Medicare Advantage Plans and the Two-Midnight Rule

Medicare Advantage plans hold up their end of the contract with CMS, and provide, at a minimum, a fair reimbursement for services delivered.

The physician advisor is a fast-growing specialty that has evolved into so much more than someone who performs endless chart reviews for observation status determinations, medical necessity reviews, peer-to-peer conversations with payors, and documentation coaching. Well over a year into a global pandemic, hospitals across the country are expected to lose an estimated $54 billion in net income throughout 2021 due to higher expenses and fewer outpatient visits. Hospitals are seeing sicker patients who require additional services and longer lengths of stay than before the COVID-19 pandemic hit, while a shortage of nurses and other workers, as well as supply-chain issues, will continue to diminish hospital financial performance into 2022. 

Meanwhile, the top six insurers have made $21.8 billion in profits in the first half of 2021. UnitedHealthGroup was again the most profitable insurer, with $4.3 billion in the second quarter. Across the board, earnings growth for health insurers has outpaced the market, showing no signs of slowing down. In fact, over the last 10 years, insurers’ earnings increased by 10 percent annually, climbing to $65 billion (B) in 2020. For comparison, the average S&P 500 annual growth rate was just 3.9 percent over the same time.

At the crossroads of rising payer profit and inversely declining hospital revenue is the next frontier of the physician advisor. The physician advisor has been at the “forefront of healthcare leadership, ensuring that hospitals are providing quality care in order to receive appropriate reimbursement, while at the same time reducing inefficiencies in patient throughput and healthcare delivery, in compliance with the regulations,” according to the first edition of The Physician Advisor Handbook, published by the American College of Physician Advisors.

So, what if we changed the question from “why don’t Medicare Advantage (MA) plans follow the two-midnight rule?” to “why does CMS (the Centers for Medicare & Medicaid Services) prohibit insurers from being more restrictive or providing less benefits than traditional Medicare?” In short, 42 CFR 422.101 directs MA plans that although they do not need to implement Medicare-specific policies (i.e., the two-midnight rule), they cannot be more restrictive than original Medicare fee-for-service (FFS). Surmising that this regulatory language is a free pass to not follow Medicare guidance is contrary to the intent of the law, which protects each member against the deprivation of benefits no less than those provided under traditional Medicare.

As for the significance of Alexander v. Azar and its applicability to MA plans and the two-midnight rule, it should first be acknowledged that this case is precedential in that it is one of the first times a District Court judge took steps to issue a decision that analyzed and rendered a legal opinion about complex regulatory guidance. U.S. District Court Judge Shea didn’t simply summarize his findings in a few paragraphs, he issued a comprehensive and detailed 114-page legal decision resulting in a landmark ruling that acknowledges a Medicare beneficiary’s property interest in their Medicare benefits.

It has been suggested that this case boils down to a patient’s care rendered during observation as being a service, and therefore a benefit, while an inpatient admission is a status, and therefore not a benefit. That is a far too simplistic and (erroneous) takeaway from this case. Judge Shea did not make that distinction, but although a beneficiary may not have an interest in a particular status (inpatient versus observation), because they pay for their Medicare Part A benefits, they do have a property interest in those benefits, to the extent that they cannot be unilaterally deprived of them without due process. This Court spent nearly 50 pages addressing the nuances of the regulatory framework that CMS has implemented to not only protect patients, but to ensure that healthcare providers accurately identify the medical necessity for the services each patient receives. Even the most experienced professionals in the field recognize the layers of nuance and criticality of this Judge’s decision, which was by no means easily drafted. In the end, it can be agreed that the Court in Alexander determined that an individual does have a constitutionally protected property interest in their Medicare benefits, which the aforementioned section of 42 CFR takes steps to preserve, even for those enrolled managed Medicare care plans.

While we are on the topic, one more point. Section 1852 (d)(4)(A) of the Social Security Act requires Medicare Advantage plans to reimburse providers at a level not below that of traditional Medicare.  Note the word “reimburse” in that regulation. The regulation does not state that MA plans must have a “contracted rate” at a level not below that of traditional Medicare. If you take a detailed look at your MA plans’ performance, you will very quickly discover that despite having secured contracted rates at or above those of traditional Medicare, you are likely seeing an overall reimbursement at 80 percent of what Medicare is paying you. That reimbursement rate is not only less than a traditional Medicare rate; it is also significantly less than the contracted rate. What is the point of that hard-fought negotiated rate in the contract if your facility never realizes that revenue?

It’s time to stop getting stuck thinking that we have a “square peg and a round hole” problem, and focus on the fact that 42 CFR codifies and makes it law that a Medicare Advantage plan, even though it has autonomy in its contract, cannot offer less benefits than Medicare. Medicare Advantage plans cannot have more restrictive guidelines than Medicare; they must at the very least adhere to the simplistic confines of traditional Medicare. It is not a conversation about the two-midnight rule, because they in fact do not explicitly have to follow the rule; rather, it’s the fact that CMS holds them to a standard that is not less than Medicare. Medicare Advantage beneficiaries should have the same, if not better, benefits than those of traditional Medicare. CMS clearly states that a MA plan cannot take advantage of, lessen, or manipulate a Medicare beneficiary’s benefits.

It’s time to stop acting like we are helpless to the contract, timidly asking the profit-bloated insurer to follow the regulations for reimbursement, as if they are doing us some big favor when they don’t say “no.” Physician advisors are perfectly positioned to take a leadership role in ensuring that Medicare Advantage plans hold up their end of the contract with CMS, and provide, at a minimum, a fair reimbursement for services delivered. It’s just a matter of how you approach the question.