Tuesday’s House Committee on Ways and Means Subcommittee on Health hearing on current hospital issues in the Medicare program demonstrated that there is broad agreement that last year’s “2-midnight rule” for determining hospital inpatient status in a more standardized way is not working as intended.

Although the rule is currently suspended, the threat of it being enforced retroactively has hospitals being much more careful in assigning short-stay patients inpatient status and collecting the higher Medicare Part A inpatient rates.

With fewer inpatient admissions and more outpatient observation stays, hospital finances across the nation have been affected. However, since lawmakers are unlikely to be deeply moved by the plight of hospital investors, testimony at the hearing leaned toward the unintended consequences of the rule on Medicare beneficiaries.

One big problem that both physicians and government officials acknowledged was how under the 2-midnight rule time spent in the hospital has become more important than individual patient clinical factors in determining if a patient can get Medicare-covered skilled nursing facility care after his or her hospital stay.

Ann M. Sheehy, M.D., of the Society of Hospital Medicine’s Public Policy Committee asked the legislators to consider what happens in the fairly common situation of an elderly patient with dehydration who suffers a broken bone from a fall. Already unsteady on her feet, this patient is now at great risk of falling again because pain medication can cause confusion and a cast can further limit mobility. However, unless the patient qualified for inpatient status because her hospital stay covered two midnights, she will be ineligible for a Medicare-covered skilled nursing facility stay after her hospital stay.

“It is clearly not safe for her to be at home. Yet, without regard for her condition, Medicare may view her as an outpatient based purely on time in the hospital, as if she were in a clinic,” Sheehy testified.

From the administration’s perspective, Jodi D. Nudelman, the Regional Inspector General for the Office of Evaluation and Inspections, Office of Inspector General (OIG) for the U.S. Department of Health and Human Services (HHS), noted that for about 25,000 of the 618,000 observation status hospital stays the OIG examined, beneficiaries received skilled nursing facility services following their discharge from the hospital. In almost all cases Medicare paid for the stay at the skilled nursing facility, even though regulations say it shouldn’t have. However, in about 2,000 cases, Medicare did not pay for the skilled nursing facility services and the beneficiary had to pay $11,000 on average for his or her post-hospital stay care.

While Nudelman agreed with Sheehy that some beneficiaries may indeed be harmed by having to pay out-of-pocket for post-hospital stay skilled nursing facility care, she also pointed out that other beneficiaries have saved money because their short hospital stays were now outpatient stays. According to Nudelman’s testimony, traditionally hospitals have varied in whether a patient stay was billed under Medicare Part A or Part B even when all clinical factors were the same and the 2-midnight rule’s attempt to standardize when a stay is a legitimate inpatient stay should not be completely dismantled.

Nudelman did agree with providers and hospitals that the current Medicare appeals system needs some fundamental changes, including better evaluation of the accuracy of the work of the recovery audit contractors (RACs). However, she defended the necessity of audits and RACs, as well as the work CMS has done to fix recurring payment problems identified through audits. Backlogs in processing audits are also partly the providers fault, she noted, at 85 percent of appeals are filed by providers and a small sliver (2 percent) of providers are behind a third of all appeals.

“Ensuring that the Medicare program works effectively and efficiently for beneficiaries, taxpayers, and providers is of paramount importance,” she testified. “Clear policies, strong oversight of contractors, and an appeals system that is effective, efficient, and fair are critical to accomplishing this goal.”