The Division of Workers' Compensation in the Department of Industrial Relations (DIR) maintains an Official Medical Fee Schedule (OMFS) for medical services provided under California's workers compensation (WC) program. The OMFS establishes the maximum allowable fee for services furnished to injured workers unless the payer and provider contract for a different payment amount. The OMFS allows facility fees for surgical procedures that are furnished in freestanding ambulatory surgical centers (ASCs). To receive an OMFS facility fee, an ASC must either be licensed by the California Department of Public Health, accredited by an accrediting body recognized by the Medical Board of California, or approved for participation in the Medicare program. ASC allowances are based on the Medicare fee schedule for hospital outpatient services.
The Medicare fee schedule does not include fees for “inpatient only” procedures that Medicare has determined cannot be safely performed on Medicare beneficiaries in an outpatient setting. The “inpatient only” list is reviewed annually as part of the annual rulemaking process that includes an opportunity for public comment. The list contains procedures that Medicare does not cover when they are furnished to a hospital outpatient. Procedures that are not on this list may be covered when they are furnished to hospital outpatients. Medicare also maintains a more restrictive listing of ASC approved procedures. This listing excludes not only the “inpatient only” procedures but other procedures that Medicare has determined cannot be safely performed in a non-hospital setting on Medicare beneficiaries. The OMFS does not utilize this more restrictive list. Instead, the OMFS rules apply the Medicare policies for hospital outpatient surgeries to surgeries performed in both hospital outpatient and ASC settings. The Medicare-designated “inpatient only” procedures include high volume WC procedures such as such as multi-level spinal fusions and hip and knee replacements. As a result, there is no OMFS allowance for these procedures when they are performed in an ambulatory setting. When an injured worker needs a Medicare “inpatient only” procedure, the procedure is typically performed and paid as an inpatient procedure. The OMFS rate for inpatient services is based on 120 percent of Medicare's payment for inpatient hospital services. Alternatively, when it is medically appropriate to perform the procedure in an ambulatory setting, the OMFS rules allow the payer to authorize payment as an outpatient procedure at a rate that the payer and facility (hospital or ASC) have agreed upon.
Section 74 of Senate Bill 863 requires DIR to study the feasibility of establishing a facility fee for Medicare's “inpatient only” procedures performed in ASCs and report its findings to the Senate Labor Committee and Assembly Insurance Committee. The provision states that DIR should consider setting an ASC facility fee for an “inpatient only” procedure at 85 percent of the Medicare fee schedule amount for the procedure when it is performed as an inpatient procedure. If feasible and appropriate, shifting certain procedures from the more expensive inpatient setting to the less-expensive ASC setting would produce cost savings for employers and expand worker choice regarding where surgical procedures can be provided.
DIR asked RAND to examine the feasibility and appropriateness of including “inpatient only” procedures on the OMFS for ASC facility fees and to consider what the appropriate ASC facility allowance would be for an “inpatient only” procedure. DIR asked RAND to consider the following questions:
- What policy considerations should be addressed in allowing certain “inpatient only” services to be performed in ASCs?
- Which “inpatient only” services can be safely performed in the ASC setting for WC patients?
- If an OMFS allowance were set for “inpatient only” services that are performed in an ASC, what multiplier to the Medicare inpatient rate or other fee schedule methodology should be considered? What are the projected cost savings with the use of this multiplier?
- How applicable are ASC findings to the hospital outpatient department setting? What are potential implications regarding services that would be allowed and the fee schedule that would be used?
Approach and Methods
We used a combination of interviews, literature review, and data analysis to address the study questions. We started our review with two underlying policy questions: Do the health and safety requirements for ASCs provide adequate patient safeguards for performing higher risk surgeries that are typically performed in an inpatient setting? What factors does Medicare consider in assessing whether a procedure can be safely performed in an outpatient setting? To answer these questions, we assembled information on the health and safety requirements applicable to ASCs from the Department of Public Health for licensed (non-physician owned) ASCs, from the Medical Board of California for physician-owned ASCs, from CMS for Medicare-certified ASCs, and from organizations that accredit ASCs. We reviewed the criteria that Medicare uses to assess whether procedures can be safely performed in an outpatient setting and adapted them for the WC patient population. We used this policy framework to guide our data analyses and the conclusions we drew from the results.
We focused our assessment of which Medicare “inpatient only” procedures could be safely performed in an ASC setting on 23 procedures that are high-volume WC inpatient procedures with relatively short average lengths of stay. Our framework included three considerations. The first was the extent to which one of the study procedures is currently being performed in an ambulatory setting. A finding that a substantial proportion of the study procedures are performed in ambulatory settings on non-Medicare patients would be an indication that the study procedure might be safely performed on WC patients in ambulatory settings. The second consideration was whether a substantial proportion of WC patients receiving the study procedure on an inpatient basis were discharged after no more than a one-night night stay. By definition, a Medicare-certified or state-licensed ASC furnishes surgical services to patients who require less than a 24-hour stay. A finding that a substantial proportion of WC inpatients were discharged after no more than a one-night stay would be an indication that they might have been candidates for ambulatory surgery assuming that there are appropriate patient selection criteria to determine when the procedure can be safely performed in an ambulatory setting. We used utilization data from several sources to investigate these two considerations.
The third consideration was the extent to which there is evidence in the literature to support a conclusion that the study procedures can be safely performed in an outpatient setting. In this regard, we reviewed the literature concerning the provision of selected study procedures (multi-level spinal fusions with and without instrumentation, hip replacements, and knee replacements) in ambulatory settings. Under current OMFS policies, there is no distinction between the services that are covered in a hospital outpatient setting versus an ASC setting. Therefore, we searched for studies that examined outcomes for performing the procedures in either a hospital outpatient or ASC setting. We were particularly interested in ascertaining what evidence is available regarding patient selection criteria for ambulatory surgery and the outcomes when ambulatory surgery is performed.
To explore potential fee schedule options, we selected certain cervical spinal fusion codes that are Medicare “inpatient only” procedures. Single-level anterior cervical spinal fusions are already covered as an outpatient procedure, but those involving multi-level spinal fusions and/or instrumentation are not. For WC inpatients, we compared the hospital's estimated average cost for anterior cervical spinal fusions that might have been candidates for outpatient surgery (those involving no more than a one-night stay) to the estimated average cost for all cervical spinal fusions with no complications or comorbidities. The ratio provides an indication of what an appropriate multiplier to the Medicare inpatient rate might be. As another fee schedule option, we compared the hospital's cost to the OMFS ASC allowance for the single-level cervical spinal fusions with no instrumentation.
Finally, to inform our discussion of potential policies and recommendations, we reviewed policies of other states that have adopted Medicare's ASC and/or hospital outpatient fee schedule and conducted semi-structured interviews with several California stakeholders as well as WC officials in other states.
Procedures That Can Be Safely Performed in an Ambulatory Setting
As noted above, we established a framework to analyze which “inpatient only procedures” might be safely performed in an ASC setting. The criteria that we used to assess whether the study procedures might be safely performed on WC patients in an ambulatory setting and a summary of our findings for each criterion follow.
- Most ASCs that are eligible for an OMFS facility fee, or a particular class of ASCs (e.g., Medicare-certified ASCs), are generally equipped to provide the services to the WC population.
Finding: ASCs that are currently eligible for an OMFS facility fee are likely to be equipped to provide services that do not require a one-night stay. However, Medicare has several requirements for patient protection that are not found in the minimum accreditation requirements for physician-owned facilities that are not Medicare certified. These include accepting only patients who are likely to require less than a 24-hour stay, assuring appropriate post-discharge arrangements are made, and providing the patient with written disclosure of any financial interests between the ASC and the physician. The latter is important because most ASCs are physician owned.
- The procedure is similar to other surgical codes that are currently eligible for a facility fee.
Finding: There are several categories of codes that could be considered related to spinal surgery codes that are already covered as ambulatory surgery, including “add-on” codes related to a primary procedure that is already considered an ambulatory procedure,* separately reported codes that are often incidental to a primary code that is already considered an ambulatory procedure, and “inpatient only” procedures that are classified into the same Medicare DRG as procedures that are covered in an ambulatory setting.** No related procedures for total hip and knee replacements are already covered in the ambulatory setting.
- The procedure is being performed by numerous providers (hospitals or ASCs) on the non-Medicare/Medicaid population ages 18–64 years.
Finding: With the exception of spinal instrumentation, we found that relatively few “inpatient only” procedures are being performed in an ambulatory setting on either the WC or privately insured patients ages 18–64 years.
- When the procedure is performed in the inpatient setting, at least 15 percent of patients ages 18–64 years are discharged after no more than a one-night stay.
Finding: More than 20 percent of WC patients receiving cervical spinal fusions with no complications or comorbidities are discharged after no more than a one-night stay. This includes patients with instrumentation and multi-level spinal fusions. More than 90 percent of WC patients receiving lumbar fusions, total knee replacements, and total hip replacements required at least a two-night stay.
- The procedure can be appropriately and safely performed in an ASC.
Finding: We identified no studies that examined patient outcomes for hip and knee replacements conducted in either the hospital-outpatient setting or freestanding ASC setting. We found seven articles that involved spinal fusions performed in an ambulatory setting that suggest that two-level anterior cervical fusions and the use of instrumentation for one- or two-level fusions can be performed safely on an outpatient basis. We did not identify evidence-based selection criteria to suggest which patients are appropriate candidates for having anterior cervical procedures with the add-on procedures in an outpatient setting. We found no articles that examined lumbar spinal fusions performed in an outpatient setting.
The differences between the Medicare health and safety standards and minimum accreditation requirements for non-Medicare certified ASCs suggest that DWC should establish additional conditions before an “inpatient only” procedure is performed in an ASC setting:
- The provider has determined that the patient is likely to require less than a 24-hour stay and has assured that the patient's post-discharge needs will be appropriately met.
- The request for prior authorization for the procedure should document the provider's assessment that the procedure can be safely performed in the ASC setting with less than a 24-hour stay, include post-discharge plans, and disclose any relevant financial interests.
- The patient should also be provided upon referral (in advance of the date of the procedure) written financial disclosure of any physician financial interest as required by Medicare standards. At the same time, the patient should also be given written notification that the procedure is typically performed in an inpatient setting.
Our data analyses and review of the literature do not provide strong support for removing any procedures from the “inpatient only” list with the possible exception of procedures related to anterior cervical spinal fusions. While the literature contains reports of procedures being safely performed on samples of patients in an outpatient setting, limited information is available with respect to patient selection criteria. The literature is also limited with respect to the ASC setting, where WC coverage policies are already more expansive than Medicare's. Unlike the OMFS, Medicare covers single-level spinal fusions as a hospital outpatient procedure but not as an ASC procedure. Moreover, our data analyses indicate that with the exception of instrumentation, relatively few “inpatient only” procedures are currently being performed in an ASC on either WC or privately insured patients. Decisions on which procedures can be safely performed in an ASC setting should continue to be made on a case-by-case basis with payer approval required for both the medical necessity of the procedure and the setting in which it occurs.
Setting an OMFS Allowance for ASC Facility Fees
We did not identify readily available data that could be used to establish an appropriate methodology for pricing “inpatient only” procedures furnished in an ASC setting. We found that a single multiplier to the DRG rate is not suitable for the full range of WC high-volume “inpatient only” procedures because of the differences in the length of stay and resources required for the average patient assigned to the DRG relative to those patients most likely to be candidates for ambulatory surgery. Moreover, the most likely “inpatient only” procedures that might be performed as ambulatory surgery—add-on procedures to services that are already covered as an ambulatory procedure such as those for anterior cervical spinal fusions—have differing impacts on the incremental costs of providing them. For example, one- and two-level spinal fusions are unlikely to have significantly different ASC facility costs, while the use of instrumentation could add significantly to the cost, depending on surgeon preferences.
Current OMFS policies require that the prior authorization process for performing an “inpatient only” procedure include an agreed-upon allowance for the procedure. This procedure allows individual consideration of the anticipated services, including any implanted device costs, other procedures that will be performed during the same encounter, and post-discharge services, before the services are provided. Generally, the flexibility of the current approach to establishing a reasonable allowance is preferable to developing an across-the-board pricing methodology. Rates could be established on a procedure-by-procedure basis, but additional research would be required to determine the appropriate allowance.
Policies Applicable to Hospitals
Our framework for assessing which “inpatient only” procedures could be safely performed in an ambulatory setting does not distinguish between hospital outpatient and ASC settings. This is because the current OMFS makes no distinction between the services that can be covered in the two settings. However, some “inpatient only” services may be more appropriately performed as a hospital outpatient procedure than as an ASC procedure. Our findings in this regard include the following:
- Hospitals have the ready availability of emergency services and observation services for overnight stays that go beyond the services available in an ASC.
- While relatively few “inpatient only” procedures are being performed in ambulatory settings, a higher proportion are performed in the hospital outpatient setting than in an ASC.
Retaining the current OMFS policies allows payers and providers the flexibility to determine most appropriate setting for each patient and to agree upon a reasonable allowance when the service is performed in either a hospital outpatient or ASC setting. Assuming that the current policy is continued, we see no reason to apply different policies to hospital outpatient settings than ASCs. However, if a decision is made to revise the OMFS policy to allow certain procedures to be routinely performed in an ambulatory setting, different policies might be appropriate for the hospital outpatient and ASC settings. The coverage policy for hospital outpatient procedures should be no less restrictive than for ASCs but could be more expansive based on hospital capabilities to handle unanticipated situations. Similarly, allowances for hospital outpatient services should not be less than ASC allowances but could be higher in recognition that hospitals have higher infrastructure costs than ASCs.
Other Workers' Compensation Programs
With respect to other WC programs, we found a mix of policies. Several states (e.g., Washington, Texas) have policies that are similar to those used in California. Colorado's fee schedule covers the spinal fusion codes in an ambulatory setting but sets the allowance at the same rate as the ambulatory surgery facility fee for spinal procedures that Medicare already covers in an outpatient setting. The federal WC program expressly excludes “inpatient only” services from being provided in an ambulatory setting, while other states (e.g., Maryland, Michigan) have a general policy that services with no fee schedule amount shall be priced by the payer based on the physician's documentation regarding the services that were performed.
Our recommendations reflect the principle that the safety of the injured worker is of paramount concern and that any cost efficiencies are secondary. They are guided by the following considerations:
- Any expansion should be limited to procedures that are likely to require less than a 24-hour stay and should be based on evidence that Medicare's findings with regard to the procedures are not relevant for an injured worker.
- Only ASCs that have established prospective patient selection criteria designed to assure patient safety and that have appropriate informed consent procedures should be allowed to perform “inpatient only” procedures.
- Payment incentives must be carefully structured to discourage an ASC from taking a patient who might be at unnecessary risk if the procedure were performed in an ambulatory setting. Payment incentives must also be structured to discourage medically unnecessary procedures. An across-the-board pricing policy is unlikely to achieve this balance.
Our recommendations are to 1) retain current OMFS policies with regard to “inpatient only” procedures performed in an ambulatory setting, and 2) strengthen patient protections when procedures are performed in an ambulatory setting. The recommendations are made in the context of Medicare's annual review of the “inpatient only” listing. In its review process, Medicare considers not only the safety for its aged population but also whether the procedure might be safely performed in an outpatient setting on its younger disabled population. In restricting federal WC coverage of ASC procedures to Medicare's list of approved procedures, the federal Office of Workers' Compensation program (OWCP) acknowledges that some procedures might be appropriately performed in an ASC on a younger, healthier patient but notes that “for the larger number of OWCP program beneficiaries whose health is more likely to be compromised by disability and age, an ASC may be a questionable setting for those same procedures” (U.S. Department of Labor, undated). The current OMFS policy is already more expansive than the OWCP policy because it allows any procedure that may be covered as a hospital outpatient service to be covered in an ASC setting, and it provides for a case-by-case consideration of whether an “inpatient only” procedure might be appropriately performed in an ASC setting.
U.S. Department of Labor, Office of Workers' Compensation Programs, “Ambulatory Surgery Center (ASC) Payment Policies,” undated. As of October 1, 2013:
* For example, the use of spinal instrumentation is classified as a Medicare “inpatient only” procedure. It is reported as an add-on code to spinal fusions, including single-level anterior cervical fusions and posterior lumbar fusions (single or multi-level) that are considered ambulatory procedures.
** For example, the Medicare DRG for cervical spinal fusions includes single and multi-level fusions with and without instrumentation. The only recognized ambulatory procedures are single-level cervical spinal fusions without instrumentation. The other procedures are designated “inpatient only.”
The research described in this article was sponsored by the California Department of Industrial Relations and was conducted in the RAND Center for Health and Safety in the Workplace within RAND Justice, Infrastructure, and Environment.