Auditors will delay scrutiny of 'two-midnight' rule: CMS

Addressing widespread anger among hospitals and doctors about the new “two-midnights” rule for outpatient observation, CMS officials announced Thursday that government recovery auditors will delay scrutiny of short inpatient stays for 90 days while providers get acclimated to the new policy.

This week 100 members of Congress signed a letter asking the CMS to postpone the rule so that federal officials could listen to more feedback and change it. The CMS is not doing that.

Instead, Medicare's aggressive recovery audit contractors—commonly known as RACs—have been told they will not be allowed to question the medical necessity of any inpatient stay lasting a day or less between Oct. 1 (when the rule goes into effect) and Dec. 31, according to a CMS document (PDF) published Thursday.

“What CMS is looking for here is for the provider community to get their education and training done on the rule as written, but without the burden of worrying about what a RAC contractor might or might not do,” said Emily Evans, partner with Obsidian Research Group. “So they are taking some of the financial pressures off the providers while they learn how to comply with the rule.”

Hospital interest groups, however, immediately blasted the CMS' answer to the confusion, saying they continue to believe the rule should be delayed indefinitely until a clearer policy is formed. American Hospital Association President and CEO Rich Umbdenstock issued a statement saying “the agency's guidance only raises new questions and lacks clarity.”

Echoing another concern the AHA raised, the Federation of American Hospitals said the CMS “used flawed and arbitrary assumptions to justify its $200 million payment cut to hospitals, purportedly to achieve budget neutrality for the two-midnight rule.”

The moratorium will not eliminate all auditing of short inpatient stays for the remainder of 2013.

A different type of entity called Medicare administrative contractors, which process Medicare claims on behalf of the CMS and make the initial decision of whether to pay them, will still be allowed to “probe” a sample of up to 25 claims per hospital. If irregularities turn up, the administrative contractor can still deny claims within that sample and then “conduct education” for how the hospital should comply with the rule.

The two-midnights rule says that hospital stays that last two days—defined as a stay that spans at least two midnights—are presumed to be legitimate uses of inpatient care and will not be subject to auditing, for the most part. Likewise, most stays that are shorter than that are presumed to have been appropriate for outpatient observation, a level of care for which Medicare pays less and subjects patients to much higher costs.

The rule was announced as part of the 2014 inpatient payment rates, which include a $200 million cut to Medicare payments. CMS officials had estimated the two-midnights policy would increase hospital payments by allowing more patients to become eligible for inpatient rates for patients who otherwise would have spent three or more nights in the hospital under outpatient observation.

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