Medicare policy changes require physicians and coders to rethink billing practices for TKA patients.

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Recent years have brought important changes in the performance and reporting of total knee arthroplasty (TKA). The Centers for Medicare & Medicaid Services (CMS) has played a key role with the April 1, 2016, launch of the Comprehensive Joint Replacement (CJR) program, followed by the removal of TKAs from the inpatient-only list (IPO) for 2018. With the shift in site of service, as well as payment through bundled episodes, health information management (HIM) and case management departments are key to successful clinical and financial outcomes for both patient and facility.

CMS Makes Known Its Intent and Medicare Policy

TKA procedures are performed to treat degenerative joint diseases. According to the American Academy of Orthopedic Surgeons, TKAs are common, with an estimated 600,000 performed last year. The mean age of patients is 67 years; however, advances in technology and surgical technique has led to an increase in the number of surgeries performed in patients under the age of 60.The Medicare IPO list indicates which procedures and services CMS identifies as typically provided in the inpatient setting only — and therefore not paid under Medicare’s Outpatient Prospective Payment System (OPPS). To keep pace with technological advancements and surgical improvements, CMS reviews and updates this list annually, and publishes it as Addendum E to the OPPS final rule.Effective Jan. 1, 2018, CMS removed TKAs from the Medicare IPO list. The decision was made based on information gathered from non-Medicare patients, which suggested that a subset of healthy patients were able to undergo the procedure in an outpatient setting. This led CMS to conclude that similar patients also exist in the Medicare population.Through the 2018 OPPS final rule process, CMS allowed Medicare coverage for outpatient TKA surgeries, but only when performed in outpatient facilities associated with a hospital, and not in a free-standing ambulatory surgery center (ACS) setting. CMS was clear that removal from the IPO list did not mean that TKAs could be performed only on an outpatient basis. Although CMS clearly stated its intent, the transition from the IPO list left physicians and facility providers with outstanding questions related to current Medicare policies, such as documentation requirements, post-acute skilled care, interplay with the Two Midnight Rule, and the CJR program.

Clear Up the Confusion

When CPT code 01402 is reported with CPT code 27447, Arthroplasty, knee, condyle and plateau; medical and lateral compartments with or without patella resurfacing (total knee arthroplasty), this code is paid under the OPPS and payment for this service is packaged into the payment for CPT code 27447. If the code is not reported with CPT code 27447, the code is treated as an inpatient procedure that is not paid for under the OPPS. This change is retroactive to January 1, 2018.

Heed the Two Midnight Rule

TKA was not subject to the Two Midnight Rule when on the IPO list, but it is now:

… the hospital admission is expected to span at least two midnights in order to be covered as an inpatient procedure. If it can be reliably expected that the patient will not require at least two midnights in the hospital, the “Two-Midnight Rule” suggests that the patient is considered an outpatient and is therefore subject to outpatient payment policies.

In prior guidance, CMS also states that Medicare may treat some admissions spanning less than two midnights as inpatient procedures if the patient record contains documentation of medical need.Documentation must support the need for an inpatient stay (as it would with any inpatient admission); however, it was not CMS’ intent for practitioners to document the justification of an inpatient stay versus an outpatient stay. When discerning inpatient vs. outpatient status, consider: patient comorbidities, expectation for the patient to require a stay that crosses two midnights, and the need for skilled post-acute care.The good news is, CMS has directed Recovery Audit Contractors (RACs) to delay audits of TKA cases for site of service until 2020, allowing providers and practitioners an opportunity to improve documentation habits. But the directive only references site of service —nothing precludes CMS functional contractors (i.e., RACs, Unified Program Integrity Contractors, Medicare Administrative Contractors) from reviewing claims for issues of medical necessity or Medicare fraud, for example.

Verify Documented Medical Necessity


Description of the pain (onset, duration, character, aggravating, and relieving factors); Limitation of activities of daily living (ADLs) – specify; Safety issues (e.g., falls); Contraindications to non-surgical treatments; Listing and description of failed non-surgical treatments such as: Trial of medications (for example, NSAIDs); Physical therapy; Intra-articular injections; and Braces, orthotics, or assistive devices.

Physical examination:

Deformity; Range of motion; Crepitus; Effusions; Tenderness; and Gait description (with/without mobility aides).


Results of applicable imaging: MRI, X-ray

Clinical judgment: Reasons for deviating from a stepped-care approach

Auditors expect to see this information in the medical note as it applies to the patient’s situation. The information generally is found in the surgeon’s pre-procedure progress notes, which leaves the hospital vulnerable during an audit if the admitting physician’s history and physical does not provide enough detail to support the medical necessity of the procedure. Ongoing conversations between case management, HIM, and the surgeons are beneficial to insure medical necessity documentation and continuity of care regarding post-acute services. Failing to list comorbidities and social circumstance can lead to a delay in home health services, physical therapy, and skilled nursing facility placement.

Account for the Impact on Hospital Reimbursement

The effect on hospital reimbursement cannot be overlooked: Reimbursement for TKAs will be lower when performed as an outpatient compared to what Medicare will pay under the Inpatient Prospective Payment System (IPPS). The lower reimbursement will be limited to cases done on an outpatient basis and paid under an APC; TKAs performed in an inpatient setting will continue to be reimbursed at the rate for Medicare Severity Diagnosis Related Group (MS DRG) 469 or 470. Using national averages (the 50th percentile IPPS payment of DRG 470 and the unadjusted comprehensive APC (C-APC) 5115), a facility can expect to receive approximately $1,600 less for a TKA performed as an outpatient.Medicare participating hospitals paid under a cost-based methodology, such as critical access hospitals (CAHs), have another factor to consider: the financial implication to the patient. For PPS hospitals, whether the TKA is performed as an inpatient or outpatient, patient liability is limited to the inpatient deductible ($1,364 in 2019). For TKAs performed in a CAH, the patient financial liability is not limited to the Medicare Part A deductible (20 percent of the reasonable cost charges).Another area to consider is the effect on facilities required to participate in the CJR program. CJR is an episodic bundled payment that is retrospective and applies to total hip and knee replacements. Hospitals participating in the CJR model are held to a financial responsibility and are accountable for quality and cost of the complete joint replacement episode of care. CMS determines a target price based on hospital specific costs and regional costs. The payment includes all reimbursement for the 90-day period to all involved providers. Providers are paid under the appropriate reimbursement at the time of service. At the completion of a performance year, actual spending of the “episode” is compared with a calculated target price. If the facility spends less than the target price, a reconciliation payment is made to the facility. If costs exceed the target price, a reconciliation payment is made by the facility to Medicare.The CJR program applies to Medicare patients enrolled in traditional Medicare and is not applicable to Medicare Advantage, end-stage renal disease, or United Mine Workers Medicare patients. Although the CJR program was narrowed to 37 areas in the second year, hospitals in these areas are required to participate in the program. TKAs performed as an outpatient will be removed from the pool of CJR TKA patients, leaving the higher cost patients in the CJR program and increasing cost per patient. With the increased cost of care due to higher severity patients, facilities are at risk of exceeding the target price and having to make reconciliation payments to Medicare.

Take Appropriate Measures

Given the outpatient option, existing Medicare rules (Two-Midnight rule and qualifying three-day stays) and patient variables should be considered prior to a procedure. Effective conversations need to take place between the surgeon and the health system to ensure the best patient outcome. Facilities should consider adopting protocols to address patient variables (co-morbid conditions, anesthesia risks, post procedure complications) to provide an effective method of prioritizing patients for planned inpatient or outpatient procedures.

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Yvette M. DeVay, CPC, CIC, CPMA, CPC-I, is a regulatory specialist with HCPro. She has more than 20 years’ experience in matters of Medicare compliance, coding, and audit. She holds a Bachelor of Science degree from Pennsylvania State University and a master’s degree in Health Administration from Seton Hall University. DeVay is a member of the Harrisburg, Pa., local chapter.