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Two-Midnights Rule Spells Grim Financial Forecast for Hospitals

Christopher Cheney, for HealthLeaders Media, March 17, 2014

'Silver Lining'
The rule will have one positive regulatory impact on hospitals and could help cut healthcare delivery costs over the long term, Moody's suggests—fewer Recovery Audit Contractor reviews. "This clarifies it more. There's a strict definition," Steingart said, adding he hesitates to call fewer RAC reviews a significant benefit for healthcare providers. "It's more of a silver lining… It's no great panacea to the hospitals."

Moody's also predicts hospitals will strive to treat patients who are expected to require care for less than two midnights in low-cost settings.

"Over the next two years, we expect hospitals to adapt by adjusting care protocols for the most frequent diagnoses impacted by the rule, and by opening dedicated units to treat these patients," the sector comment states. "Over the last few years, some hospitals have opened lower-cost, separate observation units to care for patients that don't meet the qualifications for inpatient admission but require treatment. This has the potential to lower costs for certain groups of patients."

Steingart said patients reporting chest pains and gastrointestinal symptoms, diagnoses that often land patients on hospital observation status rather than being admitted, could be placed in clinical centers with lower costs than boarding in emergency departments or specialty clinics. But any cost savings hospitals realize from the two-midnights rule will be gained over the long haul, he cautions. "That is not something you can do overnight," he said.


Christopher Cheney is health plans editor at HealthLeaders Media.
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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.