With the clock ticking down on the Recovery Auditor Contractors’ (RACs’) prohibition from conducting post-payment patient status reviews with dates of admission from Oct. 1, 2013 through March 31, 2015, the American Hospital Association (AHA) is calling for the Centers for Medicare & Medicaid Services (CMS) to extend its controversial two-midnight rule until after Oct. 1, 2015 while urging the agency to repeal its 0.2-percent reduction to the standardized amount that was implemented during the 2014 fiscal year, calling it “unlawful.”

In a Feb. 13 letter sent to CMS Deputy Administrator Director Sean Cavanaugh, Linda E. Fishman, AHA senior vice president for public policy, offers several short-stay policy alternatives for hospital stays of less than two midnights for CMS to consider in its proposed rule for the 2016 fiscal year’s Inpatient Prospective Payment System (IPPS).

“The 0.2-percent rate cut to offset the cost of reviews required to ensure that hospitals are meeting the threshold is along the same lines as the new proposal from (the) Office of Medicare Hearings and Appeals (OMHA) regarding the per-claim filing fee to be charged to hospitals if they wish to appeal denials at all levels,” wrote Amy Shaffner, manager of audit management education at Optum 360, referencing a proposal to charge fees when filing appeals contained in the 2016 fiscal year budget recently proposed by President Obama.

Echoing a similar position on the 0.2-percent rate cut was Mary Beth Pace, a registered nurse and the care management system director for Trinity Health, who wrote that her organization is supportive of repealing the reduction.

Again, the AHA is asking CMS to extend the partial enforcement delay of the two-midnight policy until Oct. 1, 2015 – or until the agency implements a new short stay payment (SSP) policy.

“I agree with the AHA approach,” Shaffner wrote. “The two-midnight rule has dramatically increased the volume of observation stays, which in turn has created all kinds of issues, including the shifting of costs over to Medicare recipients.”  

On the other hand, Ronald Hirsch, MD, vice president of the regulation and education group at Accretive Physician Advisory Services, is not so sure about eliminating the two-midnight rule – at least not yet.

“AHA’s proposals have a lot of merit, but I have two concerns,” Hirsch said. “First, hospitals have spent the last 18 months educating doctors on the two-midnight rule, and they are just now getting the hang of it. To change processes again on Oct. 1, just as ICD-10 is implemented, would be cruel and unusual punishment. Second, they make no mention of patient liability. Establishing short-stay DRGs would drastically increase patient financial liability compared to Part B liability with observation.” 

RAC Reform Needed 

“RAC reform should go hand-in-hand with an SSP solution; without such changes, implementation of the two-midnight policy will continue to be problematic,” Fishman wrote. “While we appreciate the changes to the RAC program that the agency made on Dec. 30, 2014, these modifications are modest at best.”

The AHA, according to Fishman’s letter, wants what she describes as “more significant reforms” that align “financial incentives that drive RACs to deny claims inappropriately and excessively – to address the systemic issues that have resulted in tremendous burden on hospitals and the appeals process.”

Healthcare attorney Andrew Wachler, managing partner at Wachler & Associates, is concerned about the lack of alignment with hospital resource utilization and reimbursement.

“There are several problems with the two-midnight rule,” wrote Wachler in an email to RACmonitor. “The most glaring is that two patients can present with the exact same medical condition, receive the same treatment and utilization of resources, (and) spend the same amount of time in the hospital, but be subject to separate and unequal reimbursement policies based upon the time that the patient came to the hospital. Although CMS may be trying to create a bright line, this reimbursement methodology does not equitably reflect the resources utilized for each patient.”

Evaluating Outpatient Rates

The AHA also wants CMS to evaluate the Outpatient Prospective Payment System (OPPS) rates that the agency pays for observation covering the time in which hospitals are determining whether inpatient admission is appropriate. AHA claims that those rates do not cover hospitals’ costs in this area.

“Specifically, the CY 2015 payment rate for eight or more hours of observation services (furnished in conjunction with a hospital clinic visit and certain high-level emergency department visits) is $1,234.70,” Fishman wrote. “This payment rate is the same whether a patient requires eight hours of observation care or 48 hours of observation care.”

Fishman also wrote that hospitals receive the same reimbursement regardless of the length, level, or intensity of observation services they actually provide to a patient – and, in many cases, “the payment rates are far less than the costs incurred by the hospital.”

Dr. Hirsch offered an interim solution for CMS to consider. He is in favor of the two-midnight rule as long as there is an increase in reimbursement for observation.

“As an interim solution, CMS should leave the two-midnight rule intact while they work with the AHA, but immediately increase the observation reimbursement to hospitals to narrow that payment gap,” Hirsch said.

More of the Same

Wachler believes that two fundamental issues are driving the need for reform. In particular, the veteran appeals attorney calls for the elimination of the contingency fee.

“The combination of vague criteria, coupled with the RAC incentive of a contingency fee, is a recipe for a continuation of the same dynamic we have seen to date,” Wachler said. “We need significant RAC reform and either an elimination of the contingency fee incentive or some counter financial disincentive to make the RACs accountable. As CMS stands to gain from the current system, reform will have to come from the legislative and/or the judicial branches of government.”

Getting Paid for Services Provided

Many hospitals chafe at the notion that CMS believes that they are gaming the system. Emblematic of that sentiment is Trinity Health’s Pace. 

“Hospitals, on the whole, are really there to care for the ill, not to develop schemes to take CMS’s money,” she wrote. “We want to provide care for the Medicare beneficiaries, but we also want to get paid for what we do. The idea that, after the fact, someone can audit the chart and tell us that we provided care but we did not provide the care in the correct setting makes us feel like they are saying we provided the wrong care. Inpatient or outpatient? Short stay Inpatient? Call them a red patient or a blue patient; just pay us for what we do.”  

Wachler raised the recurring issue of the admitting physician’s judgment at the time of admission.

“If the doctor believes at the time of admission that the patient will cross two midnights but the patient does not actually cross two midnights, the case is inpatient,” he said. “So again, the criteria is not based upon a bright line, but what was reasonably in the mind of the admitting physician at the time of the admission.”

About the Author

Chuck Buck is the publisher of RACMonitorEnews and the executive producer and program host of Monitor Mondays.

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Read the AHA letter, here.


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