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Two-Midnights Rule Spells Grim Financial Forecast for Hospitals

Christopher Cheney, for HealthLeaders Media, March 17, 2014

"The patient is going to stay no more or no less than is medically necessary," Alvin Felgar, president and CEO of Frisbie Hospital in Rochester, NH, said. "The patient is still going to get the same care. We're just going to be paid a whole lot less for it." He was reached at his office Friday.

Moody's also found the two-midnight rule "will accelerate trend of inpatient care shifting to outpatient… pressuring hospital revenues."

In a prepared statement Friday, federal officials said that the investor service report exaggerates the new rule's financial impact on hospitals. "CMS does not agree with the assertion that the two-midnight rule will accelerate the trend of inpatient care shifting to outpatient," the officials said.

"CMS stated the following in the FY 2014 Hospital Inpatient Prospective Payment System (IPPS) Final Rule: 'our actuaries… estimate that there will be approximately $220 million in additional expenditures resulting from the net increase in hospital inpatient encounters [emphasis added] due to some encounters spanning more than 2 midnights moving to the IPPS from the OPPS, and some encounters of less than 2 midnights moving from the IPPS to the OPPS.'"

CMS also pointed to the intent of the two-midnights rule as described in an agency Q&A document, which states the "rule developed, in part, to address concerns regarding benefit eligibility and beneficiary cost-sharing issues associated with prolonged outpatient hospital stays."

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1 comments on "Two-Midnights Rule Spells Grim Financial Forecast for Hospitals"


Vicky Mahn-DiNicola (3/20/2014 at 7:56 PM)
The comment from CMS that they do not agree with the assertion that the two-midnight rule will accelerate the trend of inpatient care shifting to outpatient is almost laughable. For hospitals that have had very [INVALID]nt and mature medical necessity and utilization management protocols in place, it could theoretically increase inpatient volume slightly because hospitals will feel more confident about admitting to inpatient status those patients who meet medical necessity and are also expected to stay over 2 midnights. Its just another data point to validate their decision. Before they were more likely to admit as observation status if there was any doubt at all about medical necessity just so they could avoid the administrivia associated with the denials and appeals. But face it, MOST hospitals still struggle to keep up with the complexities of ensuring medical necessity and haven't [INVALID]d strong internal physician advisors to support their efforts. For those hospitals, I think we may well see shifts towards increasing outpatient volumes; and especially in those hospitals that are building dedicated observation units. Of course they'll want to fill up these beds! But the driver for this shift isn't the two-midnight rule alone! Add in Medicare Shared Savings ACO incentives, readmission reduction penalties, quality reporting initiatives and RAC Audits and we have the perfect storm to start shifting inpatient claims to lower reimbursing outpatient claims. We need to recognize that we are all shifting from "pay for volume" to "pay for value". The only question that remains is how we define value in the new paradigm.