Why Don’t Medicare Advantage Plans Follow the Two-Midnight Rule?

The topic has perplexed providers ever since the advent of the rule in 2013.

Why can’t we use the two-midnight rule to achieve inpatient status determination for enrollees in Medicare Advantage (MA) plans?

For physician advisors across the country, this question is akin to the movie “Groundhog Day.” Hopefully this article gets you to Feb. 3 at your organization, and gets our specialty on the same page.

In response to the rule implementation in 2013, hospitals developed routine admission orders with embedded copycat language, regardless of insurance type. As a result, providers learned to do this with all admissions, never really understanding the rule at all, or that it only applies to Medicare Part A. This has led to the widespread perception that the rule applies to any plan that has the word “Medicare” attached to it. We should not be surprised that so many people do not understand why the rule doesn’t apply to MA plans.

Everyone knows that on Oct. 1, 2013 the two-midnight rule was implemented. In August 2015, UnitedHealthcare (UHC) declared that it would no longer use the rule to determine inpatient status for the MA plans it offered to enrollees. In 2017, UHC revised their inpatient policy from “physicians should 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)” to  “physicians should use the expectation of the patient to require hospital care that spans at least two midnights period as a benchmark (i.e., they should order admission for patients who are expected to require a hospital stay that crosses two midnights and the medical record supports that reasonable expectation).”

Current UHC policy references the recent decision by the Centers for Medicare & Medicaid Services (CMS) to remove procedures from the Inpatient-Only List with the following statement: “additionally, procedures removed from the (List) may become subject to medical review activities related to the two-midnight rule.” The policy continues to confuse the reader, mischaracterizing inpatient care as “services.” The policy even refers to a commercial policy (URG – 19.01 entitled Elective Inpatient Services; note: title of policy does not include Medicare Advantage).

This is a “commercial utilization review guideline,” effective May 1, without any reference to the two-midnight rule. It seems to me to coincide exactly with the Interqual (IQ) screening tool rollout date, but veiled in an “elective” surgery inpatient criteria commercial policy buried on the bottom. Notice how UHC does not reference Interqual in their MA plans directly, but refers you to their commercial policies, so they cannot be accused of using any utilization criteria alone in their Medicare population, consistent with CMS guidance. UHC uses CMS policy and the two-midnight rule in their MA policies, to their benefit, leaving the reader confused about how to apply the Interqual utilization tool and or the two-midnight rule.

The confusion resurfaced in February 2019, when David M. Glaser, Esq. wrote in RACmonitor why MA plans need to follow the two-midnight rule. “42 CFR 422.101 requires MA plans to comply with the Centers for Medicare & Medicaid Services (CMS) national coverage determinations and general coverage guidelines included in original Medicare manuals and instructions, unless superseded by regulations in this part or related instructions. The two-midnight rule is included in the Medicare manuals and is not superseded by regulation, so Medicare Advantage plans must follow it.”

In 2020, the American College of Physician Advisors (ACPA) TLC educational resource for physician advisors, titled “Improving Hospital Performance – A Counterintelligence Approach” suggested inpatient status for MA enrollees meeting the two-midnight rule. At the ACPA Observation Committee town hall in June 2021, audience members continued to need clarification on the topic.  

Let me outline why the two-midnight rule does not apply to MA plans. If a healthcare organization opts to enter into a contract that surrenders rights to which it would otherwise be entitled, this is between the organization and the plan, and CMS won’t get involved. A post was found on the RAC Relief Google group with the following response on the topic, from a CMS administrator to a group member:

“Our thinking has evolved a bit. We do not require MA plans to follow the two-midnight rule since they are at risk for services (capitated). If an MA plan (physician) decides that the best course is to admit a person to a hospital, they can do so without regard to the rule. When paying claims on a non-contract basis, if an MA plan determines that a hospitalization or observation stay was not medically necessary, the plan can deny payment, and of course, the appeal process becomes available.”

According to Ed Norwood, CMS Account Management Standard Operating Procedure 5.3.2 in part states: “as such, it is CMS policy that execution of a contract between an account and a provider is between those parties, and CMS will not intervene unless it can be proven that beneficiary access is being impacted as a result.” It all comes down to whatever is agreed upon in the MA contract with the hospital, as long as access to benefits is not restricted to enrollees.

Section 1852 of the Social Security Act says Medicare Advantage plans must offer all the “benefits” that the original Medicare program offers. The Medicare Managed Care Manual (Chapter 4, 10.2) treats these plans as commercial plans, but maintains that they are statutorily required to provide benefits that are as generous as original Medicare benefits that beneficiaries would have received with original Medicare for all Part A and Part B services:

“Benefits mean healthcare services that are intended to maintain or improve the health status of enrollees, for which the MA organization incurs a cost or liability under an MA plan (not solely an administrative processing cost). Benefits are submitted and approved through the annual bidding process.”

Therefore, the language of the MA plan contract with the hospital, or any commercial payor for that matter, dictates the extent of utilization review (UR) processes that lead to payment for the services and benefits delivered to the enrollee. When MA firms negotiate contracts with individual hospitals and healthcare organizations, CMS has been clear that such contracts are not required to include the two-midnight rule when it comes to making hospitalization status decisions. Instead, in these instances, MA plans often use proprietary decision tools containing clinical criteria, such as MCG or Interqual , and/or their own plans’ internal criteria, as part of the decision-making process to grant inpatient our outpatient (observation) status.

The status of a patient is either outpatient or inpatient, neither of which is a benefit or service or item to which the patient is entitled. In the case Alexander vs. Azar, the court (Michael P. Shea, U.S.D.J.) made the following statement: “for the reasons that follow, I find that….there is a property interest in Part A coverage, but no property interest in inpatient admission..” “Neither the language of the two-midnight rule, nor CMS sub-regulatory guidance, nor CMS’s enforcement practices, establish a property interest in formal inpatient admissions, because CMS doesn’t not require treating physicians to order inpatient admission when a patient satisfies CMS criteria.” I interpret this in the following way: that observation is a service, so it is therefore a benefit, while inpatient status and the two-midnight rule is not a benefit!

If the beneficiary receives these services, no less than original Medicare offers, CMS has remained reluctant, time and time again, to intervene in such a payment dispute. Therefore, outpatient and inpatient status designation is a payment mechanism only.

An interesting example of where a benefit must be offered by the MA plan (because it is part of an NCD) would be UHC’s policy on the Mitra Clip. The MA plan has to offer the benefit, since it is offered to all other original Medicare enrollees. UNH does not offer the service to any of its commercial non-Medicare enrollees, because they consider the procedure to not be medically necessary. In the absence of a Medicare National Coverage Determination (NCD), Local Coverage Determination (LCD), or other Medicare coverage guidance, CMS allows a Medicare Advantage Organization (MAO) to create its own coverage determinations, using objective evidence-based rationale relying on authoritative evidence.

Since the subject of this article is why MA plans don’t have to follow the two-midnight rule, the same answer applies as to why MA plans don’t have to follow the three-midnight rule for Skilled Nursing Facility (SNF) coverage.

Other items that are not benefits under original Medicare that are contractual:

1. Readmissions – zero payment different from traditional Medicare process;
2. Code 44 process;
3. Inpatient-Only List;
4. Inpatient denial with inability to obtain reimbursement for observation alternatively;
5. Exceptions to the two-midnight rule;
6. Physician economic herding by payor; and
7. Tiered payment for certain items and services.

I hope this clarifies why we cannot use the two-midnight rule for MA plans, no matter how much we try. Instead, maybe we can get our contracting folks to negotiate this into a contract with the MA plan. If not, let’s agree to stop trying to force a square peg into a circle. Good luck