss
    • require major or prolonged invasion of body cavities
    • directly involve major blood vessels
    • are generally emergent or life-threatening in nature
    • commonly require systemic thrombolytic therapy.
  • CMS has a yearly list of covered surgical procedures for which an ASC can be reimbursed.
• Outpatient surgery may also be performed in a hospital setting.
  • There are dedicated hospital-based outpatient departments which are located within or in close proximity to the hospital and in which all the procedures are intended to be outpatient. If complications arise, these patients may be converted to inpatient status and admitted to the affiliated hospital.
  • Outpatient surgery can also be performed in the same OR suite where inpatient surgeries are performed. A 22-year-old patient with uncomplicated appendicitis who presented to the emergency department may physically undergo their outpatient appendectomy in an operating room right next to a patient undergoing an inpatient abdominal aorta aneurysm repair. This is analogous to the paradigm of observation services (outpatient status) being provided on the same physical unit which houses inpatient admissions. It’s not the location, it’s the services being provided.

Therefore, it isn’t the operating room location that establishes the status. It isn’t even the procedure that does. This is where we really get into the morass.

More than half of therapeutic surgeries (57.8% in 2014; data published in 2017) occur in the outpatient setting, and there are certain procedures which are almost exclusively performed as outpatient surgery. Examples of these include cataract procedures, arthroscopic procedures of the knee, tonsillectomies and adenoidectomies, breast lumpectomies, and bunionectomies. Not surprisingly, the division between IP and OP surgery is skewed differently depending on the body system; 99.5% of eye procedures are outpatient whereas more than 70% of cardiovascular, respiratory, and urinary system procedures are performed in the inpatient setting.

The crux of this matter is considering a procedure which may be performed in the inpatient or the outpatient setting. Let us revisit appendectomy. According to the Healthcare Cost & Utilization Project (HCUP) statistical brief #223, 46.6% of appendectomies (in 2014) were inpatient procedures. That means it is roughly a toss-up as to whether the surgery will be done as an inpatient or outpatient.

What factors might constitute medical necessity for a procedure being an inpatient surgery?

• The procedure being performed routinely and consistently, across geographical regions and disparate health systems, necessitates two or more midnights of hospital-based care
• High risk of postoperative complications, expectation of admission to intensive care unit
• Pre-existing complications, like sepsis, perforation, abscess, or posthemorrhagic anemia
• Existence of one or more significant comorbid conditions which can reasonably be anticipated to make surgery and/or postoperative care more complex and risky (e.g., labile diabetes; severe chronic obstructive pulmonary disease; precarious heart failure, clinically significant dysrhythmias or coronary artery disease, acute kidney injury or high-grade chronic kidney disease, steroid usage or immunocompromise, bleeding disorder or coagulopathy)
• Anticipated need for coordination of and ongoing care, like pain management, monitoring, postprocedural laboratory or radiological studies
• Social determinants of health which might impede appropriate postoperative care and threaten surgical outcomes.

Hence, the first important action is prospectively assessing whether a patient needs an inpatient admission. MCG related a study of commercially insured patients looking at total joint replacements which found that the strongest predictor of outpatient status was the site of care (the hospital) and the next strongest predictor was the specific surgeon. In other words, the standard practice of the hospital system or provider determined the likely status. Of course, this doesn’t mean that the payer will abide by their practice.

At the risk of sounding like a broken record, the second most important action is the clinician documenting legitimate reasons why they believe an inpatient admission is medically necessary for this procedure. We will address this in the next article.

Now, let’s look at a different situation. The physician does not expect an inpatient admission and arranged for an outpatient surgery. This really comprises four scenarios:

• There are no extenuating circumstances; the provider just feels like watching the patient longer/overnight. It may even be their customary practice. This is considered “extended recovery” or “ambulatory in bed.” Different facilities use different verbiage, but the extended stay is just considered part of the surgery and its normal recovery. This is neither an observation stay nor grounds for an inpatient admission. There is no additional remuneration.
• In the recovery room, things are not going as smoothly as one would hope or expect. For example, it is challenging to manage pain or the patient is experiencing post-anesthesia nausea. The patient did not read the textbook on postoperative course and needs continued hospital-level care, but it is unclear how long the extended stay will be. If the complication is not too serious, this could constitute grounds for placing the patient in outpatient status for observation services (OBS). Within 12-18 hours or so, they will either recover and be dischargeable, or they will declare themselves as needing a formal admission and be converted to inpatient.
• A post-procedural complication may crop up which is too complex or is just expected to be in the hospital longer than an observation stay. These patients could be admitted directly from the operating or recovery room as inpatients.
• In the recovery room, a completely different issue crops up which is not suspected to be from the procedure. A pre-existing comorbidity becomes exacerbated. The patient develops a new unrelated condition which is not felt to be from the procedure but might just be bad luck or coincidence (e.g., new-onset atrial fibrillation). The disposition will vary depending on the situation – this can either be an OBS stay or an inpatient admission, depending on the circumstances and how serious or how long it will be expected to need to be managed.

What cannot be done is prospectively scheduling an observation stay. Observation services are only for complications that crop up in the postoperative period or for complicating medical issues. If the provider anticipates that there is a high risk of these issues requiring hospitalization, the patient should be admitted as an inpatient on the front end; they should not be scheduling OBS. If you have a provider who does this, they should receive remedial education.

Takeaways:

• On IPO list, inpatient.
• Expect the need for hospitalization after the procedure because there are significant comorbidities creating high-risk, inpatients.
• You feel like watching them overnight without a complication or medically necessary reason, ambulatory in bed/extended recovery.
• A complication crops up or a new condition arises that isn’t related to the surgery per se, outpatient status for observation services OR inpatient, depending on severity, intensity of services, and expected length of stay.

Next week, I will address documentation and coding practices related to surgical procedures and their status.