During a recent discussion on Monitor Monday, my assertion that “the only inpatient criteria (is) the two-midnight rule” touched off a bit of a debate, because many others responded “not so fast, you are ignoring the conditions of participation!” 

They’re right. I am. 

When it comes to determining hospital status for Medicare, the conditions of participation aren’t relevant. To understand why, it is important to consider two issues: the difference between conditions of participation and conditions of payment, and how the conditions of participation for utilization review (UR) operate.

There is an unfortunate fact that makes this discussion more confusing than necessary. Conditions of participation are commonly abbreviated as CoP. Conditions of participation are standards an organization must meet to be enrolled in the Medicare program. Conditions of payment, which would unfortunately have an identical abbreviation, are criteria you must satisfy to receive payment. They are different. How do we know? Medicare has told us. This quote is long, but important: 

“MAC, CERT and Recovery Auditor staff shall not expend Medicare Integrity Program (MIP) or MR resources analyzing provider compliance with Medicare rules that do not affect Medicare payment. Examples of such rules include violations of conditions of participation (CoP) or coverage or coding errors that do not change the Medicare payment amount.

The CoP define specific quality standards that providers shall meet to participate in the Medicare program. A provider’s compliance with the CoP is determined by the CMS Regional Office (RO) based on the state survey agency recommendation.

If during a review, any contractor believes that a provider does not comply with conditions of participation, the reviewer shall not deny payment solely for this reason. Instead, the contractor shall notify the RO and the applicable state survey agency.” 

– Medicare Program Integrity Manual, Chapter 3, Section 3.1.

Further support can be found in the state operations manual, which contemplates that providers/suppliers will be paid through (and in some cases after) the date of termination of their provider agreement. In other words, after the survey finds violations of the CoP, Medicare continues to pay the provider or supplier. That would not be true if the violation of the CoP prevented payment. 

Finally, there is an important court case to consider. In U.S ex. rel. Hobbs v. MedQuest Assoc., argued April 1, 2013 in the Sixth Circuit,, a party argued that failure to meet certain standards for being for an independent diagnostic testing facility (IDTF) negated Medicare payment. The court rejected that argument. It is totally clear that failure to meet a condition of participation does not create an overpayment or duty to refund.    

Now let’s turn to the UR CoP and see whether it does in fact require use of something other than the two-midnight rule. It says:

“c) Standard: Scope and frequency of review — (1) The UR plan must provide for review for Medicare and Medicaid patients with respect to the medical necessity of admissions to the institution.”

This rule doesn’t establish a standard for the test for medical necessity. It simply says that hospitals must review the medical necessity of admissions. The relevant interpretive guideline, found in Appendix A of the State Operation Manual, says:

“Examine the UR plan and other documentation to determine that the medical necessity for Medicare and Medicaid patients is reviewed with respect to admission, duration of the stay, and the professional services furnished.”

Neither the regulation nor the interpretive guidelines mention InterQual or Milliman.

Hospitals need to review the medical necessity of admissions, but they have discretion to determine what constitutes a medically necessary admission. The two-midnight rule contains Medicare’s current standard for what makes an admission medically necessary.

Sometimes I hear discussion about whether the patient “required” inpatient care. But Medicare’s standard is temporal. If you need to be in the hospital for two nights, you are an inpatient. In the Medicare program, there is no difference between an “observation” level of care and inpatient care. 

In closing, even if the hospital CoP required use of InterQual, failure to do so would not result in loss of Medicare payment; it would potentially result in loss of ability to be enrolled in Medicare. But the CoP contain no such requirement.

As always, I am happy to entertain any competing perspectives, but if you’re thinking “this is totally different from what I have heard, so it must be wrong,” I would ask you to point to something in the regulations that says you must use InterQual.

I assert with a high degree of confidence that this doesn’t exist.

About the Author

David M. Glaser, Esq., is a shareholder in Fredrikson & Byron’s Health Law Group. David assists clinics, hospitals, and other 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. David’s goal is to explain the government’s enforcement position and to analyze whether the law supports this position. David is a popular panelist on Monitor Monday and is a member of the RACmonitor editorial board.

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