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.
The Centers for Medicare & Medicaid Services (CMS) has the authority to recoup alleged overpayments from healthcare providers before the full adjudication of an appeal.
I know you are wondering, so I am happy to report that I just went a whole week without watching a webinar. But luckily, I
Please log in to your account to comment on this article.
Physician queries are essential for accurate documentation and claims data, but they are increasingly scrutinized by payors, leading to denials and revenue leakage. This webcast, led by industry expert Cheryl Ericson, RN, MS, CCDS, CDIP, provides actionable strategies to craft compliant queries, reduce denials, and enhance revenue integrity. Attendees will gain insights into clinical validation queries, how to avoid common pitfalls, and learn best practices to defend against query denials. Don’t miss this opportunity to refine your query process and protect your organization’s financial health.
Master the complexities of heart failure coding with this expert-led webcast by Emily Montemayor, CCS, CMBCS, COC, CPC, CPMA. Discover strategies to ensure compliance with ICD-10-CM guidelines, documentation integrity, and capture comorbidities like CKD and hypertension. Learn how to resolve coding challenges, improve documentation practices, and submit clean claims to minimize denials and safeguard your organization’s financial health. With practical insights and real-world examples, this session equips you to prevent revenue leakage, enhance compliance, and secure optimal reimbursement—all while supporting better patient outcomes.
Prepare your organization for the 2025 OPPS updates with expert insights from Tiffani Bouchard, CCS, CRCR, a Revenue Integrity Professional with over 30 years of experience. This webcast will address critical challenges in charge capture and coding, providing clarity on APC policies, C-APC packaging, exclusions, and payer-specific requirements. Attendees will learn actionable strategies to ensure compliance, optimize reimbursement, and mitigate risks of claim denials. Gain the knowledge needed to implement updates effectively, educate your team, and maintain seamless revenue cycle operations in the face of evolving OPPS complexities.
Join Beth Wolf, MD, CPC, CCDS, for an in-depth webcast on the FY2025 spinal fusion MS-DRG updates. Discover key changes in DRG classification, understand impacts on documentation and CMI, and learn strategies to ensure compliance.
Dr. Ronald Hirsch dives into the basics of Medicare for clinicians to be successful as utilization review professionals. He’ll break down what Medicare does and doesn’t pay for, what services it provides and how hospitals get paid for providing those services – including both inpatient and outpatient. Learn how claims are prepared and how much patients must pay for their care. By attending our webcast, you will gain a new understanding of these issues and be better equipped to talk to patients, to their medical staff, and to their administrative team.
Hospitals face growing challenges in measuring observation metrics due to inconsistencies in classification, payer policies, and benchmarking practices. Join Tiffany Ferguson, LMSW, CMAC, ACM, and Anuja Mohla, DO, FACP, MBA, ACPA-C, CHCQM-PHYADV as they provide critical insights into refining observation metrics. This webcast will address key issues affecting observation data integrity and offer strategies for improving consistency in reporting. You will learn how to define meaningful metrics, clarify commonly misinterpreted terms, and apply best practices for benchmarking, and gain actionable strategies to enhance observation data reliability, mitigate financial risk, and drive better decision-making.
The 2025 Medicare Physician Fee Schedule brings significant changes to payment rates, coverage, and coding for physician services, impacting practices nationwide. Join Stanley Nachimson, MS., as he provides a comprehensive guide to understanding these updates, offering actionable insights on new Medicare-covered services, revised coding rules, and payment policies effective January 1. Learn how to adapt your practices to maintain compliance, maximize reimbursement, and plan for revenue in 2025. Whether you’re a physician, coder, or financial staff member, this session equips you with the tools to navigate Medicare’s evolving requirements confidently and efficiently.
Dr. Ronald Hirsch provides critical details on the new Medicare Appeal Process for Status Changes for patients whose status changes during their hospital stay. He also delves into other scenarios of hospital patients receiving custodial care or medically unnecessary services where patient notifications may be needed along with the processes necessary to ensure compliance with state and federal guidance.
Copyright © 2025 RACmonitor. Powered by MedLearn Media.
Happy National Doctor’s Day! Learn how to get a complimentary webcast on ‘Decoding Social Admissions’ as a token of our heartfelt appreciation! Click here to learn more →
CYBER WEEK IS HERE! Don’t miss your chance to get 20% off now until Dec. 2 with code CYBER24
