Healthcare Business News

Two-midnight rule will short-change hospitals, providers say

By Joe Carlson
Posted: February 3, 2014 - 4:45 pm ET

Healthcare providers say Medicare is going to short-change them on patients who spend fewer than two nights in the hospital, and delaying implementation of a new payment policy until October won't change that.

What the delay will do is give hospitals, doctors and special-interest groups more time to study the new “two midnight” rule and find ways to block it—whether through negotiation, legislation or litigation.

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“I think ultimately the hospitals will prevail on this, one way or another,” said Emily Evans, a partner with Nashville-based healthcare consultancy Obsidian Research Group. Hospitals say “short-stay inpatient care is common in the practice of medicine, and you shouldn't treat it like fraud, waste or abuse.”

The CMS is hosting a one-hour “open-door” teleconference at 1 p.m. ET on Tuesday in which the agency will listen to questions about the finer points of the controversial rule published last August. The call will focus on questions regarding the criteria that doctors and hospitals must use when deciding whether to admit a Medicare patient for costly inpatient care or treat them as an outpatient under observation.

The two-midnight rule directs auditors to assume that Medicare hospital stays were not legitimate if they didn't last two nights. Exceptions include surgeries on the CMS' “inpatient-only” list and cases where a patient unexpectedly dies or leaves the hospital early against medical advice.

Hospitals say they'll lose money on the deal because many procedures are appropriate for short inpatient care and now will be reimbursed only under Medicare's lower outpatient rates.

CMS officials say hospitals actually stand to benefit financially because the two-midnight rule also says hospital visits that cross two midnights will be presumed legitimate if they include adequate physician notes. That should allow hospitals to get full inpatient rates on cases that would have been outpatient in the past, creating an estimated $220 million in new Medicare expenses nationwide, the agency estimated.

The CMS devised the policy in response to complaints that Medicare patients were being exposed to prolonged periods of outpatient observation care in the hospital—which exposes them to 20% co-payments and denies them eligibility for Medicare-covered rehab care upon release.

The change is intended to cut down on long observation care and clarify the murky rules about when a Medicare patient should be admitted. Despite the unclear rules, admission decisions are some of the most heavily audited aspects of Medicare hospital bills.

But the new policy has created headaches of its own. The American Medical Association “strongly opposes” the policy because it could increase the amount of documentation that physicians will have to file while subjecting some patients to larger financial burdens. “We recognize that these issues are causing tremendous difficulties for physicians and patients, and we will continue to work with stakeholders to pursue workable solutions during the additional time afforded by the delay issued by CMS,” AMA President Dr. Ardis Dee Hoven said in a statement.

The two-midnight policy technically went into effect Oct. 1, but the CMS has delayed key enforcement provisions, most recently last week. The agency said Friday that recovery-audit companies won't be able to open investigations under the new rules until after Sept. 30.

“We are pleased that CMS has extended its enforcement moratorium on the two-midnight policy for an additional six months, as the AHA has urged,” a statement from the American Hospital Association said. “This action clearly recognizes that there are still many unanswered questions about the policy.”

While proposed legislation to change the rule has been in the works, several AHA members last month laid the groundwork for litigation against the two-midnight rule.

The rule has drawn additional criticism because of its direct financial impact. Because the CMS estimated that the policy would convert more observation care into expensive inpatient care, the agency reduced standard payment rates to hospitals by 0.2% to make up the difference.

Follow Joe Carlson on Twitter: @MHJCarlson

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