Hospitals Fight Two-Midnight Rule

The controversial “two-midnight” rule has activated a group of hospitals and hospital associations to challenge it by filing two related lawsuits in the U.S. District Court for the District of Columbia. The plaintiffs take issue with the “wholly arbitrary” requirement that a physician must certify at the time of admission that a Medicare patient is expected to need care in the hospital for a period spanning two midnights to be considered an inpatient.


One of the lawsuits argues that the 0.2 percent payment cut in 2014 CMS implemented to offset the increased costs to the Medicare program from the two-midnight rule was “arbitrary,” and that it “profoundly overestimated the number of cases that would shift from outpatient to inpatient” as a result of the law. (“Hospitals Sue HHS to Revoke Two-Midnight Rule,” Health Lawyers Weekly, April 18, 2015; “AHA lawsuit over ‘two-midnight’ rule called uphill battle,” Modern,April 15, 2014)


However, legal experts say that hospitals will have a tough time convincing judges to overturn Medicare’s controversial new rules on classifying inpatients. In the past, the Supreme Court has given Health and Human Services “wide discretion” in issuing rules to implement laws. (“AHA lawsuit over ‘two-midnight’ rule called uphill battle,” Modern,April 15, 2014)


The association plaintiffs are the American Hospital Association, the Greater New York Hospital Association, the Healthcare Association of New York State, New Jersey Hospital Association and the Hospital & Healthcare Association of Pennsylvania, and hospital plaintiffs Wake Forest University Baptist Medical Center, The Mount Sinai Hospital and hospitals that are part of Banner Health and Einstein Healthcare Network.


Background on the Two-Midnight Rule

Under the 2014 Inpatient Prospective Payment System final rule, when a physician admits a patient expecting the inpatient stay to span at least two midnights, the admission will qualify as appropriate payment under Medicare Part A. Admissions that last for less than two midnights will be assumed to have been provided on an outpatient basis and, therefore, would not qualify for payment under Part A, but rather under Part B.


The rule took effect October 1, 2013 but the Centers for Medicare & Medicaid Services delayed its full implementation through September 30, 2014. The recent “doc fix” legislation further extended the implementation delay through March 31, 2015.


Hospitals claim the two-midnight rule unfairly puts patients into an observation status where they may have tests and sleep in hospital beds but are not classified as inpatients. The hospital gets lower reimbursement for outpatient/observation stays, and patients must pay a 20 percent copayment. (“Hospitals Sue HHS to Revoke Two-Midnight Rule,” Health Lawyers Weekly, April 18, 2015)



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