‘Fatigued’ providers must concentrate on complying with two-midnight rule

Some providers may be experience two-midnight rule “compliance fatigue” due to the changing rules and current lack of traditional enforcement activity, said presenters at the Health Care Compliance Association webinar, “Two Midnight Rule: Where Are We Now?” The two-midnight rule has been a “moving target” and its evolution has been challenging for providers, with CMS having issued more than 40 items of sub-regulatory guidance over the past 3.5 years. Presenters Lauren Gennett and Isabella Wood of King & Spaulding LLP said, however, that it is important for compliance personnel to emphasize the importance of continued compliance.

Two-midnight rule. The two-midnight rule is codified at 42 C.F.R. Sec. 412.3(d), which provides that an inpatient admission is considered reasonable and necessary under Part A if the admitting physician ordered the inpatient admission based on the expectation that the patient would require at least two midnights of medically necessary hospital services.

If an unforeseen circumstance, such as a beneficiary’s death or transfer, results in a shorter stay than the physician’s expectation of at least two midnights, the patient may be considered to be appropriately treated on an inpatient basis. An inpatient admission for a surgical procedure specified by Medicare as “inpatient only” under 42 C.F.R. Sec. 419.22(n) is also generally appropriate for payment under Medicare Part A, regardless of the expected duration of care.

Rare and unusual circumstances exception. There may be “rare and unusual circumstances” in which an inpatient admission for a service not on the inpatient only list may be reasonable and necessary in the absence of an expectation of a two midnight stay. CMS expanded this exception effective January 1, 2016 (see OPPS payment update a net cut for many, Health Law Daily, November 13, 2015). The exception is determined on a case-by-case basis by the physician responsible for the care of the beneficiary, subject to CMS medical review. Relevant factors include: (1) the severity of the signs and symptoms exhibited by the patient; (2) the medical predictability of something adverse happening to the patient; and (3) the need for diagnostic studies that appropriately are outpatient services.

Wood said that CMS has not provided examples of services that might qualify for the “rare and unusual circumstances” exception. She noted that the exception is challenging for providers, who do not know how rare and unusual the circumstances must be to qualify for the exception. There is, she said, “a lot of wiggle room and uncertainty” for providers.

Inpatient admission orders. Before the two-midnight rule, there was not an express requirement for an inpatient admission order, but now 42 C.F.R. Sec. 412.3(a) requires that the inpatient admission order be in the medical record for the hospital to be paid for inpatient services under Part A. The physician is required to authenticate the order before discharge, which can be difficult for short stays. Gennett said that this requirement is “low hanging fruit for contractor denials.” There is, however, an exception for missing or defective orders that CMS originally included in January 2014 guidance and recently updated in the Medicare Benefit Policy Manual, Pub. 100-02, Ch. 1 (see Change Request 9979, March 10, 2017).

Enforcement. From October 2013 through September 2015 Medicare administrative contractors (MACs) conducted limited “probe & educate” reviews, and quality improvement organizations (QIOs) began conducting reviews in October 2015. QIO review has had its challenges, however, and in 2016 CMS temporarily “paused” QIO patient status reviews (see QIOs back to reviewing Two-Midnight rule claims, Health Law Daily, September 13, 2016). In April 2017 the QIO record selection process changed; QIOs now sample the top 175 providers with a high or increasing number of short stay claims per area with a request for 25 cases, and all other providers previously identified as having “major concerns” in the prior round of review will have a request for 10 cases.

Recovery audit contractors (RACs) may conduct provider-specific patient status reviews for providers that have been referred by the QIO as exhibiting persistent noncompliancewith Medicare payment policies, including consistently failing to adhere to the two midnight rule. The presenters noted that providers should be “extra cautious” in light of the potential for RAC referrals.

The two-midnight rule is also on the HHS Office of Inspector General’s (OIG) radar. In December 2016, the OIG issued a report based on a claims review for fiscal years 2013 and 2014 concluding that hospitals are billing for many inpatient stays that were potentially inappropriate (see Two-midnight Medicare policy succeeding but still lacks full cooperation, Health Law Daily, December 19, 2016). The OIG also stated in its FY 2017 work plan that it intends to review hospitals’ use of inpatient and outpatient stays under the two midnight rule.

CMS solicits applications for Rural Community Hospital Demonstration

CMS is soliciting applications for additional hospitals to participate in the Rural Community Hospital Demonstration Program, which tests payment under a reasonable cost-based methodology for Medicare inpatient hospital services furnished by eligible rural hospitals. No more than 30 hospitals can participate in the program at the same time. Applications are due May 17, 2017, and CMS’ goal is to finalize selections by June 2017.

Section 410A of the Medicare Modernization Act (MMA) (P.L. 108-173) originally authorized the demonstration for five years, and Sections 3123 and 10313 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) extended it for another five-year period. Section 15003 of the 21st Century Cures Act (P.L. 114-255) again amended section 410A to require another five-year extension of the demonstration (see 21st Century Cures clears House, now set for Senate vote, December 1, 2016).

Eligibility

To be eligible to participate in the program, a hospital must: (1) be located in a rural area or be treated as such pursuant to Soc. Sec. Act Sec. 1886(d)(8)(E); (2) have fewer than 51 acute care inpatient beds, as reported in its most recent cost report; (3) make available 24-hour emergency care services; and (4) not be designated or eligible for designation as a critical access hospital pursuant to Soc. Sec. Act Sec. 1820.

Hospitals that were participating in the demonstration as of the last day of the initial five-year period or as of December 30, 2014 may participate in this second extension period, unless the hospital elects to discontinue participation. A newly selected hospital may be located in any state; however, priority will be given to hospitals located in one of the 20 states with the lowest population densities.

Payment

For discharges occurring in the first cost reporting period on or after the implementation of the extension, hospitals participating in the demonstration will receive payment for their reasonable costs of providing covered inpatient hospital services (except for services furnished in a psychiatric or rehabilitation unit that is a distinct part of the hospital). For discharges occurring during the second or later cost reporting period, hospitals will be paid the lesser of their reasonable costs or a target amount.

For most of the previously participating hospitals, there is a gap between the end date of the hospital’s participating in the first five-year extension and the enactment of the Cures Act on December 13, 2016 that the legislation did not address. In the fiscal year 2018 hospital inpatient prospective payment system (IPPS) Proposed rule, CMS solicited comments on proposed terms of continuation for previously participating hospitals (see IPPS spending to increase $3B, LTCH PPS to decrease $173B, April 17, 2017).

The MMA requires the demonstration to be budget neutral. The IPPS proposed rule detailed the status of the demonstration and the methodology for ensuring budget neutrality.

Inpatient hospital and SNF deductible increase for 2017

The inpatient hospital deductible for calendar year (CY) 2017 will be $1,316, a $28 increase over the CY 2016 deductible, according to an advance release of the CY 2017 inpatient hospital deductible notice from CMS. The Medicare Part A deductible covers patients’ shares of costs for the first 60 days of inpatient hospital. In 2017, the daily coinsurance amount for the 61st through 90th days of hospitalization will increase by $7 to $329 and the daily coinsurance for lifetime reserve days will increase by $14 to $658. Skilled nursing facility (SNF) coinsurance rates will increase from $161 to $164.50.

Percentage increase 

The inpatient prospective payment system (IPPS) market basket percentage increase for 2017 is 2.7 percent and the multifactor productivity adjustment (MFP) is a reduction of 0.3 percent. The percentage increase of IPPS hospitals that submit quality data and are meaningful users of electronic health records (EHRs) is 1.65 percent, while the average percentage increase for IPPS-excluded hospitals is 2.0 percent.

No comments

CMS indicated, per custom, it will waive notice and comment rulemaking on the deductible notice because the formulae used to calculate the hospital deductible and hospital and extended care services coinsurance amounts are imposed by statute. Additionally, CMS noted, delaying publication would be contrary to the public interest. The notice is set to publish in the Federal Register on November 15, 2016.

FTC staff opposes Virginia hospital systems’ cooperative agreement

The Southwest Virginia Health Authority and State Health Commissioner should deny a cooperative agreement application submitted by Mountain States Health Alliance and Wellmont Health System, according to comments submitted by staff of the FTC Bureau of Competition, Bureau of Economics, and Office of Policy Planning.

Mountain States and Wellmont are the two largest hospital systems in the border area of Southwest Virginia and Northeast Tennessee, and they are the only two full-service hospital systems serving the vast majority of patients living in this area, according to the FTC staff’s comments. Together, the hospitals would purportedly hold a near-monopoly over inpatient services in the area and have significant shares in several outpatient services and physician specialty service lines.

Consequently, the FTC staff—after a year-long assessment of the proposed merger—concluded that the proposed deal “presents substantial risk of serious competitive and consumer harm in the form of higher healthcare costs, lower quality, reduced innovation, and reduced access to care.”

The hospitals proposed several commitments they claimed would control and mitigate any anticompetitive effects, including price commitments. However, these commitments would be insufficient and unlikely to mitigate the anticompetitive effects, according to testimony presented by Mark Seidman, FTC Deputy Assistant Director for the Mergers IV Division.

“[T]he price commitments described in the application are ambiguous and appear to leave the hospitals with the opportunity and incentive to obtain higher prices from health insurers,” Seidman stated. “And even if prices were successfully constrained, it would do nothing to prevent harm to quality of care, and in fact would make that harm more likely.”

It also was noted that “once a merger is consummated—whether under a cooperative agreement or otherwise—it is extremely difficult to unwind.” Consequently, approving the cooperative agreement would risk that the deal would become permanent, especially because the plan of separation submitted by the hospitals did little to alleviate the significant challenges of “unscrambling the eggs,” following the merger.