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'Vulnerabilities' Found in Two-Midnight Rule

News  |  By John Commins  
   December 21, 2016

An Office of Inspector General report identifies improper payments for short inpatient stays and inconsistent use of inpatient and outpatient stays.

Inpatient hospital stays have decreased since the implementation of the two-midnight rule but Medicare still paid hospitals almost $2.9 billion in 2014 for potentially inappropriate short inpatient stays, federal auditors say.

Specifically, a review of hospital claims data shows that inpatient stays in fiscal 2014 decreased by 262,794 stays, and outpatient stays increased by 259,908. These changes represent a 2.8% decrease in inpatient stays and an 8.1% increase in outpatient stays, according to a review by the Department of Health and Human Service's Office of Inspector General.

Two-Midnight Rule: Initial Reviews to Resume

The Centers for Medicare & Medicaid Services implemented the two-midnight rule in fiscal year 2014 to address three vulnerabilities in hospitals' use of inpatient and outpatient stays:

  • Improper payments for short inpatient stays.
  • Adverse consequences for beneficiaries of long outpatient stays, including that they may not have the three inpatient nights needed to qualify for skilled nursing facility services.
  • Inconsistent use of inpatient and outpatient stays among hospitals.

The OIG review found, however, that "vulnerabilities still exist," including:

  • Hospitals are billing for many short inpatient stays that are potentially inappropriate under the policy; Medicare paid almost $2.9 billion for these stays in FY 2014.
  • Medicare pays more for some short inpatient stays than for short outpatient stays, although the stays are for similar reasons.
  • Hospitals continue to bill for a large number of long outpatient stays.
  • An increased number of beneficiaries in outpatient stays pay more and have limited access to SNF services than they would as inpatients.
  • The number of outpatient stays increased since the implementation of the two-midnight rule. Further, short inpatient stays decreased more than long outpatient stays.
  • Hospitals continue to vary in how they use inpatient and outpatient stays.

Under the two-midnight rule, inpatient payment is appropriate when physicians expect patients' care to last at least two midnights; otherwise, they're paid at an outpatient rate.

IPPS Reverses Two-Midnight Rule Pay Cut

The OIG report found that the six most-common reasons for short inpatient stays included the four most-common reasons for short outpatient stays. Specifically:

  • Coronary stent insertion, with an average Medicare payment of $13,269 for inpatient and $8,364 for outpatient
  • Fainting $4,578 inpatient, $1,309 outpatient
  • Digestive disorders, $4,572 inpatient, $789 outpatient
  • Chest pain, $3,797 inpatient, $1,327 outpatient

The OIG audit recommends that CMS:

  • Conduct routine analysis of hospital billing and target for review the hospitals with high or increasing numbers of short inpatient stays that are potentially inappropriate under the two-midnight rule.
  • Identify and target for review the short inpatient stays that are potentially inappropriate under the two-midnight rule.
  • Analyze the potential impacts of counting time spent as an outpatient toward the three-night requirement for SNF services so that beneficiaries receiving similar hospital care have similar access to these services.
  • Explore ways of protecting beneficiaries in outpatient stays from paying more than they would have paid as inpatients.

The OIG study was based on hospital claims and did not include a medical record review.

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.

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