The CMS hatched the two-midnight rule so hospitals would stop billing patient stays under observation codes to insulate their claims from the government's audit contractors. As a result, though, Medicare beneficiaries were hit with the higher out-of-pocket costs of Medicare Part B and couldn't get reimbursement for skilled nursing after leaving the hospital.
Under the two-midnight rule, an admission is presumed to be appropriate if the patient's stay crosses two midnights. Providers, however, argue that rule undermines their clinical judgment and has created more confusion than clarity. Congress this year delayed the enforcement of the policy, and the CMS has solicited ideas to improve it.
“The notion of eliminating observation status altogether in many respects is the most elegant solution of all,” MedPAC panelist Dr. Craig Samitt said during a recent meeting. “In essence, if we say we're going to pay observation status and one-day stay equally, then for each of these other downstream problems, the issue goes away,” Samitt said.
Medicare pays $3,100 more on average for an inpatient stay than for an outpatient observation stay, according to claims data reviewed by the commission.
Samitt's proposal has drawn mixed responses. Outgoing chairman Glenn Hackbarth said “the idea has some appeal,” but wanted to explore whether it would lead to higher costs for patients—because clearing the deductible for a short inpatient hospital stay can be more expensive than the higher cost-sharing percentage under Part B—and draw more attention to two-day stays from Recovery Audit Contractors.
Others said it would cause the government to reimburse hospitals the same for very different levels of care. The hospital resources that go toward the care of a patient in observation status versus the care of someone who has had serious surgery, for example, are significantly different.
Many people in the hospital have had outpatient surgery and need to be observed for nausea, vomiting or pain control, noted MedPAC member Dr. Alice Coombs, a critical-care specialist and an anesthesiologist at Milton Hospital and South Shore Hospital in Weymouth, Mass. “So these patients are observation truly,” Coombs said. “It's not a very complex admission, and it doesn't have the level of complexity of co-morbid conditions that someone in congestive heart failure who needs to be paid attention to very closely.”
Advocates for beneficiaries, however, said the idea should be explored further. “Getting rid of observation status would solve a lot of problems for consumers and resolve the issue of whether they're inpatient or outpatient,” said Joe Baker, president of Medicare Rights Center, a consumer advocacy organization.
The chances of the idea actually be implemented by the CMS are unclear. First, it would have to be formally suggested in one of MedPac's annual reports to Congress, and Hackbarth made clear that no recommendations related to short-term hospital stays would be made until at least June 2015.
“There are a number of different closely related issues that we are including under the rubric of hospital short-stay policy, and rather than peeling off individual items, we're going to try to produce a package that covers the range of issues, but that's going to take us a little time to put together,” Hackbarth said.
Its chances will also hinge on the price tag and the support of MedPAC's executive director, Mark Miller, said Tom Scully, former CMS administrator and general partner at private-equity firm Welsh Carson Anderson & Stowe. Miller is held in very high regard not only by the CMS, but on Capitol Hill as well, Scully said.
The CMS has been collecting ideas since May on how to amend or replace the two-midnight rule. The agency will likely solicit comments on some of those suggestions in April, when it's expected to release the proposed inpatient payment rule for fiscal 2016.
Other ideas discussed on the Hill and in policy circles include counting observation days toward the threshold to get reimbursed for skilled-nursing facilities. Another is to establish a sliding payment scale that prioritizes specific hours of care and services provided.
For example, if a patient is admitted and stays in the hospital for 32 hours, the hospital could break down what services were provided in four eight-hour periods. If the most expensive care was delivered in the first 16 hours, Medicare could pay hospitals inpatient rates for that timeframe and lower rates for the latter half of the stay.
Follow Virgil Dickson on Twitter: @MHvdickson