CMS Keeps But “Adjusts” Two-Midnight Rule

CMS Proposes to Allow for “Exceptions”

Click to download the PDF copy

Click to download the PDF copy

The Centers for Medicare and Medicaid Services proposed slight changes to the controversial “two-midnight” rule that determines whether it pays hospital stays as inpatient or outpatient visits, in the recently published CY2016 OPPS Proposed Rule, claiming to be making the rule’s review process more “flexible” and less troublesome for providers.

A key feature that many hospitals hoped for was a continued moratorium on full enforcement of the rule, previously created by Congress in The Medicare Access and CHIP Reauthorization Act (MACRA), which will expire on Sept. 30. While the moratorium will not be extended, the way that reviews of short stay inpatient admissions will be done might change, under their proposal.

Presumption is Unchanged, But the Benchmark Now Involves Fuzzy Logic

The two-midnight rule Presumption remains unchanged, according to the proposed rule. The heart of the rule that presumes that any medically necessary visit that stretches beyond two midnights is generally appropriate to be paid under Part A, remains as is.

As to the Benchmark of 2 midnights, however, CMS is proposing that case-by-case exceptions to the rule as previously defined are apparently less “rare and unusual” that allowed for under the original policy. Nevertheless, CMS still says that it expects these cases to still be” rare,” since a patient for a minor surgery or a treatment would typically not require a “lengthy” hospital stay.

How Fuzzy Logic, and now the Benchmark work. Existing Rule, on the left. Proposed Rule, on the right.

How Fuzzy Logic, and now the Benchmark work. Existing Rule, on the left. Proposed Rule, on the right. To adjust for our industry, just substitute IP for X.

This new policy to allow for exceptions smacks of “fuzzy logic” – the idea – loved by Far Eastern philosophers – that classic (Western) Newtonian logic is not enough to define the world we live in. The question of “What is two plus two?” – for Classical logic – always gives the answer “Four,” and never four-and-a-half or five. The answers are always “either/or,” true or false, the binary logic of 1 or 0. Fuzzy logic, however, uses a “both/and” logic that almost insists on matters of degree – all those shades of grey in between black and white. Doesn’t that sound a little like this proposed change in the Benchmark?

Post Payment Patient Status Review No Longer in the RAC’s Hands

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In addition to the Benchmark’s decidedly “fuzzy” or “gray area” of proposed exceptions, CMS also proposes to change how they will handle violations to the two-midnight rule. The Quality Improvement Organizations (QIOs) would take charge of addressing errors instead of Medicare Recovery Audit Contractors (RACs). The implied goal of the QIOs would be to educate rather than punish facilities. The RACs would only be allowed to conduct patient status reviews for facilities referred to them by the QIO specifically as repeat offenders – those suspected of systematic or gaming issues.

Three concerns with this policy arise. First, while the reviewers at the QIOs may be physicians much more often than seen on RAC review teams, subjective judgement will still reign when determining medical necessity. Even physicians may disagree on such judgements, and we’ve already seen that courts are willing to accept mere differences of opinion as the basis of False Claims Act cases, much less mere denials. Second, a “patient status review” is very similar to and has the exact same effect on a claim as a “medical necessity review,” making this “restriction” on RACs, practically speaking, moot.  And third, the QIOs are likely to interpret Medicare rules and policies in the same manner as the RACs.

It is difficult to imagine that the “accuracy” of denials by the QIOs will be measured any differently than the RACs have been measured in the past, allowing CMS to proclaim a 95% accuracy rate for the RACs, despite the fact that 75% of RAC denials were reversed in one way or another at the 3rd level of appeal.

Cuts and Comments

Calculations by CMS and the OMB to determine the likelihood that anyone can understand their logic when they decided on the reimbursment deductions.

Calculations by CMS and the OMB to determine the likelihood that anyone can understand their logic when they decided on the IPPS payment reductions.

The agency also proposed new Hospital OPPS rates, estimated to result in facilities losing $43 million in payments in 2016, including a proposed a 0.2 percent cut to the IPPS.

Meanwhile, the American Hospital Association (AMA) has pushed for the changing or eliminating the two-midnight rules, since it’s inception. Executive Vice President Rick Pollack said in a statement, “We await further clarification on how changes to the RAC program interface with these proposed changes. Significant fundamental RAC reform is still needed. CMS also must extend the partial enforcement delay of the two-midnight policy beyond September 30.”

CMS  said it will take comments on the two-midnight rule until Aug. 31 and will issue a final rule on Nov. 1, after the moratorium is expected to lift.

Get the full proposed rule here.


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