Medicare's standard for delineating outpatient vs. inpatient status at hospitals won't be in full force until the end of September if a bill to repeal the sustainable growth rate formula is passed in April.
After a year-long enforcement freeze, hospitals want to keep two-midnight Rule audits on ice.
"The two midnight rule is an arbitrary, time-based benchmark," Priya Bathija, says senior associate director of policy at the Chicago-based American Hospital Association. "Before two midnights, [admission to the hospital] was always the physician's decision based on medical judgment: a patient's medical history, the facilities available, the risk of an adverse event, diagnostic testing, and consultation with the patient."
Providers Blast CMS on Two-Midnight Rule
According to rule, hospital stays spanning less than two midnights are considered outpatient care and billed under Medicare Part B. Hospital stays spanning more than two midnights – or stays that doctors expect to span at least two midnights – are considered inpatient care and billed under Medicare Part A. Medicare Part A pays providers at rates higher than Part B, which requires patients to share 20% of the bill.
The two midnight rule was adopted Oct. 1, 2013, the beginning of the 2014 federal fiscal year. But amidst widespread provider protest as a backdrop in April 2014, Congress and the president delayed enforcement until at least the end of this month.
The American Hospital Association has called for the enforcement freeze to continue until Oct. 1, the beginning of the 2016 federal fiscal year. If the so-called SGR fix bill is enacted into law, that delay will become a reality. The bipartisan bill passed in the House last week. The Senate is expected to vote on it in April and President Obama has said he will sign it.
If, however, federal officials insist on enforcing the Two-Midnight Rule, Bathija says hospitals need more time to ensure compliance with the length-of-stay rule. "For AHA members, they should be implementing the Two-Midnight Rule, but the enforcement freeze should continue. It gives hospitals more time to make sure they can comply," she said.
In a letter to CMS last month, Linda Fishman, AHA senior vice president for public policy, called for delayed enforcement of the two midnight rule as part of a reform initiative for Medicare's Recovery Audit Program and short stay payment (SSP) for hospitals. "We strongly urge CMS to undertake comprehensive reform of the RAC program to improve its management and fairness. RAC reform should go hand-in-hand with an SSP solution; without such changes, implementation of the two-midnight policy will continue to be problematic," Fishman wrote to CMS Deputy Administrator Sean Cavanaugh.
The AHA wants federal officials to expand payment of hospital outpatient services beyond Medicare Part B. "We believe that an SSP policy, supplementing the existing two-midnight policy, could reimburse hospitals more accurately for the resources used to treat patients who stay in the hospital less than two midnights," Fishman wrote.
She says limiting hospital payments to Medicare Part B often does not reflect the intensity of medical treatments in the first days of care. "Under the two-midnight policy, CMS generally considers hospital admissions spanning two midnights appropriate for payment under the inpatient [rates]. In contrast, hospital stays of less than two midnights are generally considered outpatient cases by CMS, regardless of clinical severity."
She says the two-midnight policy results in "inadequate reimbursement to hospitals for beneficiaries who require an inpatient level of care, but who stay in the hospital less than two midnights."
Fishman says a prime goal of the AHA reforms is for Medicare payments to more accurately reflect the cost of services during short hospital stays. "In many cases, the payment rates are far less than the costs incurred by the hospital. CMS could, for example, consider allowing hospitals to record a room and board charge associated with these services, thereby more accurately reflecting their costs."
A CMS spokesman says "CMS is evaluating options for next steps in our medical review strategy."
Two-Midnight Rule Foes Face Time Pressure
Most hospitals realize the time is nearing to comply with the Two-Midnight Rule, healthcare and finance analysts say.
Ronald Hirsch, MD, vice president of the regulations and education group at Chicago-based Accretive Health and former medical director of case management at Sherman Hospital in Elgin, IL, says hospitals have had enough time to adapt to the Two-Midnight Rule.
"The rule has actually been in full force since October 1, 2013… Hospitals should be ready for full auditing and subject to full auditing," Hirsch says.
"The rule is simple. It is two steps: does the patient require hospital care and is that care expected to take over two midnights. That is so much simpler than the previous risk-based method of deciding who gets admitted and who gets observed. That method resulted in 800,000 appeals and a two-year appeals backlog. But there still is a subjective component to who needs to be in the hospital and how long that patient will require to get better. If doctors use rational decision-making and document that rationale, there should be no problem."
Daniel Steingart, a vice president and senior analyst at New York-based Moody's Investor Service, says most hospitals are already operating under the two-midnight rule. "Just about everybody is complying with the rule. Over the past year, we've seen a reduction in hospital inpatient stays directly related to the rule."
The rule is part of a broader financial trend, Steingart says. "It's certainly a piece of the puzzle in the slowing of inpatient revenue and growth in other reimbursement areas. There's been a general shift to outpatient care. The two midnight rule is not a major driver; there are other reasons more people are being treated on an outpatient basis. There have been changes in health plans to higher deductibles and copays for patients. That generally slows volume of services."
Value-based payments such as shared savings contracts and bundling are also driving down medical service volume, Steingart says. "Providers are incentivized to spend less money, which tends to slow down revenue growth."
Hospitals are crying foul over the rule to seek revenue relief wherever they can find it, he says. "It's part of the revenue pressure on hospitals. It's tied to the shift from volume to value, but the shift is on a very small scale so far. The rollout is uneven. Healthcare is still local. It's not like the country switched a switch on the wall. About 4% to 6% of provider reimbursement comes in value-based contracts. Only a few markets are in front of that. It's a relatively slow train moving out of the station toward Medicare's goal for 50% value-based reimbursement."
Christopher Cheney is the CMO editor at HealthLeaders.