QIOs back to reviewing Two-Midnight rule claims

Beneficiary and Family Centered Care quality improvement organizations (BFCC-QIOs) are back to performing initial patient status reviews to determine whether short stays qualify for Medicare Part A payment under the Two-Midnight Rule as of September 12, 2016. In May 2016, CMS put the reviews on hold “to promote consistent application of the medical review policies” concerning short stays and to standardize the review process. BFCC-QIOs will once again review short stays in acute care inpatient hospitals, long-term care hospitals, and inpatient psychiatric facilities.

Pursuant to the Two-Midnight Rule, Medicare Part A will provide coverage for inpatient stays not passing two midnights where, at the time of admission, the admitting practitioner expected the patient to be hospitalized over the span of two midnights or where the practitioner believes that inpatient admission is medically necessary despite an expected stay shorter than two midnights. In both situations, the medical record must support that expectation. During the review hiatus, the BFCC-QIOs underwent retraining on the Two-Midnight Rule and completed re-reviews of claims that had been formally denied. They reached out to providers to discuss claims impacted by the suspension and also to educate them on the Two-Midnight policy. CMS also validated BFCC-QIO peer review activities related to the reviews.

BFFC-QIOs are still expected to follow the CMS guidance entitled, “Reviewing Short Stay Hospital Claims for Patient Status: Admissions On or After January 1, 2016.” CMS will ensure that BFFC-QIOs are complying with requirements by re-reviewing a sample of completed claim reviews on a monthly basis. The agency will also monitoring provider education calls and respond to individual provider inquiries and concerns.

Hospital appeals settlement recipients identified by CMS

More than 2,000 hospitals that received almost $1.5 billion in total settlement money from CMS for fee-for-service denials based on patient status reviews for admissions prior to October 1, 2013, were identified by name, provider number, total claims settled, and amount of money received. The settlement, which was paid in 2015 at 68 percent of the net allowable amount, gave providers a guaranteed timely payment in exchange for withdrawing pending appeals that were tied up waiting through a large administrative hearing backlog. Settled claims numbers ranged from one to almost 3,000, with amounts paid between $0 and almost $16 million.

The settlement was a one-time offer by CMS to alleviate the burdens on the Medicare appeals system. The agency only settled claims for patients admitted prior to October 1, 2013, because it believed that the two-midnight rule, which began on that date, would reduce future appeals volume (see CMS offers partial payments for certain Part A hospital claims under appeal, Health Law Daily, September 3, 2014; CMS pays $1.3B to settle hospital inpatient claims, Health Law Daily, June 15, 2015).

The administrative hearing backlog remains a problem for CMS, which last month proposed regulations to improve the efficiency of the Medicare appeals process and address the increasing number of backlogged appeals waiting for administrative adjudication (Proposed rule, 81 FR 43789, July 5, 2016). The settlement offer was made nine months after Nancy Griswold, Chief Administrative Law Judge for HHS’ Office of Medicare Hearings and Appeals (OMHA), said that there were 375,000 claims waiting for adjudication and suspended new requests for hearings before an administrative law judge. As of April 2016, however, OMHA had over 750,000 pending appeals. The two-midnight rule, which did not have the desired effect of reducing appeals, has also ended after hospital backlash (see 1.5 percent payment cut overshadows end of Two-Midnight, Health Law Daily, August 3, 2016).

Unanimous Senate sends NOTICE Act to President

On July 27, 2015, the Senate passed the Notice of Observation Treatment and Implication for Care Eligibility (NOTICE) Act by unanimous consent, without any amendment to the bill passed by the House on March 16, 2015. The bill has been sent to President Obama for signature. Effective one year from that date, hospitals will be required to explain to patients in observation status for more than 24 hours the effects and financial consequences of that status and the reason hospital has not admitted them.

Extended observation services. The legislation addresses a burden experienced by many Medicare patients who spent several days in the hospital in outpatient status, for “observation.” Although they were at the hospital for more than three days, they did not qualify for Medicare coverage of post-discharge services because did not have a three-day inpatient stay. Therefore, they were required to spend thousands of dollars more for the care they received at the hospital and, afterward, from home health agencies or nursing or rehabilitation facilities (See Whether two midnights or more, observation is costly for patients, Health Law Daily, September 9, 2014).

The legislation

The bill adds subparagraph (Y) to Soc. Sec. Act sec. 1866 to require that any hospital or critical access hospital at which a Medicare patient receives observation services for more than 24 hours must notify the patient in writing that: (1) he or she has is receiving observation services as an outpatient and has not been admitted to the hospital as an inpatient; (2) the reasons for the patient’s outpatient status; (3) the implications of outpatient status for the beneficiary’s cost sharing obligations for the hospital services; and (4) the implications for the patient’s eligibility for Medicare coverage of skilled nursing facility services after the hospital stay. The notice must be given to the patient or patient representative within 36 hours of the beginning of the outpatient status or at discharge, whichever occurs earlier.

Kusserow on Compliance: CMS proposes modifying rules on meaningful use requirements

CMS is proposing changes to how Medicare covers stays in the hospital for observation under the “meaningful use” program. The original concern by CMS and the Office of Inspector General (OIG) was that hospitals could potentially use the differences in payment rules to game the system. The proposed changes would allow inpatient coverage of some short hospital stays based on a doctor’s judgment instead of requiring a hospital stay to span at least two midnights to be considered an inpatient stays.

The current policy, known as “the two-midnight rule” has been criticized because it can result in higher costs for seniors. Under Medicare, coverage for inpatient and outpatient care is determined under very different payment rules. In some cases, a hospital admission classified as inpatient can result in lower bills for beneficiaries. The problem arises when patients are admitted for short observation stays. Medicare policy generally requires a hospitalization to span at least two midnights to qualify as an inpatient case. The proposed rules would allow for case-by-case exceptions. Based on a doctor’s judgment, certain short hospital stays could be covered under inpatient payment rules. The two-midnight rule has been on the books since 2013, but is not being enforced because of the controversy surrounding it.

The proposal would also change the Medicare and Medicaid Electronic Health Record (EHR) Incentive Program reporting period in 2015 to a 90-day period aligned with the calendar year, and align the EHR reporting period in 2016 with the calendar year. It also would modify the patient action measures in the Stage 2 objectives related to patient engagement. Additionally, the proposed changes would streamline the program by removing reporting requirements on measures which have become redundant, duplicative, or topped out through advancements in EHR function and provider performance for Stage 1 and Stage 2 of the Medicare and Medicaid EHR Incentive Programs.

This action by CMS is underscored by the fact that the final date by which they would adopt the final rule on the issue remains open. The proposed rule-making period allows for public comments and permits CMS to modify the rule before it is adopted in final form.


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 © 2015 Strategic Management Services, LLC. Published with permission.