Probe-and-educate audits are causing a fair amount of frustration in the healthcare industry. Many hospitals are reporting that they are being “failed” on charts that quite clearly satisfy the two-midnight rule, and other hospitals are reporting that they are being considered to represent “moderate to significant concerns” because the Medicare Administrative Contractor (MAC) chose a sample of claims that was too small. 

Enforcement of the two-midnight rule will be limited until March 31, 2015. Until then, Recovery Auditors (RACs) are prohibited from conducting inpatient status reviews. However, MACs are expected to perform probe audits in the meantime, thereby “educating” facilities that fail the audits. Most hospitals are to have 10 claims reviewed initially, though larger hospitals will have 25 chosen (I have been unable to find a definition of “larger hospitals” for this purpose). According to guidance offered by the Centers for Medicare & Medicaid Services (CMS) (, if only one of the charts is found to be problematic at audit (two for hospitals with samples of 25), the concerns are deemed “minor” and the only action taken is denying the claim(s) and sending an explanatory letter.

If 2-6 charts fail (3-13 if the sample is 25 charts), the hospital has generated “moderate to significant” concerns, and the MAC is to phone the hospital and conduct a repeat probe. If the error rate is higher still, the MAC is instructed to increase the sample size by a factor of 10.

Here is a typical form of frustration reported by one hospital: This smaller facility had three charts selected in the probe. Two passed, but the third failed. The third case was a surgical procedure that was on Medicare’s inpatient-only list. 

The two-midnight rule specifically permits inpatient status for procedures that are on the inpatient-only list. This is part of the federal regulation. The language in the regulation is crystal-clear, so this is not a point where reasonable people can differ. A patient receiving a procedure on the inpatient-only list can be admitted properly as an inpatient. (It is worth noting at this point that the actual length of stay does not determine whether an inpatient stay is proper. The physician’s expectation is the key factor, though when a physician expects a shorter stay and the stay actually lasts longer than two midnights, admission is still proper.) 

After receiving a denial for the stay, the hospital appealed. The appeal was successful, but now the hospital has been told that even though all three claims ultimately passed, since the original finding on one of the claims was negative, the hospital must go through the “education” process. 

Many hospitals are reporting that when the MAC pulls a small sample (under 10 claims), if any one of the claims fails, they are being treated as if they have “moderate to significant” issues. This is inconsistent with CMS instructions, though it is far from clear what remedy is available to hospitals in this situation.

If your discussion with the MAC fails, the best option may be to contact the CMS regional office or your congressional representative. One practical question to ask before you make those contacts is whether it is worth it. The cost of an additional review may not be high enough to justify a call to your representative, given that you don’t want to go to that well too often. 

The number of hospitals who have emailed Chuck Buck at RACmonitor does indicate, however, that MACs may need “education” on the two-midnight rule as much as the hospitals. We have heard reports of stays lasting two nights being denied. Under CMS guidance, two-midnight stays are presumed to be valid and are not even supposed to be reviewed unless there is evidence of “systematic gaming, abuse, or delays in the provision of care in an attempt to qualify for the two-midnight presumption.” It is hard to understand how a MAC can assert that there is “systemic gaming’ when one or two of 10 charts is denied. 

We would like to collect examples of situations where the probe-and-educate audits are conducted in ways inconsistent with CMS policy. If you have had such an experience, please send an email to

About the Author

David Glaser is a shareholder in Fredrikson & Byron’s Health Law Group and helped establish its Health Care Fraud & Compliance Group. David helps healthcare entities negotiate the maze of healthcare regulations, providing advice about risk management, reimbursement and business planning issues. He has considerable experience in healthcare regulation and litigation, including compliance, criminal and civil fraud investigations, and reimbursement disputes.

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