iProtean—Hospitals Challenge Two-Midnight Rule

The American Hospital Association (AHA) announced January 22 that four hospital systems have filed appeals asking the Provider Reimbursement Review Board (PRRB) to grant expedited judicial review for the hospitals’ challenge to certain new payment policies for Medicare Part A inpatient claims, specifically the “two-midnight” rule. (See iProtean newsletter, “Audits Delayed for Two-Midnight Rule,” October 1, 2013)


The 2014 Inpatient Prospective Payment System final rule on “two-midnight” stays took effect October 1, 2013. The two-midnight rule says that when a physician admits a patient with the assumption that the stay will span at least two midnights, the admission will qualify as appropriate for payment under Medicare Part A. However, admissions spanning less than that time period are presumed to be inappropriate for payment under Medicare Part A, and should have been provided on an outpatient basis under Medicare Part B. CMS developed the policy because of an increase in observation stays, which expose patients to higher out-of-pocket costs under Medicare Part B.


CMS has estimated that the new policy will increase inpatient expenditures by about $220 million, so it proposed to offset that by permanently reducing the standard payment rate to hospitals by 0.2 percent.


Modern Healthcare reported that Banner Health in Arizona, Einstein Healthcare Network in Pennsylvania, Wake Forest University Baptist Medical Center in North Carolina and the Mount Sinai Hospital in New York have filed appeals, asking PRRB to grant expedited judicial review for the hospitals’ claims that the 0.2 percent payment cut is “arbitrary and capricious because CMS relied on indefensible assumptions and offered no reasoned explanation for them. They also argue that the payment cut fails to comply with Administrative Procedure Act’s requirements for proper notice and comment and was not codified in regulation as the law requires, AHA said.” (“Hospital Systems Initiate Challenge to CMS’ ‘Two-Midnight” Policy,’” Health Lawyers Weekly, January 24, 2014)


Originally, CMS said it will not 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, but it has extended the implementation date to March 31, 2014.


(Sources: “Hospital Systems Initiate Challenge to CMS’ ‘Two-Midnight” Policy,’” Health Lawyers Weekly, January 24, 2014; “AHA plans to fight CMS’ ‘two-midnight rule’ this year,” Modern Healthcare, January 23, 2014; and “Hospital Groups Seek 2-Midnight Rule Review,” HFMA, January 23, 2014)


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