Kusserow’s Corner: Continuing Controversy with the Two-Midnight Rule

For a year, the Two-Midnight Rule (Rule) has turned into a saga, putting CMS at odds with health care providers. Last month, I reported on the growing controversy regarding it. The Rule was to offer new guidelines on when hospitals should pay for inpatient stays and when they should bill for outpatient services, including observation stays. It was to address a spike in outpatient care over the past decade by providing more clarity, but this does not appear to have happened. These inpatient-versus-outpatient decisions significantly affect (a) how much hospitals are paid, (b) how much beneficiaries have to pay, and (c) beneficiaries’ eligibility for skilled nursing facility (SNF) services once they leave a hospital. Under the Rule, most hospital stays lasting less than two midnights would be rejected for payment through Medicare Part A (although eligible for reimbursement at outpatient rates through Medicare Part B). If denied Part A payment, the burden will be on the provider to resubmit to Part B. Longer stays requiring hospital admission would be reimbursed at the more lucrative Part A inpatient rate.

The Problem with the Rule

Meeting the challenges of this Rule is far from easy. A patient is an inpatient only if admitted by a doctor formally, and this can be difficult. It depends on complex medical decision-making to make that determination. For many doctors, the Rule is understandably low on their list of priorities because, from a medical standpoint, it doesn’t make much sense to them. It may be important for the hospital, but whether a patient is designated as an inpatient or outpatient doesn’t really affect the doctor financially. Meeting the Rule will require doctors’ active help and the documentation required goes beyond a physician merely stating that he checked on an inpatient during rounds and that the patient was “stable.” The patient may be stable, but this does not convince medical reviewers that the patient was properly admitted as an inpatient. If the physician does not properly document expectation that a stay of at least two midnights is anticipated, along with proper documentation showing medical necessity, there will be a problem evidencing proper reimbursement. There is also a question of medical judgment as to the patient’s true condition, and the basis for supporting decisions based upon that determination. All this has the potential to turn into a big revenue problem. There have been several law suits filed challenging the rule and its reduction in payments to hospitals.

The Delay in Implementation

Congress placed the Rule on hold until early 2015 to buy time for CMS to provide new guidance. In response to the proposed regulations, CMS received a huge number of comments. The deadline to submit comments to CMS expired on June 30th. The provider position can be summed up in saying they believe that in cases where a physician or other qualified and licensed practitioner has determined that a patient met national guideline criteria to be admitted as a hospital inpatient, the care provided should be covered and paid by Medicare Part A, regardless of the length of stay.

What Hospitals Need to Do

Despite the fact that the Rule’s enforcement has been delayed, it’s still in effect. Until the Rule is settled by the courts and CMS, hospitals are going to have to prepare for the CMS contractors. As it currently stands, come March 15, 2015 (which may be pushed back further), the MACs and RACs may dispute payment after the fact, which can have a harrowing impact on a hospital’s revenue picture. The penalty for failing to properly document admission decisions is so serious to the revenue bottom line, that hospitals won’t be able afford not to taking immediate steps. The following are some suggestions:

  1. Move aggressively now to improve clinical documentation to support their admissions. The best way to do it is through real-time documentation on the patient electronic medical record.
  1. Accept the fact that the hospital will have to take on the burden of educating physicians as to the importance of this issue and get them on board to assist in providing the necessary supporting documentation for their medical determinations.
  1. Take note of the fact that the contractors, MACs and RACs, when unleashed, will be looking for key terms to help identify records that show medical necessity and those that don’t. The physician’s expectation that a stay will last at least two midnights must be adequately conveyed in the medical record; as noted above simply stating “stable” won’t suffice.
  1. Ensure that physicians understand that the record must not only contain certification that a stay of at least two midnights is expected, but that the documentation must support the physician’s expectation of the stay.
  1. The challenge of convincing physicians to develop the proper documentation may necessitate making it a condition of maintaining staff privileges, or for employed physicians, a critical performance evaluation factor.
  1. Compliance Officers can help their hospitals meet the challenge by ensuring ongoing program monitoring to ensure that the admission documentation is adequate. This includes (a) development of policies, procedures, and internal controls relating to this issue; (b) ensuring admitting physicians and staff have been properly trained on them; and (c) taking steps to have on line testing of the admissions documentation to ensure the rules are being properly followed. In addition, there needs to be ongoing auditing to verify the monitoring is working properly and validate that it is achieving the desired outcome.

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.

Connect with Richard Kusserow on Google+ or LinkedIn.

Subscribe to the Kusserow’s Corner Newsletter

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