Two-midnight rule targeted by GOP lawmakers wanting Medicare overhaul

Photo from bradyforcongress.com.

Lawmakers in Washington D.C. have targeted Medicare’s payment system for hospitals, specifically the two midnight rule, with hopes of reforming or otherwise overhauling the regulations.

The House Ways and Means Committee’s subcommittee on health is taking public comment on a long list of ideas some legislators are proposing in a discussion draft of the Hospitals Improvements for Payment Act, led by Kevin Brady, a Republican from Texas.

“What happens over the next two years with American healthcare will shape it for better or worse for generations to come,” said Brady, chair of the Ways and Means subcommittee on health whose suburban Houston district includes providers like Conroe Regional Medical Center and a branch of Memorial Hermann Cancer Center.

Pointing to Medicare’s two midnight rule, short inpatient stays, outpatient observation stays, auditing and appeals, Brady said he and colleagues wants to develop “a new, fairer way to pay local physicians so they can afford to keep seeing our Medicare seniors, and to take the steps necessary to save Medicare for the long haul.”

[See also: A silver lining in two-midnights rule?.]

The Republican committee leadership has identified more than two dozen different areas of Medicare policy that they want to address.

The first section of the discussion bill outlines ideas for new hospital prospective payment system, a new per diem rate for short lengths of stay, a repeal of the two-midnights-related payment reduction, and changes to the Recovery Audit Contractor program.

The bill calls for a new HPPS to be developed by 2010, with a base rate of payment based on blending short stay operating rates and overnight outpatient services, as well as an aggregation of indirect medical education and disproportionate share payments for short stays.

The new HPPS would have a new wage index, a weighting factor for different services, and also adjustments for value-based purchasing, hospital acquired conditions and other factors that HHS deems necessary. It would also prohibit hospitals from receiving the the ACA’s low-volume add-on payment for HPPS discharges.

Crucial to the controversial two midnight’s rule — the twice-delayed regulation covering only beneficiary stays greater than 48 hours as inpatient admissions — the draft bill would require HHS to reimburse overnight outpatient observation stays from the Medicare Hospital Insurance trust fund, and subject those stays to beneficiaries’ Part A deductible and cost-sharing.

The bill would define the short stays at the center of the controversy and related Medicare audit clawbacks, as having an actual length of stay less than three days, with flexibility for HHS to raise that threshold; it also defines overnight outpatient hospital stays as an observation stay of more than 24 hours.

[See also: The logistics of compliance: Two-midnight rule demands process change.]

The bill would also extends the RAC audit moratorium on enforcement of CMS’ two-midnights standard by another six months and would prohibit RAC audits of short-term hospital stays until the new HPPS is available.

The two-midnight rule and RAC audits of medical necessity in hospital payments have been a major point of contention between the industry and the Centers for the Medicare & Medicaid Services.

In addition to the potential for lower-reimbursement after the fact for hospitals, the two-midnight rule may cause more confusion for Medicare beneficiaries, said David Weisman, a health policy and financial specialist at the Indiana Hospital Association.

“Although their treatment might appear to them to be an inpatient stay, i.e., in a room and in a hospital bed, their explanation of benefits and bill will reflect that they were an outpatient, which carries with it much different deductible and co-pay responsibilities,” Weisman said earlier this year.

The ideas in the Republican leadership's draft bill are meant to get feedback from a range of stakeholders. The American Hospital Association, among others, are still reviewing the proposals.

The 'Bay State Boondoggle'

In the second section of the Hospital Improvement for Payments Act, Brady and his colleagues outlined 19 priority areas they want to address.

One provision, crafted by Texas Republican Sam Johnson, would repeal the ACA’s ban on physician-owned hospitals, a major issue in Texas and other Southern states home to many of the nation’s doctor-owned acute care facilities.

Wisconsin Republican and budget wonk Paul Ryan wants to expand access to Medicare data, and Nebraska Republican Adrian Smith wants to repeal the requirement that critical access hospitals provide an average length of stay of 96 hours or less for inpatient acute patients to retain the CAH designation.

Tennessee Republican Diane Black wants to allow nurse practitioners, physician assistants, clinical nurse specialists and midwives to meet the documentation requirements for ordering a hospital stay, which could be a fairly significant change in scope of practice.

Among the other provisions in the draft bill, a proposal by Brady would fix the “Bay-State Boondoggle” — the outcome of Massachusetts getting a disproportionately large share of Medicare’s fixed sum of wage adjustments shared by hospitals across the country.

[See also: Two-midnight rule a double-edged sword.]

In Massachusetts, Medicare’s policy of giving urban hospitals wage index payments that are at least as high as payments to rural hospitals means all the state’s hospitals are receiving an extra $250 million because Nantucket Island’s Cottage Hospital is the state’s only qualified rural hospital.

Brady’s proposal would make the wage index budget neutral on a national basis, starting in October 2015.

Whether or not any new Medicare reform bills are turned into law, of course, remains to be seen. But the new draft discussion bill by Brady and his Republican colleagues suggest that lawmakers at least have ideas for change.

In the Senate, lawmakers have also been interested in changing the two-midnights rule, with a bill originally introduced in March that would introduce slightly less sweeping changes than the ideas crafted by Brady and colleagues in the House.

Sponsored by New Jersey Democrat Robert Menendez, the bill would require HHS to develop new criteria for the type of policy goals of two-mignights, "to account for medical necessity and the appropriateness of an inpatient stay that is less than the two-midnight benchmark."

The Senate bill emphasizes that that new methodology could allow for "a reduced payment amount than would otherwise apply to inpatient hospital services if paid for under the Medicare prospective payment schedule."