HHS doesn't owe hospitals for lost payments related to the two-midnight rule, a three-judge panel for a federal appeals court ruled Wednesday.
According to an opinion by Judge Judith Rogers for the D.C. Circuit of the U.S. Court of Appeals, a lower court "reasonably addressed the problem" when it sided with HHS. Hospitals argued that the U.S. District Court for the District of Columbia should have tossed out the rate-cutting payment rule and forced the agency to reimburse each hospital affected by the payment reductions for inpatient hospital services.
Judge Rogers said the lower court didn't have to do either, upholding its decision.
"The hospitals fail to show that the secretary did not make 'a reasonable choice between the competing values of finality and accuracy' in adopting the rate increase as an appropriate remedy for the deficient rate reduction," Rogers wrote.
Hospitals sued HHS after the agency reduced Medicare reimbursement rates for inpatient hospital services by 0.2% in 2014 to offset the expected federal costs of the two-midnight rule. HHS ended the payment cuts beginning in fiscal year 2017 after a federal judge ruled that the agency hadn't sufficiently justified the reductions. It also gave hospitals a one-year pay increase of 0.6% to make up for the money they lost during the three years when the cuts were in effect.
But since the number of inpatient admissions varies year to year, "the combination of the rate reduction and increase could leave some hospitals slightly better off and others slightly worse off than they would have been had the rate reduction never taken effect," Rogers said.
Hospitals that lost money under the rate reduction think they should be paid for their losses because they wouldn't have lost money otherwise.
Yet providers "nowhere suggest that the better-off hospitals would return the excess funds," Rogers said. "They have pointed to nothing in the record, much less presented an argument in their briefs, that the rate increase significantly undercompensated any hospital that had not closed or converted."
Under the two-midnight rule, Medicare payment contractors presume that, in most cases, a hospital stay should be billed as an inpatient admission rather than an outpatient observation visit if it lasts two midnights or more. CMS originally passed the rule because it was concerned that hospitals were classifying more hospital stays as observation visits to duck Medicare audits of their admissions, which could increase federal Medicare spending and copayments for Medicare beneficiaries.
