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Two-Midnight Rule Saga Lacks Happy Ending

 |  By Christopher Cheney  
   November 09, 2015

Two of the country's largest hospital associations are applauding recent changes to the two-midnight rule, but they say the Medicare payment regulation for short hospital stays remains a work in progress.

The beginning of the end could be in sight.

Changes to the two-midnight rule announced Oct. 30 are welcomed, but fall short of fixing the Centers for Medicare & Medicaid Services' regulation, according to two hospital associations.

Controversy has swirled around the rule from the start, with many healthcare providers calling for the hospital admission guidelines to be significantly revised or scrapped.


Priya Bathija

"It's been a long process to get to this point, where CMS is making meaningful changes. It's a good first step and a move in the right direction," says Priya Bathija, senior associate director for policy at the American Hospital Association.


Two-Midnight Rule Changes Cemented by 2016 OPPS Final Rule


A bit of history before diving into the changes: In October 2013, CMS officials implemented new guidelines to determine when a short hospital stay qualifies for payment under Medicare Part A, which reimburses hospitals at a higher rate than Medicare Part B. Under the guidelines released two years ago, hospital stays spanning less than a period of two midnights were not considered appropriate for Medicare Part A reimbursement.

The original rule riled providers and presented hospitals with a revenue problem. CMS heard the discontent and in early 2014 announced that enforcement of the rule would be delayed while it sought to clarify admission guidelines.

The updated rule, set to go into effect Jan. 1, has two key elements.

First, hospital stays that span a period of less than two midnights could be eligible for reimbursement under Medicare Part A based on a physician's clinical judgment, which will be subject to review on a case-by-case basis. According to the changes announced Oct. 30 as part of the 2016 Outpatient Prospective Payment System final rule: "The physician's decision should be based on such complex medical factors as patient history and comorbidities, the severity of signs and symptoms, current medical needs, and the risk of an adverse event," the 2016 OPPS final rule states. "The decision to admit the patient as an inpatient must be supported by the medical record."

Last week, a CMS spokesman told me that other factors will also be considered, including "the need for diagnostic studies that appropriately are outpatient services in rendering their payment determination. Additionally, CMS will examine and evaluate applicable claims data and any other data available in order to determine whether any patterns of case-by-case exceptions exist that may be adopted as national exceptions."

In the second major change, the initial federal review of disputed hospital admissions under the two-midnight rule is being shifted from Medicare's Recovery Audit Contractor (RAC) program to the agency's Quality Improvement Organization (QIO) program. Hospital officials have been highly critical of having RACs control the entire review process. These officials have accused auditors of overly zealous enforcement because they bank a percentage of short hospital stay reimbursements that are deemed inappropriate for Medicare Part A billing.

Both of the changes to the two-midnight rule are positive, to a point, Bathija says.

Welcome Changes
"Our members are currently using a variety of tools to determine whether someone should be admitted as an inpatient [and be eligible for Medicare Part A reimbursement]," she says. "We believe CMS should allow for a wide variety of tools."

In the 2016 OPPS final rule, CMS officials have struck the right balance in giving physicians leeway for exercising clinical judgment for short hospital stays, Bathija says. "That is the right language. We are happy that CMS has left this broad."

Ivy Baer, senior director for government relations and public policy at the American Association of Medical Colleges in Washington, DC, says allowing physicians to exercise clinical judgment in administering short hospital stays is a leap forward. "I would not characterize the change as an exception to the two-midnight rule, but as a recognition of the importance of physician judgment… regarding the appropriate care and care setting for any particular patient. There are no specific criteria, nor should there be, as relying on judgment requires a case-by case decision."

Tweaking the rule to account for clinical judgment is appropriate, but CMS is moving too quickly, Bathija says, noting that AHA has asked the federal agency to delay the rule changes until March 31. "We need to re-train physicians on how to determine patient [admission] status."

Taking RACs out of the initial review process of claims that may violate the two-midnight rule is a "very positive change," Bathija says. "It will diminish the high volume of denials from the RACs. We're hopeful there will be a smooth transition."

Unlike the animosity that has been building between hospitals and RACs, most hospitals have good relationships with their QIOs, which use physicians to review claims, she says.

While the AHA applauds inserting QIOs into the initial review of claims disputed under the two-midnight rule, the hospital association has adopted a watchful-waiting stance, Bathija says. "One of the key unknowns is the referral process from the QIOs to the RACs. At this point, we don't know how that is going to work."

The CMS spokesperson told me that the agency expects a sharp reduction in RAC involvement in claims disputes involving the two-midnight rule, at least in the short run:

"QIOs will refer providers to the recovery auditors based on patterns of practices such as high rates of claims denial after medical review or failure to improve after QIO assistance… Accordingly, we do not expect substantial recovery auditor medical review activity for such claims for several months. CMS believes this will result in a common understanding for when inpatient admissions are appropriately payable under Part A consistent with the two-midnight rule."

Skepticism Remains
The AHA and AAMC are cautiously optimistic about the changes to the two-midnight rule, but other members of the medical community are skeptical at best.


Ronald Hirsch, MD, FACP

CMS should be more specific about how physicians exercise clinical judgment on patient admission status, says Ronald Hirsch, MD, FACP, a vice president at Chicago-based Accretive Health and former medical director at Advocate Sherman Hospital in Elgin, IL. "CMS has provided two criteria for when this exception can be used: 'rare and unusual' with no definition of how rare something must be, and 'risk' and 'severity of signs and symptoms' without any indication of how high a risk or how severe the signs and symptoms. Without concrete guidance on these, I would advise hospitals [to] never use this exception."

More changes to the two-midnight rule seem inevitable, he says.

"No system will ever be perfect; for any iteration there will be confusion and potential ways to game it, but simplicity should be the goal. The [Oct. 30] changes made things more confusing. Every exception added creates more confusion. Instead of adding exceptions, CMS should adjust reimbursement for those services."

"For example," says Hirsch, "instead of an exception for unexpected mechanical ventilation, CMS could have just increased the outpatient payment for any patient that required mechanical ventilation. With this new exception, CMS could have designated specific one-day stays that are high-risk and/or severe, and increased payment for those specific diagnoses, such as acute myocardial infarction or stroke."

Apparently, the final chapters of the two-midnight rule saga have yet to be written.

For more details, see the CMS final rule that is set to be entered into the Federal Register this week.

Christopher Cheney is the CMO editor at HealthLeaders.

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