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Senators' legislation sets up guidelines for two-midnight rule


By Jessica Zigmond
Posted: March 6, 2014 - 4:00 pm ET
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Two senators introduced bipartisan legislation Thursday to address the contentious two-midnight rule for hospital inpatient stays by establishing new guidelines for the CMS. The measure resembles one already being considered in the House.

Sens. Robert Menendez (D-N.J.) and Deb Fischer (R-Neb.) are co-sponsoring the Two-Midnight Rule Coordination and Improvement Act of 2014 (PDF), which quickly has garnered support from the American Hospital Association, America's Essential Hospitals, the Association of American Medical Colleges, and a several state hospital associations.

Made final in the CMS' inpatient prospective payment rule for 2014, the two-midnight rule directs Medicare's contractors to assume hospital admissions are reasonable and necessary for patients who stay in a hospital through two midnights. Stays shorter than that length of time are considered legitimate if they are coded as outpatient observations.

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The CMS established the policy as a response to an increase in observation stays, for which patients pay higher out-of-pocket costs. Although Medicare's recovery auditors were supposed to begin enforcing the rule on Oct. 1, 2013, the CMS has delayed the rule's enforcement a few times. Under the most recent delay, recovery auditors—who find improper claims—now must wait until after Sept. 30 of this year to begin enforcement.

The legislation introduced Thursday would require the HHS secretary to consult with interested stakeholders to determine the criteria for short inpatient stays—meaning those that are necessary but would not be expected to last through midnights. According to the bill, those stakeholders would include hospitals, physicians, Medicare administrative contractors, recovery audit contractors, and other parties that the HHS secretary determines is appropriate. The bill also calls for the development of a payment methodology for these shorter inpatient stays after the criteria are established.

Michael Barnard, senior health adviser to Menendez, explained that the legislation doesn't explicitly require the CMS to consult with the same stakeholders when developing the payment methodology for these stays, but that the agency should consider the criteria those stakeholders developed.

Meanwhile, the Senate bill includes the current enforcement delay, and also says that if the CMS implements criteria in the fiscal 2015 rulemaking process, then the recovery audit contractors can begin their work on or after Oct. 1, 2014. But if the criteria are not implemented by that time, the Senate bill calls for another yearlong delay of the enforcement until the criteria are made final.

Xiaoyi Huang, director of policy at America's Essential Hospitals—which represents the nation's safety net providers—said the group likes that the bill enforces the delay until the CMS “gets this policy right.”

“There are short inpatient stays that may not last two midnights,” Huang said, “but should still be treated in an inpatient setting.”

Reps. Jim Gerlach (R-Pa.) and Jim Crowley (D-N.Y.) have a similar, though not identical, bill in the House that calls for implementing a new payment policy for short inpatient stays in 2015. That bill calls for the HHS secretary to develop the criteria in the 2015 rulemaking process, but the Senate bill takes that a step farther, according to Huang of America's Essential Hospitals, because it specifies that the secretary must consult with interested stakeholders when establishing the criteria for short inpatient hospital stays.

Follow Jessica Zigmond on Twitter: @MHjzigmond


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