Is the New Outpatient Prospective Payment System Classification for Outpatient Total Knee Arthroplasty Appropriate?

Background: In 2018, the Centers for Medicare and Medicaid Services removed total knee arthroplasty (TKA) from the inpatient-only list, resulting in payment through the Outpatient Prospective Payment System with an average $3157 reduction. The purpose of this study is to determine if the reimbursement is justified by comparing the difference in facility costs between inpatient and outpatient TKAs.

Methods: We identified 4496 consecutive primary TKA procedures performed at 2 hospitals from 2015 to 2019. Itemized facility costs were calculated using a time-driven activity-based costing algorithm. Outpatient procedures were defined as those with a length of stay of less than 2 midnights (3851, 86%). Patient demographics, comorbidities, and itemized costs were compared between groups. A multivariate regression analysis was performed to determine the independent effect of outpatient status on true facility costs.

Results: Outpatient TKA patients had lower mean postoperative personnel costs ($1809 vs $947, P < .001), supply costs ($4347 vs $4229, P < .001), and overall total facility costs ($7371 vs $6937, P < .001) than inpatient TKA patients. Controlling for a younger patient cohort with fewer medical comorbidities, outpatient status was associated with a reduction in total facility costs of $972 (95% confidence interval $883-$1060, P < .001) compared to inpatient TKA.

Conclusion: Outpatient TKA costs hospitals nearly $1000 per patient less than inpatient TKA, yet the average difference in Medicare reimbursement for an outpatient procedure is $3157 less per patient. Centers for Medicare and Medicaid Services should reconsider the Outpatient Prospective Payment System classification of TKA to better incentivize surgeons to perform TKA as a lower cost outpatient procedure when safe and appropriate.

Keywords: Medicare reimbursement; Outpatient Prospective Payment System; health policy; inpatient-only list; outpatient total knee arthroplasty.