Last week, the Centers for Medicare & Medicaid Services (“CMS”) announced changes to the two-midnight rule affecting short inpatient hospital stays. 

The changes, published in the Ambulatory Surgical Center Payment – Proposed Rule (“Proposed Rule”), follow repeated calls from industry professionals to either revise or completely discard the two-midnight rule for inpatient hospital stays on the basis that it removes critical clinical decision-making from the inpatient admission process.  While CMS disagrees with that perspective, the changes announced in the Proposed Rule create more opportunities for physicians to exercise critical decision-making.

The two-midnight rule, effective for inpatient admissions on and after October 1, 2013, provides that an inpatient admission is generally appropriate if a physician admits a patient as an inpatient based upon the expectation that the patient will need hospital care for at least two midnights. 

The two-midnight rule created two medical review policies: a two-midnight presumption and a two midnight benchmark. The presumption is for inpatient hospital claims with lengths of stay that are two midnights or longer after the inpatient admission. These admissions are presumed to be appropriate for Medicare Part A payment and in most circumstances will not be the focus of medical reviewers.     The two-midnight benchmark, however, serves as guidance to medical reviewers to identify an inpatient that is “generally appropriate” for Medicare Part A payment.  CMS instructed medical reviewers that the admission, even if less than two-midnights, may still be appropriate because time spent as an outpatient should be counted towards whether there was a reasonable expectation that the patient would receive hospital care for two midnights or more. 

While reinforcing its position that the two-midnight benchmark does not surpass clinical decision-making of the physician, CMS announced that it would modify its existing “rare and unusual” exceptions policy to allow Medicare Part A payment on a case-by-case basis for inpatient admissions that do not satisfy the two-midnight benchmark.  The “rare and unusual” exceptions policy provides that there may be situations where an inpatient hospital stay is appropriate even if it is expected to span less than two-midnights.  For example, in January 2014, CMS specifically identified newly initiated mechanical ventilation as the first rare and unusual exception to the two-midnight benchmark. 

However, in the Proposed Rule released last week, CMS proposes to modify the existing “rare and unusual” exceptions policy to allow Medicare Part A payment on a case-by-case basis for inpatient admissions that do not meet the two-midnight benchmark.  To meet the exceptions policy, the medical documentation must support the admitting physician’s determination that the patient requires inpatient hospital care even though the expected length of stay is less than two-midnights.  Familiar factors from the Medicare Benefit Policy Manual will be relevant in determining whether Part A reimbursement is appropriate even if the patient is expected to stay less than two midnights.  The factors include, but are not limited to the following:

  • The severity of the signs and symptoms exhibited by the patient;
  • The medical predictability of something adverse happening to the patient; and
  • The need for diagnostic studies that are appropriately outpatient services (that is, their performance does not ordinarily require the patient to remain in the hospital for 24 hours or more).

With this broadened exception, CMS recognizes that there may be patient-specific circumstances where cases may be appropriate for Medicare Part A payment, even where there is not an expectation of a two-midnight stay.  Therefore, for inpatient stays where a physician does not expect a patient to need two or more midnights of hospital care, and the procedure is not on the inpatient-only list or an exception list, an inpatient admission would be appropriate for payment under Medicare Part A if the physician determines that under the patient-specific circumstances an inpatient admission is warranted and the documentation in the medical record supports the medical necessity of the inpatient admission. The proposed exception, if finalized, will be reflected in regulations, specifically 42 C.F.R. § 412.3(d)(1). 

Another important proposed change announced in the Proposed Rule is that beginning October 1, 2015, Quality Improvement Organization (“QIO”) contractors will conduct the “probe and education” reviews of short inpatient stays rather than the Medicare Administrative Contractors (“MACs”).  Under the new medical review process, QIOs will review a sample of post-payment claims and determine whether the claims were appropriate inpatient admissions.  Following their reviews, QIOs will refer claim denials to MACs for payment adjustments.  QIOs will also engage in education of hospitals about the denied claims and will assist hospitals with the development of frameworks to improve hospital’s organizational processes and/or systems.  If a QIO identifies a hospital with high denial rates and consistently failing to comply with the two-midnight rule, the QIO will refer the hospital to recovery audit contractors for further audits. 

While the proposed changes provide for more clinical decision-making by physicians, it also adds increased discretion and subjectivity on behalf of the medical review contractors.  Hospitals and clinicians should carefully review CMS’ Proposed Rule and consider engaging in the comment period with any concerns or requests for clarification following CMS’ announcement. 

CMS will accept comments on the proposed rule until 5 p.m. EST on August 31, 2015. 

About the Authors

Andrew B. Wachler is the principal of Wachler & Associates, P.C.  He graduated Cum Laude from the University of Michigan in 1974 and was the recipient of the William J. Branstom Award. He graduated Cum Laude from Wayne State University Law School in 1978. Mr. Wachler has been practicing healthcare and business law for over 25 years and has been defending Medicare and other third party payor audits since 1980.  Mr. Wachler counsels healthcare providers and organizations nationwide in a variety of legal matters.  He writes and speaks nationally to professional organizations and other entities on a variety of healthcare legal topics.

Jessica Forster is an associate at Wachler & Associates, P.C.  Ms. Lange dedicates a considerable portion of her practice to defending healthcare providers and suppliers in the defense of RAC, Medicare, Medicaid and third party payer audits.  Her practice also includes the representation of clients in Stark, anti-kickback, and fraud and abuse matters.

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