On December 19, 2016, the HHS OIG issued a report on Medicare’s 2-midnight rule titled “Vulnerabilities Remain Under Medicare 2-Midnight Hospital Policy.” The report reviews data from 2013 and 2014 and reaches several findings regarding the HHS OIG’s conclusions about the new inpatient coverage standard which has been the source of controversy since the rule was first adopted. The report is available here.
CMS implemented the 2-midnight rule in the Fiscal Year 2014 Inpatient Prospective Payment System Final Rule (“FY 2014 IPPS rule”). Under the 2-midnight rule, inpatient stays that extend across two midnights after the point of formal admission are generally considered to be medically necessary. Inpatient stays that do not are considered to be medically unnecessary unless at the time of admission the admitting physician reasonably believed that the beneficiary would require hospital care for a period greater than two midnights and the beneficiary did in fact receive that care, including time spent in outpatient settings such as the emergency department or observation. In 2015, CMS adopted in the Fiscal Year 2016 Outpatient Prospective Payment rule (“FY 2016 OPPS rule”) an exception to the 2-midnight rule which recognized that, in some cases, an inpatient level of care may be necessary (and therefore Part A payment may be appropriate) even though the admitting physician does not expect the patient to require more than two midnights of hospital services. The FY 2016 OPPS rule is available here.
In the FY 2014 IPPS rule, CMS explained that it adopted the 2-midnight rule, in part, to clarify the standards for inpatient admission in order to avoid confusion that had resulted in a spike in extended observation stays of 48 hours or more. This trend, according to CMS, was brought about by hospitals trying to avoid Medicare contractor denials of short inpatient stays, including Recovery Audit Contractor denials, citing as the reason that the hospital services could have been provided in an outpatient or observation setting.
The December 19 HHS OIG report compares paid inpatient and outpatient Medicare hospital claims from 2013 prior to implementation of the policy, to claims from 2014 post implementation. The report does not look at Medicare claims submitted after the 2-midnight rule exception announced in the FY 2016 OPPS rule. The report found that the number of inpatient stays decreased following the 2-midnight rule, and conversely the number of outpatient stays increased. The report also found that Medicare paid almost $2.9 billion for short inpatient stays which were potentially inappropriate under the policy. Both of these findings are interesting given that CMS predicted in the FY 2014 IPPS rule that the 2-midnight rule would lead to an aggregate increase in Part A payments despite the fact that the new standard narrowed the conditions under which Part A payment would be paid for inpatient stays.
The HHS OIG also reported on findings that addressed the extent to which the 2-midnight rule affected the trend of extended outpatient or observation stays. The report found that hospitals continued to bill for a large number of long outpatient stays, and as a result an increased number of beneficiaries in outpatient stays pay more and have limited access to SNF services than they would as inpatients. Under Medicare policy, SNF services are generally covered only after an inpatient stay of three days or more.
The HHS OIG report recommends that CMS improve its oversight of the 2-midnight rule and increase protections for beneficiaries. Specifically, the HHS OIG recommended that CMS: “(1) conduct routine analysis of hospital billing and target for review the hospitals with high or increasing numbers of short inpatient stays that are potentially inappropriate under the 2-midnight policy; (2) identify and target for review the short inpatient stays that are potentially inappropriate under the 2-midnight policy; (3) analyze the potential impacts of counting time spent as an outpatient toward the 3-night requirement for SNF services so that beneficiaries receiving similar hospital care have similar access to these services; and (4) explore ways of protecting beneficiaries in outpatient stays from paying more than they would have paid as inpatients.” CMS agreed with all four of HHS OIG’s recommendations found within the report.
