iProtean—Audits Delayed for Two-Midnight Rule

The Centers for Medicare & Medicaid (CMS) announced this week it will delay Recovery Audit Contractor (RAC) audits of the “two-midnight” rule for 90 days. The 2014 Inpatient Prospective Payment System (IPPS) Final Rule released in August finalized the “two-midnight” rule, under which hospital inpatient admissions that span at least two midnights qualify as appropriate under Medicare Part A, and hospital inpatient admissions that span less than two midnights (i.e., less than one Medicare utilization day) are presumed to be inappropriate for payment under Part A.  (See iProtean Newsletter for August 13 “CMS Payments to Hospitals Will Increase $1.2 Billion in FY 2014”)


When auditing medical necessity, the RACs would presume that the occurrence of two midnights after formal inpatient hospital admission indicates an appropriate inpatient status for a medically necessary claim. If the occurrence of two midnights after formal inpatient hospital admission does not occur, government recovery auditors do not apply the same presumption, and claims for such admissions receive a higher level of scrutiny.

As part of its announcement, CMS stated it will not, for a period of 90 days, permit government recovery auditors to review the medical necessity of inpatient admissions of one midnight or less between October 1, 2013 and December 31, 2013. (National Law Review, September 29, 2013)


CMS will instruct Recovery Auditors as well as Medicare Administrative Contractors (MACs) to not review claims spanning more than two midnights after admission for appropriateness of patient status during the October – December timeframe. In addition, MACs and Recovery Auditors will not review any claims related to Critical Access Hospitals.


Also during this period, CMS will not permit Recovery Auditors to review inpatient admissions of one midnight or less that occur on or after October 1. CMS reminds hospitals that while medical review will not be focused on claims spanning two midnights or more after formal inpatient admission, physicians should make inpatient admission decisions in accordance with the two-midnight provisions in the final rule. If at any time there is evidence of systematic gaming, abuse or delays in the provision of care in an attempt to surpass the two-midnight presumption could warrant medical review. (“Auditors will delay scrutiny of ‘two-midnight’ rule: CMS,” ModernHealthcare.com, September 26, 2013)


Both the American Hospital Association and the Federation of American Hospitals responded with little enthusiasm. AHA noted that the rule should be delayed indefinitely, and FAH said CMS “used flawed and arbitrary assumptions to justify its $200 million payment cut to hospitals, purportedly to achieve budget neutrality for the two-midnight rule.” (CMS officials had estimated the two-midnights policy would increase hospital payments by allowing more patients to become eligible for inpatient rates who otherwise would have spent three or more nights in the hospital under outpatient observation.) (“Auditors will delay scrutiny of ‘two-midnight’ rule: CMS,” ModernHealthcare.com, September 26, 2013)



Earlier in August, CMS published an IPPS final rule providing clarity on how payments will be provided for inpatient status.  It has been brought to light that “many Medicare beneficiaries had been spending time under ‘observation stay’ status as opposed to ‘inpatient’ status, which prevented them from reaching the three-day threshold required to have skilled nursing services covered.” (CMS Clarifies Payments with “Two Midnight Rule” for Hospital Admissions, CMS Compliance Group, August 28, 2013; iProtean Newsletter, “Inaccuracies, Skewed Incentives in RAC Program,” September 17, 2013)


The provisions in the IPPS final rule related to payments for inpatient status will be applicable to hospital discharges that occur on or after October 1, 2013.


The CMS Fact Sheet regarding the two midnight rule states:

“. . .The final rule specifies that the timeframe used in determining the expectation of a stay surpassing two midnights begins when the beneficiary starts receiving services in the hospital. This includes outpatient observation services or services in an emergency department, operating room or other treatment area. While the final rule emphasizes that the time a beneficiary spends as an outpatient before the formal inpatient admission order is not inpatient time, the physician—and the Medicare review contractor—may consider this period when determining if it is reasonable and generally appropriate to expect the patient to stay in the hospital at least two midnights as part of an admission decision.  Documentation in the medical record must support a reasonable expectation of the need for the beneficiary to require a medically necessary stay lasting at least two midnights.  If the inpatient admission lasts fewer than two midnights due to an unforeseen circumstance this also must be clearly documented in the medical record.


“This clarification will help determine when hospital inpatient status should be extended to a patient. The expectation with this final rule is that Medicare beneficiaries who are able to receive inpatient Medicare Part A coverage status should increase. This will hopefully translate over to subsequent care provided in post-acute care facilities since the required status of a beneficiary is 72 hours to qualify for skilled nursing care coverage, and more beneficiaries may be granted inpatient status with this new rule.”(CMS Clarifies Payments with “Two Midnight Rule” for Hospital Admissions, CMS Compliance Group, August 28, 2013)





iProtean subscribers, our annual symposium takes place this week. We will be reporting on the speakers’ presentations over the next several weeks in this newsletter. Also, please look for your new course, Making Difficult Decisions About Services & Programs, Part One in your library. This advanced Finance course features Marian Jennings, Nathan Kaufman and Lisa Goldstein.



For a complete list of iProtean courses, click here.


iProtean Symposium & Workshop

Mark the Date!! October 2 – 4, 2013 at The Lodge at Torrey Pines, La Jolla, CA. Faculty: Michael Irwin (Citigroup), Todd Sagin, M.D., J.D. (Sagin Healthcare Consulting), Dan Grauman (DGA Partners), Pam Knecht (ACCORD LIMITED), Brian Wong, M.D. (The Bedside Project), Doug Mancino, Esq. (Hutton & Williams, LLC)  For more information, click here.


For more information about iProtean, click here.