CMS Resets Clock on 2-Midnight Rule

A Centers for Medicare and Medicaid Services (CMS) decision to delay the date when Recovery Audit Contractors (RACs) will start looking for inpatient claims that should have been billed as outpatient observation because of their short duration (less than a day defined as two midnights in the hospital) will buy hospitals and the groups that represent them time to fight CMS-1599-F (commonly known as the “2-Midnight Rule”).

The reimbursement rule change was designed to cut down on overuse of observations stays for Medicare patients, but it is hurting hospitals admission rates. According to Citi Research’s December 2013 survey of hospital admission rates, the rule is one of the major factors behind a decline in admission rates of 4% and 5% from a year ago. Put in perspective, these are the lowest hospital admission numbers Citi Research has recorded in a decade of monthly surveys.

Groups such as the American Hospital Association (AHA) have understandably expressed concern about this rule’s effect. Last month, the AHA, four East Coast hospital associations (Greater New York, New York State, New Jersey and Pennsylvania), and four hospital systems (Banner Health, Einstein Healthcare Network, Wake Forest University Baptist Medical Center and the Mount Sinai Hospital) appealed in federal court for an expedited judicial review of whether the rule’s 0.2% cut in Medicare inpatient payments is lawful.

In addition, the AHA organized a late January Washington, D.C., member fly-in to build support among lawmakers for the Two Midnight Rule Delay Act of 2013 (H.R. 3698). The bill was introduced by Rep. Jim Gerlach (R-Pa) and has bi-partisan co-sponsors in Reps. Joseph Crowley (D-NY), Tom Reed (R-NY), Ron Kind (D-Wis) and Peter Roskam (R-Ill).

Under the CMS extension, RACs will delay the start date for conducting post-payment patient status reviews of inpatient hospital claims until Sept. 30, 2014. However, they will still conduct pre-payment “probe and educate” audits on a limited number of claims for patients admitted between Oct. 1, 2013 and Sept. 30, 2014.

“We are pleased that CMS has extended its enforcement moratorium on the two-midnight policy for an additional six months, as the AHA has urged,”  stated AHA Executive Vice President Rick Pollack in a press release.

CMS also posted guidance clarifying that under the two-midnight rule, a physician must sign off on inpatient admissions and take responsibility for these being medically necessary.