The One-Midnight Rule: The Time Has Come

In its Dec. 9, 2016 report, “Vulnerabilities Remain Under Medicare’s Two-Midnight Hospital Policy,” the U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) compared hospital admission data from fiscal years 2013 and 2014, the years before and after implementation of the controversial policy. 

The OIG based its comments about appropriateness of admission solely on information on the claims; it did not perform medical record reviews, making its conclusions on this subject relatively meaningless.

The above notwithstanding, the OIG reported among other things that “hospitals continue to bill for a large number of long outpatient stays” – presumably in observation. (A reduction of long outpatient observation stays was a stated goal of the two-midnight rule.) The report also noted a decrease in short inpatient stays, but that “hospitals are billing for many short inpatient stays that are potentially inappropriate under the policy.”

The OIG concluded that “CMS (the Centers for Medicare & Medicaid Services) needs to address these continuing vulnerabilities by improving oversight of hospital billing under the two-midnight policy and increasing protections for beneficiaries.”

These findings should not have come as a complete surprise to the OIG, because industry experts predicted this would happen under the two-midnight rule – and indeed, this is precisely what hospitals have been reporting since it was implemented.

On the same day as the OIG’s release, RACmonitor published an “Open Letter to the OIG” from Ronald Hirsch, MD. In his letter, Dr. Hirsch noted many flaws in the OIG report, but I would assert that the flaws are not just with the report; they are with the two-midnight rule itself. This is the policy that CMS said would “draw a bright line” between inpatient and outpatient care by basing admission on what was in the mind of the physician (the “expectation” of a two-midnight stay) and the documentation required to support that decision. The proof that the two-midnight rule did not solve the problem can be found in the essence (though not necessarily the details) of the OIG report.

I would suggest that if you ever wanted to create a policy that would fail, base it on what a person is thinking and how another person can infer those thoughts by what the first one hurriedly writes during the course of his or her busy day. Not to defend poor documentation, but I think it’s time to realize that for many physicians, documentation is neither their talent nor their top priority – and never will be – yet the responsibility for hospital reimbursement falls on their shoulders.

Now I would like to take the discussion one step further by proposing a solution – not a brand-new solution, but one I have been espousing for nearly two years, which I published on RACmonitor.com on Aug. 19, 2015. It’s a solution that I brought to both the American College of Physicians Advisors (ACPA) and the American Case Managers Association (ACMA). Both national organizations endorsed it and included the proposal in their comments to CMS during the public comment period of the 2016 Outpatient Prospective Payment System (OPPS) proposed rule (CMS-1633-P).

The solution to all the confusion is the “one-midnight rule.”

Here’s how a one-midnight rule would work: Any patient who required care in the hospital over one midnight after an emergency department (ED) evaluation would be admitted, the stay billed to Part A, and the hospital paid by diagnosis-related group (DRG). If a patient arrived at the ED late in the day – say, after 4 p.m. – then he or she would be admitted at noon the next day if not stable for release. The time between arrival and the decision whether to admit or release would be billed as an ED service (roughly the equivalent of observation), but that period would end at the first midnight (or the following noon for late ED arrivals). The only issue open for audit would be whether the patient needed the additional hospital time – in other words, looking for delays and “gaming,” the same issues that arise now, yet these issues would be easier to identify with the one-midnight standard. InterQual and MCG continued stay-and-discharge criteria could also aid in this determination.

When CMS responded to the one-midnight proposal, it complained that it would mean more cases billed as short inpatient stays and that since inpatient care is paid at a higher rate than outpatient care – even for identical services – this would increase the cost to the Medicare trust funds.

Apparently they failed to read the part of the proposal about the plan being revenue-neutral. Under the one-midnight proposal, DRG payment to the hospital for a short stay for diagnoses that would currently be placed in observation (chest pain, COPD, syncope, TIA, gastrointestinal disorders, etc.) would be pegged at the same rate as the current payment for observation. When CMS created a comprehensive ambulatory payment classification (APC) for observation, it actually eased this transition, since all outpatient services associated with observation are currently bundled into a single payment – just as with a DRG. If a procedure is performed, in fact, the observation service is not separately reimbursed at all – just the procedure.

So abandoning the two-midnight rule and adopting a one-midnight rule would greatly simplify the admission decision. There would be fewer denials and appeals. The OIG would be satisfied that corrective action had been taken, though not through greater oversight of a flawed policy. There would no longer be a deep chasm between inpatient and outpatient billing. As an extra bonus, a large amount of hospital revenue that currently is devoted to getting billing right in the face of complex, ambiguous rules could be used instead for patient care. Case managers could put away their books of admission criteria and devote their considerable skills to case management, i.e., helping patients successfully navigate through the healthcare system.

And physician advisors, freed from long queues of admission status reviews, could better demonstrate their real value to their hospitals by focusing on being physician leaders and champions of cost-effective quality care.

Read “A One-Midnight Rule Solves a Lot of Problems” online here.

Link to the OIG report, “Vulnerabilities Remain Under Medicare’s 2-Midnight Hospital Policy”.

See “News Alert: OIG Wants to Target Hospitals’ Use of the Two-Midnight Rule”, RacMonitor.com, Dec. 19, 2016.

Read Dr. Hirsch’s “An Open Letter to the OIG on your Two-Midnight Hospital Policy Report.”