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The bill is in response to mounting frustration from hospitals and physicians that began almost immediately after the 2014 Inpatient Prospective Final Rule became effective in October 2013. The rule’s enforcement has been delayed on three separate occasions. The current enforcement delay, announced on Jan. 30, 2014, is in effect through Sept. 30, 2014. 

The proposed reimbursement would be for medically necessary short inpatient stays where the patient would remain as an inpatient but the reimbursement may be less than those inpatient stays meeting the two-midnight rule. Additionally, the bill further prohibits contractors from denying Part A claims under the two-midnight rule until the earlier of either the date the new criteria and reimbursement for this new category of short stays are implemented, or October 1, 2015.

Probe and education audits would continue, and based on the result of such prepayment patient status reviews, contractors would conduct educational outreach efforts during the following three months. The bill does not require that observation be eliminated.

Bill Offers Clarity and Consistency

This proposed legislation is welcome news to hospitals and emphasizes the importance of obtaining clarity and consistency as to what constitutes an inpatient service before the RACs, incentivized by contingency fees, look for reasons to disallow claims,” said Andrew B. Wachler, managing partner of Wachler and Associates, in a written statement to RACmonitor.

“The guidance prior to the two-midnight rule wherein the Medicare Benefit Policy Manual advised physicians to use a 24-hour period as a benchmark, i.e., ‘they should order admission for patients who are expected to need hospital care for 24 hours or more, and treat other patients on an outpatient basis,’ has been subject to such a broad range of interpretation by contractors as to make the definition of inpatient constitutionally infirm as being void for vagueness.”

No Assurance of New Criteria

On the other hand, the proposed legislation does not appear to offer assurance that new criteria will be developed, according to Steven J. Meyerson, MD, senior vice president at Accretive Physician Advisory Services.

“While the intent appears to be to change current practice, one could argue that the current regulations actually meet the requirements of the bill, since the two-midnight rule includes criteria for admission and for the appropriateness of inpatient stays that do not span two midnights, including patient death, transfer, discharge against medical advice, and unexpected rapid improvement,” said Meyerson in an email to RACmonitor. “Under the last criterion, there is already a basis for evaluating the medical necessity and appropriateness of admission under the two-midnight rule, so the language of the bill does not ensure that any new criteria will be developed.”

About the Money

The proposed new category of reimbursement would allow patients currently in observation to qualify for short inpatient admission.

“The bill calls for implementation in a budget-neutral manner, indicating that Sen. Menendez expects some (or all) of the patients currently placed in observation to qualify for short inpatient admission under the new criteria,” said Meyerson. “Since Part A DRG payments are considerably higher than the Part B payments for observation for the same care, budget neutrality would require reduction in other areas, perhaps an across-the-board reduction in base DRG payments such as CMS implemented when it anticipated an increase in inpatient admissions under the two-midnight rule—an assumption that many providers believe was unjustified.”

Meyerson, who has been monitoring hospital reaction to the controversial rule and who participated in a recent CMS Open Door Forum on the subject, appears to be skeptical about CMS heeding recommendations offered during comment periods.

“CMS is famous for disregarding the recommendations of those who comment on their proposed rules,” said Meyerson. “Furthermore, it would be impractical to have different criteria for one-midnight and two-midnight admissions, since the decision has to be made at the time of admission, not the next day.”



The crux of the problem, as Meyerson continues to reaffirm, is the burden the two-midnight rule places on physicians.

“Physicians cannot be asked to try to distinguish between one-midnight inpatient and observation stays versus two-midnight inpatient stays,” said Meyerson.

“Implementation of Sen. Menendez’ approach cannot be relied upon to give hospitals relief from the difficult job of asking their physicians to document reasons for anticipating a two-midnight stay or face denial for patients who are discharged before meeting the two-midnight benchmark,” wrote Meyerson. “More fundamental revisions or outright repeal of the two-midnight rule are needed.”

Been There Before

The senate bill introduced yesterday is similar to one that was introduced when Congress reached an historical milestone in passing the bipartisan budget deal last December. That is when an agreement was reached between Senate budget chair Patty Murray (D-Wash.) and House budget chair Paul Ryan (R-WI) in December 2013.

“When presented to the House, the deal, HJR 59, included an amendment to delay implementation of the two-midnight rule and create a new class of patient call short-stay hospital inpatient,” wrote Emily Evans in an email to RACmonitor. “At the last minute, that bill was stripped from the House version by the Rules Committee over a cost issue. HJR 59 then went over to the Senate side without any language related to the two-midnight rule.”

“History would suggest that this (S. 2086) is the prudent course,” wrote Wachler in an email to RACmonitor. “In the initial demonstration program, the recovery audit contractors (RACs) were denying claims in such a wholesale fashion that CMS called in a validation contractor for inpatient rehab claims which found that 40 percent of the disallowances were inappropriate.”

While Wachler argues for input from all stakeholders to develop what he calls “a sound policy,” Meyerson, on the other hand, believes more fundamental revisions or repeal of the two-midnight rule.

“There may be some light at the end of the tunnel,” said Meyerson, “but hospitals are still in the tunnel.”


Chuck Buck

Chuck Buck is the publisher of RACmonitor and is the program host and executive producer of Monitor Monday.

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