The CMS is standing by the controversial two-midnight rule and will not implement changes proposed by industry stakeholders, including a popular suggestion to create a one-midnight rule. The agency will also allow physicians to exercise judgment in admitting patients for short hospital stays.
The CMS finalized its two-midnight policy in the 2016 hospital outpatient prospective payment system and ambulatory surgical center payment system payment rule released Friday.
The two-midnight rule, which was created in 2013, calls for Medicare's payment and audit contractors to assume a hospital admission was legitimate if it spans two midnights. Shorter stays are assumed to be more appropriately billed as outpatient observation care.
The rule is meant to correct a spike in observation stays after hospitals feared Medicare audit contractors would challenge admissions. As a result, many patients, found themselves ineligible for skilled nursing after spending days in the hospital because their stay had been billed as observation.
Some stakeholders have been very critical of the changes to the rule, especially the "physician judgment" exception, because the agency did not provide explicit instructions on when physician judgment overrides the official rule. The CMS disagreed that more instruction on clinical judgment was needed, however.
Another concern was that the modified rule could create a market for independent parties to sell “exception” letters to hospitals.
The agency surprisingly did not disagree.
“We will continue to monitor hospital admission practices and look for any evidence of gaming. In the event that evidence of gaming is found, CMS will take appropriate action against that provider,” the agency said.
The CMS also said recovery audit contractors, who have a financial incentive to dispute claims because they receive contingency fees of 9% to 12.5% for their recoveries, would no longer be the first to review shorter patient claims. Instead, quality improvement organizations will be the first to investigate and then refer to the RACs for payment adjustment. RACs, meanwhile, would be directed to focus only on hospitals with unusually high rates of denied claims.
Provider organizations Friday afternoon quickly commented on the long-awaited final rules.
"Hospitals appreciate the certainty that stays of at least two midnights are inpatient, with stays of less than two midnights also considered inpatient based on physician judgment," said Thomas Nickels, executive vice president of government relations and public policy for the American Hospital Association. Nickels called RACs bounty hunters and said the AHA looked forward to a "more fair auditing process" by the quality improvement organizations.
The CMS also denied a request to delay enforcement of the modified two-midnight rule until for three months to give providers the chance to understand the altered policy. Officials felt the Jan.1, 2016 start date was enough time for them to understand and adopt the final rule.
The most frequent counterproposal, according to the agency, was also rejected: to create a one-midnight rule under which any Medicare beneficiary who required overnight hospital care would be admitted. The hospital would be paid under Medicare Part A rates and the rule would omit patients in the ER or in routine recovery following surgery. The CMS said the proposal would likely lead to a major increase in Medicare spending.
Generally, patients who are seen, treated and discharged without requiring an overnight hospital stay represent the lowest acuity patients who could instead be treated in an hospital outpatient department.
The agency believes the one-midnight rule would allow relatively low acuity patients to unfairly qualify for Medicare Part A payment.
“We are concerned that a one-midnight rule ... could potentially create a negative incentive for hospitals to hold such low acuity patients in the hospital longer to receive higher inpatient payment under Medicare Part A and could be prone to gaming,” the CMS said.
In the initial changes to the two-midnight rule, the CMS proposed a 0.2% reduction in hospital payments to balance an expected hike in more expensive inpatient stays.
Nickels added that when the CMS once again takes up discussion of the 0.2% cut related to the two-midnight policy, which the agency is expected to later this year, that the AHA will "pursue a robust critique of CMS' justification for the unlawful 0.2% cut."
Finally, the agency dismissed several other stakeholder ideas because, it said, they would allow for an inpatient hospital admission without a signed physician order. Under the final rule, a doctor's signed order must initiate hospital admission.
