Published 4/1/2009
John Cherf, MD, MPH, MBA; Kathleen Cox

2009: A favorable year for orthopaedic payment updates

Medicare reimbursement for orthopaedic services is dominated by the following four programs within the Centers for Medicare & Medicaid Services (CMS):

  • Inpatient Prospective Payment System (IPPS)
  • Outpatient Prospective Payment System (OPPS)
  • Ambulatory Surgical Center (ASC) Payment Program
  • Medicare Physician Fee Schedule

The 2009 payment updates for these programs implement favorable reimbursement changes for orthopaedics, while continuing to emphasize quality measurement and cost containment. This article discusses the changes to the IPPS; the remaining programs will be covered next month.

Overall, facility reimbursements were adjusted to more closely account for case severity and cost differences across sites of care. Payment for cases with complications and comorbidities increased; payment for cases without complications decreased. Additions to the CMS-accepted quality measures and hospital-acquired condition (HAC) lists, which affect reimbursement levels, will continue to push facilities to provide higher quality, more cost-effective care. Similar reimbursement stipulations will likely be applied to physician payment in the future.

Inpatient Prospective Payment System
The IPPS, established by 1983 Amendments to the Social Security Act, is the system of reimbursement associated with inpatient stays at acute care hospitals under Medicare Part A (Hospital Insurance). Under the current IPPS, each orthopaedic admission is categorized into a Medicare Severity Diagnosis-Related Group (MS-DRG) based on procedure and severity groupings, which have associated reimbursement rates relative to the average resources required to treat patients within that MS-DRG. There are currently 751 MS-DRG categories; 91 are related to orthopaedic conditions.

Effective October 1, 2008, the IPPS implemented an overall reimbursement increase of 3.6 percent for inflation and a 0.9 percent decrease for budget neutrality (coding adjustments). Based on the 2009 payment updates, which occur on an MS-DRG level, and historical Medicare volume estimations, acute care hospitals could see a net Medicare payment increase of 5.5 percent for orthopaedic services in 2009.

Overall, no large cuts were made within orthopaedics; a few moderate increases were made. Reimbursement for all joint replacement procedures increased; increases for hip and knee revisions were in the double-digits. Spine fusion procedures, excluding cervical spine (MS-DRGs 459 and 460), saw moderate increases as well. These payment changes may help cover the rising costs of certain orthopaedic procedures that are often unprofitable for hospitals due to significant hardware costs. Table 1 provides a detailed breakdown of the payment updates for some high-volume orthopaedic MS-DRGs.

Inpatient Quality Reporting
The Reporting Hospital Quality Data for Annual Payment Update program was originally mandated under the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of 2003. Under MMA, hospitals that successfully report designated quality measures receive a higher annual payment rate update.

The Deficit Reduction Act (DRA) of 2005, however, replaced this increase with a 2.0 percent payment reduction to hospitals that do not report quality data. Because hospital profit margins are typically just 4 percent to 6 per­cent, a 2 percent reimbursement reduction would have a significant impact. Thus, nearly 95 percent of hospitals successfully participated in this reporting program in 2007.

Although the program does not yet reward hospitals that provide the highest quality of care, CMS posts some hospital quality information on the Hospital Compare Web site (www.hospitalcompare.hhs.gov), which could be used by patients to select a hospital for their healthcare needs.

CMS expanded the list of quality measures that can be reported to receive the full payment rate for 2010. Overall, 13 new measures were added and 1 was retired. Quality measures that apply to orthopaedics now include hip fracture mortality rate, postoperative wound dehiscence, death of surgical patients with treatable serious complications, appropriate administration and discontinuation of prophylactic antibiotics, and appropriate venous thromboembolism prophylaxis. A complete list of quality measures for the 2010 pay­ment update can be found on the CMS Web site (www.cms.hhs.gov).

HACs and “never” events
HACs are specific conditions, identified by CMS following the DRA of 2005, that are often acquired during an inpatient stay and are reasonably preventable with the application of evidence-based guidelines. Since October 2007, hospitals have been required to note if any of the selected conditions were present at the time the patient was admitted to the hospital. If one of these conditions develops during the patient’s stay, but was not flagged as present on admission or considered undetectable upon admission, it is considered an HAC.

In October 2008, Medicare stopped reimbursing hospitals for the additional care (beyond the index procedure) when an HAC is indicated. Medicare also prohibits the hospital from billing the beneficiary for the additional costs associated with treating the HAC. Medicare will, however, pay professional fees for physician services needed to treat the HAC.

An increasing number of HACs are associated with orthopaedic procedures. In 2009, two more were added: surgical site infection following orthopaedic surgery, and deep vein thrombosis (DVT) and pulmonary embolism (PE) following total hip and total knee replacement (Table 2).

CMS has also developed targeted prevention initiatives for a list of serious reportable adverse events or “never events,” as defined by the National Quality Forum. These are considered inexcusable due to their preventable nature, significant additional cost, and extent of harm to the patient.

Although the HAC list addresses many of the “never events,” CMS has also issued National Coverage Determinations (NCDs) under which hospitals will not be reimbursed for other select events. Recent NCDs include wrong-procedure, wrong-site, or wrong-patient surgeries. Historically, these types of events occurred most frequently with orthopaedic and spine procedures. CMS is considering expanding HAC and “never-event” payment provisions to hospital outpatient departments, ASCs, and physicians in future rules.

John Cherf, MD, MPH, MBA, is a member of the AAOS Health Care Systems Committee and a clinical advisor to Sg2, a healthcare intelligence company. He can be reached at jcherf@neuro-ortho.org

Kathleen Cox is an orthopaedic analyst with Sg2; she can be reached at kcox@sg2.com