Faced with widespread criticism from the hospital industry and others, CMS proposed dropping the 0.2% reduction in hospital reimbursement due to the Two-Midnight Rule and delayed posting the overall hospital quality star ratings on the Hospital Compare website.

In the IPPS Proposed Rule for Fiscal 2017, CMS proposed to permanently remove the reduction. In addition, CMS announced its intention to adjust the payment rates for fiscal 2017 by 0.6% to make up for the reduction in payments for fiscal 2014-2016. The proposal does not change the requirements of the Two-Midnight Rule; the actual rule remains in force.

CMS has also announced that it will delay posting the overall hospital quality star ratings on the Hospital Compare website until at least July. It also postponed updating Hospital Compare data, scheduled for April 21-May 2. In addition to updates on current data, the release would include new measures from the Inpatient Psychiatric Hospital Program and ambulatory surgery centers.

When it announced the 0.2% reimbursement cut, CMS claimed that under the Two-Midnight Rule, the number of patients who are admitted as inpatients would increase, resulting in $220 million in additional reimbursement to hospitals each year. Their calculations were disputed by several studies, including one commissioned by the American Hospital Association (AHA).

A coalition of hospitals and hospital associations led by the AHA filed a lawsuit in April 2014 challenging the 0.2% reduction, and a separate suit challenging the Two-Midnight Rule itself. The suit challenging the 0.2% reduction was consolidated with several other similar lawsuits by the federal court.

“CMS believes the assumptions underlying the 0.2% reduction were reasonable at the time they were made … However, in light of recent reviews and the unique circumstances surrounding this adjustment, for fiscal 2017, CMS is proposing to permanently remove this adjustment and also its effects for fiscal 2014, 2015, and 2016 by adjusting the fiscal 2017 payment rates,” according to the proposed rule.

“Today’s rule includes a very important outcomes because it reverses the inappropriate and unfair 0.2% payment reduction for inpatient services that was implemented as part of the original ‘two midnight’ policy. The AHA successfully challenged CMS’ interpretation through the courts to convince them to restore the resources that hospitals are lawfully due,” AHA President and CEO Rick Pollack said in a statement.

The overall hospital quality star ratings are a compilation of hospital scores from the Inpatient Quality Reporting and the Outpatient Quality Reporting programs and rate each hospital on a scale of one to five stars.

The AHA and other industry organizations expressed concerns that the methodology used to calculate the ratings may not represent hospital performance in a fair, accurate, and meaningful way. In addition, a large number of members of Congress urged CMS to delay publication of the measure and to re-evaluate the methodology used to determine them.

“The delay is a necessary step as hospitals and health systems work with CMS to improve the ratings for patients, and the AHA commends CMS for their decision. Healthcare consumers need reliable, factual information to make critical care decisions,” Pollack said.

CMS began the Hospital Star Ratings initiative in April 2015 by posting data based on hospital scores on the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS). The star ratings, which show patients’ perceptions of the hospital experience, are based on hospital scores on 22 questions on the HCAHPS. CMS also posted each hospital’s HCAHPS Summary Star Ratings, which is a combination of all ratings along with state and national averages for each metric.