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Hospital Execs Hope for Two-Midnight Rule Repeal

April 28, 2014

The two-midnight rule is arbitrary, hurts healthcare providers, and creates unintended consequences for patients, say many healthcare leaders. A new lawsuit from the AHA aims to repeal the rule.

Healthcare finance executives who fear the financial fallout from the controversial two-midnight rule received a new ray of hope recently when the American Hospital Association and a coalition of its members filed a lawsuit against the Department of Health and Human Services to repeal the rule.

Many hospital leaders are concerned about the rule's potential impact on their organization's reimbursements because it states that if a patient is in the hospital for a stay that does not span at least two midnights, "the services are generally inappropriate for payment under Medicare Part A, regardless of the hour the patient came to the hospital or whether the patient used a bed."

According to the rule, providers will be reimbursed under Medicare Part B unless a patient is hospitalized for two midnights or more. Medicare patients on observation status are also typically responsible for a 20% copay and do not receive coverage for some medications administered in the hospital or for post-acute care, which adds to collection challenges for providers.

Marie Watteau, the AHA's director of media relations, says, "The rule should be repealed because of the arbitrary requirement that a physician must certify at the time of admission that a Medicare patient is expected to need care in the hospital for a period spanning two midnights to be considered an inpatient. The two-midnight rule undermines medical judgment and disregards the level of care needed to safely treat patients and that is not good for patients."

Watteau says her organization is optimistic about the chances of a repeal. "We would not have filed the lawsuit if we were not confident of the outcome."

Stress for providers and patients
Hospital and health systems leaders are now watching closely to see how the lawsuit plays out.

Kendall Johnson, CFO at 527-bed Baton Rouge (LA) General Medical Center, says he is favor of a repeal because the current rule makes the process too unclear for both patients and providers.

"At the core of this ruling, we find our patients and fellow providers in the middle," he says. "The two-midnight rule poses significant confusion and financial stress to those seeking care, as well as to those providing it. Patients, depending on their admit status, can face heavy hits to their pocketbooks. Physicians and hospitals face unreasonable, predictive ordering and documentation requirements that can negatively impact the course of providing medical care, and in turn, the reimbursement."

Along with creating economic concerns for Medicare beneficiaries, the two-midnight rule adds difficulty for physicians, Johnson says.

"CMS posits that admitting a patient to a hospital requires a complex judgment call, but the ruling seems to place requirements around the definition of inpatient that in fact remains unclear and conflicted. Therefore, expecting a physician to predetermine length of stay and type of care status—observation, outpatient, or inpatient—seems to fall outside the best interest of the patient, both clinically and financially. For example, as an inpatient, the patient is obligated to pay his or her inpatient deductible, [but] as an outpatient, the patient pays 20% of the Medicare allowable amount, plus self-administered drugs."

"[The ruling also] jeopardizes the provider's ability to order, document, and code accurately 100% of the time to ensure the allowable reimbursement for physician and hospital services delivered for treatment," he adds.

Johnson says CMS should look for ways to make the billing process less complex, not more.

"With more collaboration and decision-making involving the best interests of patients and providers, CMS can find ways to make the requirements less complicated, and in turn, ease the patient experience, as well as the clinical and billing processes for all," he says. "In the spirit of what's best for our patients and what's best for the providers' ease of making sound judgments and the documentation process that follows, I am hopeful the rule will be overturned."

Arbitrary determination, unintended consequences
Elizabeth Carnevale, assistant vice president for revenue cycle at South Nassau Communities Hospital, a 435-bed independent hospital in Oceanside, NY, agrees with the goal of the two-midnight rule—lowering overall healthcare costs—but says cost-cutting should not be done at the expense of good clinical care.

"I do believe that we have to address healthcare costs, and we do have to reduce costs, but I think the government is going about it the wrong way," she says. "The number of midnights a patient stays in the hospital is not a good way of making a determination. It's about the severity of the patient. I am hoping people come to use more clinical judgment on what should be [classified as] inpatient versus using the number of midnights.

"I am hoping the ruling will be repealed," she adds. "I find it very arbitrary. This is medical decision-making, it's not cookie cutter. Every patient is different, especially patients of that age, and these have to be clinical decisions. Basing decisions on this ruling is not clinically sound."

Carnevale notes that hospitals use the same amount of resources regardless of a patient's classification and incur the same cost to provide care.

"If the patient stays two midnights, whether in inpatient or outpatient status, I am still providing the same level of care, the same nursing level, the same testing. Everything is exactly the same so my costs don't change, and this is just cutting into the bottom line. The only thing that is reduced is our reimbursement. I still have the same overhead," she says.

South Nassau's case managers attempt to explain the distinction to observation status patients so they are aware of their out-of-pocket obligations. However, trying to have those conversations with patients who are receiving care in the hospital is challenging, Carnevale says.

"They are sick, they are in bed, and we're trying to explain billing and collections. They don't understand, and they are angry, and I don't blame them," she says. "We try to explain that this is the regulation, and we are trying to follow it to the best of our ability."

Carnevale also fears that HCAHPS scores from patients who are upset about medical bills could further reduce her organization's revenue.

"Our reimbursements are also based on satisfaction scores," she says. "We're trying to satisfy patients and take care of them clinically, and we're trying to advise them on something that is very, very confusing. It's a balancing act, and hopefully some patients or many patients do have good healthcare coverage and supplemental insurance that covers Part B deductibles."

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