‘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.

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).