Healthcare News & Insights

Two-midnight rule: Hospitals catch a much-needed break

medical team discussing resultsGood news: The Centers for Medicare & Medicaid Services (CMS) has given hospitals another reprieve when it comes to the unpopular and controversial “two-midnight” rule.

The rule makes time the determining factor when it comes to classifying patients as inpatients or patients under observation care. Basically, it says Medicare patients who are in the hospital for at least two “midnights” are inpatients and patients who are in the hospital for less than two “midnights” are  observation care patients.

More time to study?

But now for the second time, CMS has delayed the financial penalties for inpatient services that recovery auditors find could’ve been provided in an outpatient setting.

The enforcement was to begin Oct. 1, 2013, but was delayed to March 31, 2014. Now it’s been pushed back even further to Sept. 30, 2014. Reason: Hospitals needed more time to implement systems and procedures to comply.

Modern Healthcare reported that hospitals are “drowning” under the requirements of the new policy and a six-month delay would help keep their heads above water.

In a different post, Modern Healthcare noted that the delay will also give hospitals, doctors and special-interest groups more time to study the rule so they can find ways to block it through negotiation, legislation or litigation.

“I think ultimately the hospitals will prevail on this, one way or another,” Emily Evans, a partner with Nashville-based healthcare consultancy Obsidian Research Group told Modern Healthcare. “Short-stay inpatient care is common in the practice of medicine, and you shouldn’t treat it like fraud, waste or abuse.”

Why the change?

So if  this rule is causing such turmoil, why did CMS do it?

Medicare officials changed the admission rules to diminish the rising number of beneficiaries placed in observation care, but who aren’t admitted to the hospital, and therefore aren’t eligible for skilled nursing care coverage.

Under Medicare, in order for a beneficiary to be eligible for skilled nursing care coverage, patients must spend three consecutive days in the hospital as an inpatient. Observation care patients don’t qualify for coverage because they are deemed outpatients and have not been “admitted” to the hospital even though they are staying there.

CMS wanted to lower the number of these patients because of the financial burden this scenario places on beneficiaries. While in the hospital, they have higher out-of-pocket expenses than inpatients and at times pay significantly high charges for non-covered drugs.

In the past five years, according to federal records, the number of observation patients has skyrocketed 69%. And despite Medicare’s past recommendations to either discharge or admit an observation care patient within 24 to 48 hours, these patients are staying in the hospital longer.

Reviews still permitted

The delay still allows Medicare administrative contractors (MACs) to conduct reviews on Medicare Part A inpatient hospital claims spanning less than two midnights, after formal inpatient admission — with admission dates of Oct. 1, 2013 through March 31, 2014.

But they’re only allowed to review a sample of 10 claims for most hospitals and 25 claims for large facilities, because those reviews are intended to be instructional.

These probes will determine each hospital’s compliance with the new inpatient regulations and provide important feedback to CMS. Based on the results of these initial reviews, MACs will conduct education outreach efforts and repeat the process where necessary, according to CMS.

For more information on the extension of the probe and education period, click here.





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