Healthcare Revenue Cycle Management, ICD-10, Claims Reimbursement, Medicare, Medicaid

Policy & Regulation News

Hospitals Fight Two-Midnight Rule, Medicare Reimbursement Cuts

A number of hospitals are asking HHS to invalidate Medicare reimbursement reductions under the two-midnight rule and recalculate inpatient rates.

By Jacqueline LaPointe

- Over 120 general acute care hospitals have filed a lawsuit against Department of Health and Human Services (HHS) Secretary Sylvia Mathews Burwell over Medicare reimbursement reductions under the two-midnight rule.

Hospitals file lawsuit against HHS over Medicare reimbursement cuts under two-midnight policy

The two-midnight rule stipulates that Medicare beneficiaries who are expected to stay in the hospital across two midnights should be admitted as inpatients, and that the provider should bill for the encounter under the Inpatient Prospective Payment System.

However, the hospitals stated in the lawsuit that the time-based rule for determining Medicare reimbursement rates is “confusing, ambiguous and internally inconsistent.”

The plaintiffs said that it is unclear if the two-midnight rule actually uses a time-based approach. While a hospital stay lasting longer than two midnights is considered an inpatient stay, CMS also included provisions in the rule that validate inpatient stays based on a physician’s “complex medical judgement.”

If a provider clearly documents in the medical record that she expected the beneficiary to require inpatient services, then hospital stays spanning less than two midnights may be reimbursed under the inpatient payment rate.

READ MORE: CMS Awards $100M for Small, Rural Clinician MACRA Help

The lawsuit states:

Because of the ambiguity of whether and to what extent the Final Rule adopts a time-based approach to the exclusion of an approach that considers the intensity of the services needed for purposes of determining whether an admission is appropriate, it cannot be predicted with any degree of certainty or reliability to what extent hospitals will consider the intensity level of services when deciding to admit or not to admit patients or the extent to which Medicare contractors will take into account the intensity level of services when determining whether to admit or deny stays.

The hospitals also alleged that the two-midnight rule does not clarify if the “extent of a one-day stay (a stay in which the patient was not expected to, and does not, cross two midnights) can be appropriately inpatient.”

“On the one hand, this language can be read to say that one-day stays are only presumed to be inappropriate, but on the other hand, this language may also suggest that, unless and until CMS specifies circumstances in which one-day stays will be considered appropriate all one-day stays not involving procedures on the inpatient only list will be denied Part A payment,” the lawsuit added.

Other sections of the rule also contain unclear language regarding the presumptions of Medicare review contractors, who are tasked with determining if inpatient stays are appropriate, stated the plaintiffs.

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Under the rule, Medicare contractors would presume that a medically necessary stay lasting longer than two midnights after being admitted as inpatient did appropriately include inpatient services.

“However, the Final Rule is unclear as to what the nature of the presumption is, whether the presumption is rebuttable (and if so, by what standard of proof), or whether there is even a presumption in the first place,” explained the hospitals.

The plaintiffs stated that Medicare contractors may be following an audit guideline rather than making a presumption.

The lawsuit noted that “Medicare contractors will not review whether an admission was appropriate if the beneficiary spends at least two midnights in the hospital (absent gaming by the hospital and assuming that the services were reasonable and necessary). “

Based on the reported ambiguities and uncertainties, CMS did not accurately calculate Medicare reimbursement rate decreases for the Inpatient Prospective Payment System, stated the hospitals.

READ MORE: AHA: Post-Acute Care Medicare Reimbursement Reform Needs Time

CMS estimated that 400,000 medical encounters would shift to the inpatient payment system under the two-midnight rule. The federal agency decreased inpatient payments by 0.2 percent for the 2014 fiscal year to account for the increase in services.

The calculations may not fairly represent the ambiguous situations, such as some one-day stays, which could skew the numbers of how many inpatient stays would actually be paid under the inpatient rate.

To resolve the complaint, the plaintiffs requested HHS to invalidate the 0.2 percent Medicare reimbursement decrease and recalculate the 2014 fiscal year payment rates to offset any reductions hospitals experienced under the rule.

The lawsuit also calls on HHS to pay hospitals the difference in reimbursements after the recalculation.

Less than a week after the hospitals filed the lawsuit on July 28, CMS finalized changes to the Inpatient Prospective Payment System for acute care hospitals. The new rule eliminated the 0.2 percent payment rate decrease.

In its place, CMS plans to impose a one-time 0.6 percent payment increase in the 2017 fiscal year to address the effects of the two-midnight rule.

The final rule did not discuss if CMS would recalculate 2014 Medicare reimbursement rates and pay hospitals the difference in payments as the lawsuit requested.

Dig Deeper:

Key Ways to Improve Claims Management and Reimbursement in the Healthcare Revenue Cycle

How to Reduce Wasteful Spending in the Medicare Program


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