Healthcare News & Insights

Court: Feds must clarify part of ‘two-midnight’ rule

Hospitals fearing trouble from the feds’ pending “two-midnight” rule may end up with a bit of a reprieve. A court ruled the Department of Health and Human Services (HHS) must provide hospitals with a better explanation of the rule – or it could be voided entirely. 

Female doctor showing medical chart to female patient lying in hospital bed

The portion of the rule that caused the most contention was a proposed decrease in compensation for inpatient services, as discussed in an article from Politico New York.

Per the two-midnight rule, hospitals would only receive inpatient rates for hospital stays if patients were admitted for two consecutive midnights.

HHS believed this would cause an increase in inpatient claims that would cost the agency over $220 million, so it decided to reduce the payment rates for inpatient services to account for the spike. But it didn’t provide much justification for this move.

So several hospital lobbyist groups, including the American Hospital Association, the Greater New York Hospital Association and Mount Sinai Health System, filed a lawsuit against HHS.

Court decision

Together, the groups alleged HHS didn’t have the authority to make such a drastic payment change under the law – more specifically, the payment rates established by the Administrative Procedures Act.

The judge disagreed with this blanket statement, ruling the law was ambiguous enough for HHS to have the authority to make changes to payment policies if the agency felt they were warranted.

The groups, however, did earn a victory. While the judge said HHS had the right to reduce payments for services, he did agree the agency wasn’t transparent enough about the methodology it used to arrive at the figure for the reduction. This information was critical to understand the basis for the adjustments and make relevant comments during the public comment period.

To resolve the issue, the judge ordered HHS to review the two-midnight rule again and resubmit it for public comment, complete with details about how the agency arrived at the figure for the payment reduction.

Future implications

Right now, the two-midnight rule is scheduled to go into effect unchanged. However, if the agency doesn’t follow the judge’s order and take new comments into account, the court could vacate the rule causing the feds to go back to the drawing board.

As it stands now, it’s likely hospitals will get a second chance to weigh in on the rule and the pending payment reductions during the comment period. And depending on that feedback, changes could be made in hospitals’ favor before the rule’s taken off hold.

We’ll keep you posted once the rule is re-released on the Federal Register and ready for new commentary.

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