Medicare two-midnight rule

The two-midnight policy has been on the books since Oct. 1, 2013. Currently, Medicare administrative contractors are allowed to audit 10 to 25 short-stay claims per hospital on a prepayment basis. The CMS is calling this a “probe and educate process,” as MACs are supposed to coach hospitals on how to improve short-stay claims.

The heavily criticized Medicare two-midnight rule involving short inpatient stays has technically been in effect for the past year. But providers, regulators and healthcare observers are not sure the rule will hold up in its current makeshift form.

The two-midnight rule entered the healthcare vernacular last year after it was finalized in Medicare’s fiscal 2014 inpatient rule. But enforcement and details of the rule have been far from concrete since then. “It’s just been a lot of change and a lot of confusion for hospitals,” said Regan Tankersley, a healthcare attorney with Hall, Render, Killian, Heath & Lyman.

The two-midnight rule attempts to define a medically necessary Medicare inpatient admission. The rule says when an admitting physician reasonably expects a patient will need a hospital stay that spans at least two midnights, the hospital is eligible for Part A reimbursement. But if a patient stays in a hospital for fewer than two nights, hospitals have to list the encounter as observation and bill Medicare for the lower Part B payment, which also imposes higher cost-sharing on patients. Further, patients under observation care are not eligible for Medicare-covered nursing and rehabilitation services, which require three nights as a hospital inpatient.

Although Medicare’s recovery audit contractors can’t review hospital claims for compliance with the rule until April 2015, the policy appears to be changing behaviors. Community Health Systems, Franklin, Tenn., said it recorded 5,000 fewer admissions in its first quarter this year because of the two-midnight rule. Minneapolis-based Allina Health and the Cleveland Clinic also said in their second-quarter financial statements that the two-midnight rule was partially responsible for lower admissions and increased observations. Observation stays already have been on the rise as hospitals try to avoid preventable readmissions and their associated penalties.

At the very least, the two-midnight policy is forcing hospital systems to closely evaluate how they are treating patients who only need a couple of days in the hospital. “Right now we’re not sure it’s had a systemwide dramatic impact on the bottom line,” said Lydia Jumonville, chief financial officer of SCL Health System in Denver. “But it’s continuing to cause everyone to appropriately manage observation and inpatient stays.”

In light of the rule’s unpopularity, the CMS in Mayasked for public comment on how to improve payments for short stays and create a less rigid structure. It received lots of ideas, but there was no consensus on a new policy, CMS spokesman Alper Ozinal said.

Experts mostly agree the two-midnight rule is unlikely to be scrapped but that it may take a new form with more flexibility. Ted Doolittle, who worked as deputy director of the CMS’ fraud and abuse unit from 2011 to early 2014, said the agency has to find a happy medium from its current “all-or-nothing” payment approach. “Let’s turn it to a ski slope instead of a cliff,” said Doolittle, who now works as an attorney for LeClairRyan.

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