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What Hospitalists Need to Know About Two-Midnight Rule Changes

October 13th, 2016

CMS recently posted changes to the Two-Midnight Rule. The final rule on this will be published in the Federal Register on Nov. 13. The Two-Midnight Rule initially required the physician to sign a certification declaring that an inpatient was expected to stay at least two midnights. Besides the supporting documentation for admission, an order to admit the patient as an inpatient was required. The presumption was that the stay would be paid as an inpatient under Medicare Part A. Otherwise, the stay would be considered to be treated and billed as an outpatient observation patient under Part B. This rule has never been popular with hospitals and has created some problems in its application. CMS was concerned about the increase in short stay admissions. The effect of this rule for many hospitals was to increase the number of observation patients.

The 2016 inpatient perspective payment system rules did not contain any radical changes. CMS asked for input from the provider community regarding payment for short inpatient stays under Part A payment. There is fundamentally no difference in the care of outpatient observation patients and inpatients. The two-midnight rule also specified that the treatment decisions were to be based on the medical judgment of the physicians or other qualified practitioners.

CMS used the Recovery Audit Contractors (RACs) to identify high rates of errors to determine if hospital services were medically necessary. This included the distinction between inpatients and outpatients. In the proposed 2016 outpatient PPS rules, CMS announced a change in the enforcement of the two-might rule. The Quality Improvement Organizations (QIOs) will oversee the majority of patient status audits. The RACs will on focus on those hospitals with consistently high denial rates.

CMS announced that for stays expected to last fewer than two midnights, and stays not listed on the inpatient-only list, an inpatient admission would be paid under Medicare Part A on a case-by-case basis on the judgment of the attending physician. There would be no change to cases where the patient is expected to stay at least two midnights or longer. This includes if the patient later turns out to be discharged earlier than anticipated due to unforeseen circumstances. This could include transfer, death, a patient left against medical advice, or unexpected clinical improvement.

CMS made the announcement as it finalized Medicare payments to physicians and hospitals. It clarifies when inpatient admissions are appropriate to be paid under Medicare Part A. It continues the importance of physicians’ judgment regarding if the patient needs to be admitted as an inpatient or based in an outpatient observation bed. The portion regarding how patients are expected to stay more than two midnights is unchanged and will be paid under Medicare Part A. Patients who are admitted and expected to stay fewer than two midnights will be payable under Part A on a case-by-case basis as determined by the judgment of the physician. CMS said it is unlikely that patients will be admitted after minor surgical procedures and if the patient only stays for a few hours before discharge.

CMS also says it is providing a more collaborative approach to education and enforcement as discussed in the 2016 OPPS rules. In 2016, the Beneficiary and Family Centered Care QIOs will conduct the initial medical reviews claims for short-stay inpatient admissions. CMS also changed the time for the look-back period from three years to six months. CMS says it made this decision to address the concerns of hospitals that argued if the admission was not going to be billed under Part A they did have enough time to rebill it under Part B. The RACs must also complete any reviews within 30 days or they will lose their contingency fees.

Read the Two-Midnight Rule fact sheet here.

Read the final rule in calendar year (CY) 2016 Hospital Outpatient Prospective Payment System (OPPS) here.

The Oct. 30 CMS release with the rule changes is here.

Related Webinar: Making the Two-Midnight Rule Work for You