CMS backs away from two-midnight rule

A NAMAH member shared this with NAHAM News, found in Modern Healthcare (Monday, April 18). 

The CMS will not continue to impose an inpatient payment cut to hospitals under the two-midnight rule following ongoing industry criticism and a legal challenge. It will provide a onetime bump to hospitals to offset the cuts. 

The original rule may be found in the CMS Fact Sheet: Two-Midnight Rule.

The agency imposed the cut because it estimated the two-midnight policy would increase Medicare spending by approximately $220 million because of an expected increase in inpatient admissions. 

Hospitals will also see a temporary increase of 0.6% in fiscal 2017. That would make up for the 0.2% reduction to the rates the past three years.

This addition, plus other increases outlined in the proposed rule, will result in a net increase of approximately $539 million to hospital inpatient prospective payment systems providers in 2017.

The decision to drop the proposed cut came after a September ruling in Shands Jacksonville Medical Center v. Burwell. A federal judge partially sided with the American Hospital Association and scores of other hospitals around the country, ordering HHS to better justify the cut and re-open the policy to comments.

As reported by Modern Healthcare, hospitals had challenged a 0.2% reduction for inpatient services meant to offset estimated costs to Medicare associated with the two-midnight rule. The rule directs CMS payment contractors to presume hospital stays are appropriately billed as inpatient admissions rather than outpatient observation visits if they span two midnights.

The policy was intended to reverse a trend toward higher rates of observation stays, which experts attributed to defensive billing practices by hospitals wary of having their admissions challenged by Medicare's audit contractors.

Even though September's ruling didn't outright demand the CMS rescind the pay cut, the agency felt it was the best thing to do given the industry's apprehension.

CMS explains its adjustment in its Fact Sheet: Hospital Inpatient Prospective Payment System (IPPS) and Long Term Acute Care Hospital (LTCH) Proposed Rule Issues for Fiscal Year (FY) 2017 -

"CMS is proposing to take action regarding the -0.2 percent adjustment it implemented in the FY 2014 IPPS/LTCH PPS final rule to account for an estimated increase in Medicare expenditures due to the Two Midnight Policy.  Specifically, in the FY 2014 IPPS/LTCH PPS final rule, CMS estimated that this policy would increase expenditures and accordingly made an adjustment of -0.2 percent to the payment rates.  CMS believes the assumptions underlying the -0.2 percent adjustment were reasonable at the time they were made.  Additionally, CMS does not generally believe it is appropriate in a prospective payment system to retrospectively adjust rates.  However, in light of recent review and the unique circumstances surrounding this adjustment, for FY 2017, CMS is proposing to permanently remove this adjustment and also its effects for FYs 2014, 2015, and 2016 by adjusting the FY 2017 payment rates.  The impact of this proposal is to increase FY 2017 payments by approximately 0.8 percent."