Two-midnight rule delayed until September in SGR repeal bill

Under the provision, CMS could continue to use Medicare Administrative Contractors to "probe and educate" providers on their likely compliance with the two-midnight rule.

Tuesday’s companion bill to repeal the sustainable growth rate is punting a decision on the controversial “two-midnight” rule into September.

The new legislation continues until September a partial delay of the Medicare “two midnights” policy that establishes 48 hours as the threshold for classifying a patient stay as inpatient.

The rule was first supposed to take effect in October 2013, then was delayed until September 2014, and again was delayed until the end of March 2015 in last year’s SGR patch.

[Also: Companion SGR bill unveiled]

Under the provision, CMS could continue to use Medicare Administrative Contractors to “probe and educate” providers on their likely compliance with the two-midnight rule – on a pre-payment basis only, not with post-payment audits or clawbacks by Medicare Recovery Auditors. 

The American Hospital Association has been waging a war on the two-midnight rule, but the Centers for Medicare & Medicaid Services remains intent on applying some version of it.

That’s going to take some adaptations. At hospitals that were preparing for the two-midnight rule, a fair amount of confusion was expected for patients placed in observation status in lieu of what would have been a less than 48-hour inpatient admission.

“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 copay responsibilities,” David Weisman, a health policy specialist st at the Indiana Hospital Association, told Healthcare Finance News last year.

“In theory, the rule makes some sense,” said Colleen Hall, senior manager at consulting firm Crowe Horwath. “If the patient needs inpatient care, it'll be longer than a day.”

The trouble is, there is no nuance, Hall said. “It's too much of a fine line.” Given the resistance to the current form of two-midnights that Congress is allowing CMS to “probe and educate” about, “the rule will continue to evolve,” Hall said. “Observation is not going away.”

For hospitals preparing for two-midnights and applying the benchmark with patients, “communication up front is key,” Hall said. “Many of the hospitals we interact with are being upfront with patients, notifying them that they are an observation patient, subject to Medicare Part B.”

A fully implemented two-midnights rule would accelerate the trend of declining inpatient admissions in favor of outpatient treatment and lower reimbursement by as much as $4,000 per patient case, according to a study by Moody’s analyst Daniel Steingart. But at the same time, the rule could come with a silver lining, Steingart argued. “The two-midnight rule could provide some relief from RAC reviews by substituting a strict rule set for the ambiguity involved in borderline cases,” Steingart wrote. 

Either way, hospitals may have to prepare for the two-midnight rule soon. One reimbursement change they may have more time to avoid – the kind of site-neutral payment policy that the Medicare Payment Advisory Board has long called for, along with more recently the Obama Administration.

AHA president and CEO Rich Umbdenstock lauded the House Ways and Means Committee for developing legislation that “rejects a number of flawed policy options, including reductions to outpatient hospital services.”

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The Obama Administration, though, has seen the rise of physician services provided in hospital outpatient settings as problematic, amid waves of physician practices being acquired by hospital systems and subsequently gaining higher reimbursement for the same services.

The President’s 2016 budget calls on Congress to equalize Medicare payments for services – like chemotherapy, cardiac imaging or colonoscopies – provided in hospital outpatient departments and physician offices. The change would save $29.5 billion over 10 years, according to the White House, and "encourage efficient care by improving incentives to provide care in the most appropriate ambulatory setting."

While the AHA may be fighting that proposal, the Obama Administration will have the support of a new advocacy group, the Alliance for Site-Neutral Payment Reform, a coalition of primary care medical societies, health insurers, nursing homes and patients. It is time, the group wrote to Congress, “to address payment parity across site of service in order to decrease Medicare and commercial spending , ensure patients receive the right care in the right setting, lower taxpayers and beneficiary costs and increase patient access.”

Twitter: @AnthonyBrino