Providers Blast CMS on Two-Midnight Rule

One of the hottest healthcare controversies—the two-midnight rule—boils over in comments submitted to federal officials regarding the 2015 Inpatient Prospective Payment System rules.

For the past year, the federal Centers for Medicare & Medicaid Services have been at odds with healthcare providers over a proposed standard for drawing the line between outpatient and inpatient status.

Under the proposed "two-midnight rule," most hospital stays lasting less than two midnights in duration would be reimbursed at outpatient rates through Medicare B. Longer stays requiring hospital admission would be reimbursed at the more lucrative Medicare A inpatient rate.

Congress has placed the two-midnight rule on hold until early 2015. And CMS has provided no new guidance about the patient status regulation in the proposed version of the 2015 Inpatient Prospective Payment System rules released May 15.

But the issue remains a prime concern for providers.

From the institutional to the individual level, providers have raised howls of protest in comments filed with CMS regarding the proposed 2015 IPPS regulations. The deadline to submit comments to CMS was June 30.

In its comment letter to CMS dated June 20, officials at the Michigan Health and Hospital Association said it has been—and remains—opposed to the two-midnight rule since its inception last summer.

"The MHA continues to believe that in cases where a physician or other qualified and licensed practitioner has determined that a patient met national guideline criteria to be admitted as a hospital inpatient, the care provided should be covered and paid by Medicare Part A," the Michigan officials wrote.

"The decision on the appropriate setting of care can best be made by the patient's physician based on the patient medical history, co-morbidities, severity of signs and symptoms, current medical need and the risk of an adverse event without regard to any 'guesses' about how long a patient will remain in the hospital. This policy has resulted in much confusion over the past year for hospital staff, patients, and their families, and can have serious financial implications."

An Argument for the Prior Standard
The two-midnight rule is, in part, designed to address a spike in outpatient care over the past decade. But it misses the mark, according to Joseph Dawood, MD, medical director at Tacoma, WA-based Multicare Health System. In his comments to CMS about the proposed 2015 IPPS rules, Dawood calls on the agency to "eliminate" the two-midnight rule.

"It defeats the purpose of why the rule was instituted in the first place," he said in an interview after submitting his comments to CMS last month, asserting that the proposed rule is arbitrary and penalizes efficient care. "Certain things can be treated in the outpatient setting. Other things can't. They're in between."

Dawood says the prior standard for determining inpatient status makes more sense. "It was good to begin with. Medical necessity was equivalent to inpatient status," he said of the prior standard. "If you want to find a way to pay for short-term patient stays … find a way to pay for short-term patient stays, and keep the determination of medical necessity to physicians."

Officials at the Association of American Medical Colleges say the two-midnight rule would disproportionately hit the group's membership. The AAMC filed its 2015 IPPS comments on June 25.

"Our members have had a lot of difficulty with the two-midnight rule," Allison Cohen, senior policy and regulatory analyst at the DC-based group, said in an interview last month before the AAMC filed its comments. "Duration of stay really doesn't say anything about the patient."

She says the two-midnight rule unduly punishes large academic medical centers. "Based on mission, we have to treat all comers," Cohen said, noting large medical centers in urban areas face a high volume of "high-intensity" patients such as the homeless and people from disadvantaged communities who have suffered with multiple chronic conditions for years.

"Two-midnights was designed to provide clarity when it really hasn't. Then you're also underpaying these hospitals that are treating high-intensity patients… This is really something where clinical judgment should determine whether a patient is inpatient or outpatient."

If the two-midnight rule is implemented, the AAMC wants the threshold-setting clock to start as soon as a physician orders inpatient status. AAMC officials wrote to CMS:

"At high-occupancy hospitals, such as those of the AAMC members, it is not unusual for a patient to have to wait several hours or more for a bed to become available, even after a physician has written an inpatient order…"

"For example, a physician may write an inpatient order in the emergency room at 10 p.m. on a Monday night, the patient may be moved to the inpatient setting at 1 a.m. Tuesday morning, and the patient may be discharged at 7 a.m. on Wednesday morning. Under CMS' proposal, this case would not have qualified… even though the patient required inpatient care across two midnights."

Alternate Points on Time
While CMS officials show no sign of bending or breaking the two-midnight standard in their proposed Medicare payment rules for 2015, they have invited suggestions on creating a "short stay payment" (SSP) policy that would presumably supplement or supplant the two-midnight standard.

In their June 26 comment letter to CMS, American Hospital Association officials called on the federal agency to adopt an SSP that would build a more rational and effective approach to short hospital stays:

"The AHA strongly believes that CMS must appropriately and adequately reimburse hospitals for the care they provide. The existing two-midnight policy fails to meet this standard for medically necessary inpatient stays that span less than two midnights," the national hospital association officials wrote. "However, we believe that a short-stay payment policy, which would supplement the existing two-midnight policy, could reimburse hospitals more accurately for the resources they use to treat beneficiaries during these short stays."

The Michigan Health and Hospital Association is also encouraging CMS to adopt a new SSP policy, with deliberate speed. "If the CMS elects to implement a SSP, we urge the CMS to allow hospitals adequate time to comply," the Michigan officials wrote to the federal agency. "As a result, we recommend that CMS implement the SSP policy for FY 2016."

The Michigan group offers these specific recommendations for developing an SSP policy:

• Payment rates would be higher than Medicare outpatient rates but lower than inpatient rates.
• Payments rates for surgical cases should reflect that most costs are incurred in Day 1 of services.
• The SSP would not apply to the list of short-stay procedures that automatically qualify for Medicare A payment.

Fix It
Ronald Hirsch MD, FACP, is calling on CMS to fix the two-midnight rule.

"I find the rule much more sensible than the old method of admission v. observation decision based on risk, which resulted in the appeal mess that now exists," he wrote in his comments to CMS on the proposed 2015 IPPS rules.

In an interview after he filed his comments last month, the VP at Chicago-based Accretive Health said a preferable payment system would "reflect the true costs" for short hospital stays. "Most of the costs incur in the first day of service, so it makes no sense," he said of the two-midnight rule.

Hirsch says it would make more sense to break down the two-midnight rule into eight-hour increments. The first eight hours could be bundled with the emergency department's bill, he said, with reimbursement rates increasing with each eight-hour increment leading up to the two-midnight threshold. "Clearly, patients who stay eight hours and patients who stay 48 hours use different resources," he said.

Under the two-midnight rule, the differential between outpatient and inpatient care reimbursements is too wide and punishes hospitals for providing efficient care, Hirsch believes.

In heart failure cases, for example, the reimbursement for one day of treatment under observation status is about $1,600 compared to $10,800 if a patient can cross the two-midnight mark, he says. "The hospital is going to get a payment that is much lower than if they were inefficient."