Two-Midnights Rule Spells Grim Financial Forecast for Hospitals

Christopher Cheney, March 17, 2014

Hospitals will take a financial hit this year as a result of the new federal rule that cuts the Medicare payment rate for most patient stays that span less than two midnights, Moody's predicts.

A gloomy Moody's Investors Service sector comment on the controversial two-midnights rule for inpatient admissions came as little surprise last week to hospital finance executives, but federal officials say the negative impact on healthcare providers is overstated.

The comment, released Wednesday, predicts the "reimbursement difference between inpatient and outpatient cases will decrease profits" at hospitals, with the average revenue reduction per affected case set at $3,000 to $4,000. "Previously, inpatient status was largely determined by medical necessity," Moody's wrote. "We expect the rule change will weaken hospital operating profitability in calendar year 2014 because it will lower Medicare reimbursement for these cases."

Two-Midnight Rule Creates Financial Hurdles, Perverse Incentives

Under the rule, which CMS issued in August 2013 but has been delayed until October, hospitals that admit patients for a period of less than two midnights will receive reimbursement at Medicare B outpatient rates. The rule states that hospital admissions shorter than two midnights in length are "generally inappropriate for payment under Medicare Part A, regardless of the hours the patient came to the hospital or whether the patient used a bed."

Christopher Cheney

Christopher Cheney is the senior finance editor at HealthLeaders Media.


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