Kusserow’s Corner: The Controversy Over the “Two Midnight Rule” Heats Up

Jodi D. Nudelman, Regional Inspector General (IG), testified before the House Committee on Ways and Means, Subcommittee on Health during a hearing on “Current Hospital Issues in the Medicare Program.” Much of the testimony focused on the Two Midnight Policy implemented by CMS last October. The objective of the policy was to offer new guidelines on when hospitals should pay for inpatient stays and when they should bill for outpatient services, including observation stays. CMS made a great effort to educate everyone on the new policy, including posting frequently asked questions and answers. These inpatient-versus-outpatient decisions significantly affect how much in payments go to a hospital, how much beneficiaries have to pay, and beneficiary eligibility for skilled nursing facility (SNF) services once they leave the hospital. The HHS Office of Inspector General (OIG) evaluated the use of observation stays and short patient stays before implementation of the new policy. It found that short inpatient stays were often for the same reason as observations stays, with Medicare paying about three times more for a short inpatient stay and observation stay. Six of the most common reasons for inpatient stays were among the 10 most common reasons for observations stays, and the most common for both was chest pain.

The OIG noted that not only did Medicare pay far more for short inpatient stays, but the same held true for beneficiaries. All in all, the OIG found hospitals varied considerably in their use of short inpatient and observation stays. The OIG stated that the findings in its 2013 report are still valid in the face of the new CMS policy. It noted that the new policy should definitely affect hospital use of observation and short inpatient stays, and that, in turn, will affect beneficiary payments. Another factor that the OIG cautioned is what effect the new policy will have on beneficiary access to SNF services.

At the same hearing, a senior Johns Hopkins Medical System executive testified that the number of hospital observation stays actually is having the opposite effect. He stated that the drastic increase has created an outcry among seniors and long-term care providers, because a beneficiary needs to be classified as an inpatient for three days to qualify for Medicare coverage of post-acute services. Since October 1, 2013, Hopkins has seen a threefold increase in the number of patients its physicians cautiously predicted would only stay only one midnight, and thus began as outpatients, but later had to admit for longer stays, demonstrating the complexity of anticipating length of stay based on a patient’s initial presenting symptoms. It was also reported that hospitals have protested the rule since it was announced and successfully lobbied to have enforcement delayed, saying it creates an arbitrary guideline that disregards clinical realities.

Last month the American Hospital Association, along with a coalition of members, filed two law suits challenging the rule and its reduction in payments to hospitals. At least three other lawsuits are also pending, one of which is on behalf of beneficiaries affected both by payments and their access to SNF services.

A lot more can be expected on this subject including increased reviews and assessments by the OIG.

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

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Copyright © 2014 Strategic Management Services, LLC. Published with permission.