CMS Delays Enforcement of “Two Midnight” Rule

CMS is delaying until the end of 2013 enforcement of new regulations that would allow recovery audit contractors (RACs) to review inpatient admissions of one midnight or less that begin on or after October 1, 2013.

Two-midnight rule. The Final rule incorporating changes to the inpatient hospital prospective payment system for fiscal year 2014 (which starts October 1) includes two changes regarding reviews by Medicare contractors, such as RACs, when an inpatient admission is considered reasonable and necessary:

  • a two-midnight presumption, which directs Medicare review contractors not to select inpatient claims for review if the inpatient stay spanned two midnights from the time of admission, absent evidence of gaming or abuse; and
  • a two-midnight benchmark, which instructs admitting practitioners and Medicare review contractors that an inpatient admission is generally appropriate when the admitting practitioner has a reasonable and supportable expectation, documented in the medical record, that the patient would need to receive care at the hospital for a period spanning two-midnights.

Both hospitals and Medicare beneficiaries have complained that they have been financially burdened by CMS’ policy regarding the determination of when hospitals can be reimbursed for inpatient stays. In the Final rule, CMS expressed an expectation that this change in reimbursement policy for observation services will address hospitals’ concerns about reimbursement and beneficiaries’ concerns that they are kept in observation status for long periods of time because hospitals are unsure about how they will be reimbursed. (Beneficiaries pay more out-of-pocket for observation services than for services provided on an inpatient basis.)

New guidance. Under the guidance issued by CMS on September 26, CMS will instruct Medicare administrative contractors (MACs), including RACs, that they are not to review claims spanning more than two midnights after admission for a determination of whether the inpatient hospital admission and patient status was appropriate. CMS also emphasized that any review of a physician’s expectation of medically necessary care surpassing two midnights must be based on the information available to the admitting practitioner at the time of the admission.

Between October 1, 2013, and December 31, 2013, MACs will review 10 to 25 inpatient hospital claims per hospital spanning less than two midnights after admission to determine medical necessity of the patient status in accordance with the two midnight benchmark. This “probe review” will determine each hospital’s compliance with the new inpatient rule and provide important feedback to CMS for purposes of jointly developing further education and guidance.

Since the Final rule was published, provider groups (like the American Hospital Association and the Association of American Medical Colleges ) and members of Congress have asked CMS to delay enforcement of the “two midnight” rule.