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CMS 2-Midnight Policy Unchanged; But Related IPPS Reductions Reversed By FY2017 Increase

on Friday, 6 May 2016 in Health Law Advisory: Zachary J. Buxton, Editor

The Policy Itself:

The 2-Midnight Policy was adopted by CMS effective for admissions on or after October 1, 2013. The rule provided that an inpatient admission is appropriate for Medicare Part A payment if the physician (or other qualified practitioner) admits the patient as an inpatient based on the reasonable expectation that the patient will need hospital care that crosses at least 2 midnights. The physician was allowed to take into account outpatient hospital care received prior to inpatient admission. If the patient was not expected to need 2 midnights of care in the hospital, the services would be billed as outpatient services.

Revisions were made to the 2-Midnight Policy in the CY2015 OPPS/ASC final rule. The “rare and unusual” exceptions policy was modified to allow Medicare Part A payment on a case-by-case basis for inpatient admissions that do not satisfy the 2-midnight standard, if the documentation in the medical record supports the admitting physician’s determination that the patient requires inpatient hospital care despite an expected length of stay that is less than 2 midnights. This new standard became effective for CY2016.

The recent news concerning the 2-Midnight Policy does not involve any further changes to the Policy.

IPPS Payment Reductions Related to the 2-Midnight Policy

CMS actuaries estimated that the 2-Midnight Policy would increase Medicare expenditures by approximately $220M in FY2014 based on the theory that implementation of the Policy would result in a net increase in inpatient admissions. Accordingly, CMS made a reduction of 0.2 percent to the standardized amount, the hospital-specific payment rates, and to the national capital Federal rate.

Fifty hospitals’ claims that the IPPS reductions were unsupported were consolidated in a single case, titled Shands Jacksonville Medical Center, Inc. v. Burwell, No.14-263 (D.D.C.). The court found that the “Secretary’s interpretation of the exceptions and adjustments provision is a reasonable one.” However, the court also ordered the 0.2 percent reduction remanded back to the Secretary, without vacating the rule, to correct certain procedural deficiencies in the promulgation of the 0.2 percent reduction and to reconsider the adjustment.

Pursuant to the court’s order, CMS published a notice on December 1, 2015, which discussed the basis for the 0.2 percent reduction and its underlying assumptions. Comments were invited.

CMS acknowledged that the question of patient status, which resulted in the 2-midnight policy is a complex one with a long history, including large improper payment rates in short-stay hospital inpatient claims, requests to provide additional guidance regarding the proper billing of those services, and concerns about increasingly long stays of Medicare beneficiaries as outpatients due to hospital uncertainties about payment. CMS also acknowledged that the original estimate for the 0.2 percent reduction “had a much greater degree of uncertainty than usual.” The Office of the Actuary had opined in 2013 that the estimate depended critically on the assumed utilization changes in inpatient and outpatient hospital settings, relatively small changes would have a disproportionate effect on the estimated net costs. The actual results could differ significantly from the estimate. The actuaries’ more recent estimate of the impact of the 2-midnight policy varied between a savings and a cost over the FY2014 to FY2015 time period.

As a result of this analysis, CMS concluded that it would increase the IPPS rates by 0.6 percent for FY2017 only, to address the effect of the reduction to the rates in effect for FY2014, FY2015 and FY2016 (0.2 percent for each year).

Barbara E. Person

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