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

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.

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.

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.

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.