CMS Extends Enforcement Delay of Two-Midnight Rule

Last week the Centers for Medicare and Medicaid Services (CMS) said it will extend the enforcement delay of its two-midnight policy until December 31, 2015. Beginning January 1, 2016, Quality Improvement Organizations (QIOs) and Recovery Audit Contractors (RACs) “will conduct patient status reviews in accordance with any policy changes finalized in the outpatient prospective payment system rule and effective in calendar year 2016.” This rule includes the proposed changes to the two-midnight policy.


The proposed changes would allow Medicare Part A reimbursement of short inpatient hospital stays spanning less than two midnights on a “case-by case basis” if the admitting physician documents the medical necessity of the admission. (“CMS Extends Two-Midnight Enforcement Delay Until Year’s End,” AHLA Weekly, August 14, 2015)


CMS finalized its inpatient prospective payment system for FY 2016, as reported in last week’s iProtean blog newsletter. We noted that the final rule didn’t extend a partial enforcement delay to the two-midnight rule, even though CMS had published such changes in the proposed outpatient prospective payment system rule for 2016.


In its Inpatient Hospital Reviews Update (August 12, 2015), CMS noted that beginning October 1, QIOs will be responsible for conducting inpatient status reviews of providers to determine appropriateness of Part A payment for short stay inpatient hospital claims. Currently, reviews are conducted by Medicare Administrative Contractors. (“CMS Extends Two-Midnight Enforcement Delay Until Year’s End,” AHLA Weekly, August 14, 2015)


Beginning in January 2016, RACs may conduct patient status reviews only for those providers that have been referred by the QIO “as exhibiting persistent noncompliance with Medicare payment policies, including, but not limited to: having high denial rates and consistently failing to adhere to the two midnight rule (including repeatedly submitting inappropriate inpatient claims for stays that do not span one midnight), or failing to improve their performance after QIO educational intervention.” (Inpatient Hospital Reviews, Update August 12. 2015,


To read the update, click here.


Notice of Observation Treatment

Because patient classification as “inpatient” or “under observation” has financial implications for Medicare beneficiaries (e.g., out-of-pocket costs, skilled nursing facility costs), both the United States Senate and House of Representatives unanimously approved the NOTICE Act and President Obama signed it into law on August 6. NOTICE stands for Notice of Observation Treatment and Implication for Care Eligibility.


The measure requires hospitals to give individuals who receive observation services for more than 24 hours oral and written notice explaining their status as an outpatient and the implications of that status. (“President Signs Measure Requiring Notice of Observation Status,” AHLA Weekly, August 14, 2015)


Hospitals have a year to comply with the new notice requirement.





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