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Two-Midnights Rule Spells Grim Financial Forecast for Hospitals

Christopher Cheney, for HealthLeaders Media, March 17, 2014

'Millions of dollars'
Daniel Steingart, an assistant vice president at Moody's who worked on the analysis of the rule, said in an interview that the financial impact on hospitals will vary from facility to facility, but an overall negative effect is expected on bottom lines. "Right now, we're just starting to see it happen," he said. "It's in the millions of dollars for institutions, for sure."


Two-Midnight Rule Must be Fixed or Replaced, Say Providers


The Moody's sector comment singles out small community hospitals as facing the greatest financial risk from the two-midnight rule because they have a relatively high percentage of short-stay patients and less administrative resources to adapt to the new rule's reporting requirements. "I don't expect this rule to put anybody out of business, but it is yet another challenge," Steingart said, adding many small community hospitals will "absolutely" face credit rating pressure as a result of the new rule.

The administrative costs of implementing the two-midnights rule are mainly linked to documenting patient records to ensure length of stays are properly categorized as outpatient or inpatient.

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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.