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Two-Midnight Rule Focuses Provider Attention on Medicare Payment Criteria for Inpatient Services

on Wednesday, 30 October 2013 in Health Law Alert: Erin E. Busch, Editor

Although the federal government recently postponed payment reviews for the new “two-midnight” rule, hospitals should prepare now for the approaching January 1, 2014 date, when reviews will resume.

The two-midnight rule refers to an important clarification from the Centers for Medicare & Medicaid Services (CMS), in the FY 2014 IPPS final rule, on when surgical procedures, diagnostic tests and other services not designated as inpatient-only are appropriately paid by Medicare as inpatient services. As now codified at 42 C.F.R. § 412.3, CMS considers an inpatient admission to be appropriate—and thus eligible for Medicare Part A payment—if the admitting practitioner certifies that the beneficiary is expected to require care spanning at least two midnights. This standard took effect October 1, 2013.

The final rule differentiated two elements of CMS’s two-midnight policy relevant to post-payment reviews. The two-midnight presumption directs Medicare contractors not to select inpatient claims for review where the inpatient stay actually spanned two or more midnights, absent suspicion of provider fraud or abuse. The two-midnight benchmark relates to the determination whether inpatient services are warranted. CMS instructs contractors that under the benchmark, an inpatient admission is generally appropriate where the admitting practitioner reasonably expects that the beneficiary’s stay will span at least two midnights, taking into account all time spent at the hospital. The provider’s expectations on length of stay must be supportable and documented in the medical record.

CMS directed recovery audit contractors (RACs) not to review inpatient admissions of one midnight or less beginning on or after October 1st through year end, giving IPPS providers a three-month enforcement delay. At the same time, however, the agency instructed Medicare Administrative Contractors (MACs) to conduct limited “probe” prepayment reviews on inpatient stays of less than two days. MACs will review ten to 25 of these claims per PPS hospital between October 1 and December 31, 2013 and will report results and provide feedback to CMS; critical access hospital (CAH) claims, however, are not subject to these limited MAC reviews.

The two-midnight rule is one part of anticipated increases in MAC and RAC reviews of the medical necessity of inpatient admissions. CMS finalized the rule in conjunction with other regulatory changes related to Medicare payment which generally apply to CAHs and IPPS facilities, such as requirements on the content and timing of practitioner inpatient orders and physician certifications for inpatient services.

While CAHs have a brief reprieve from reviews, and other hospitals are only subject to MAC prepayment reviews, until 2014, CMS has emphasized the importance of complying with all applicable conditions of payment related to inpatient services for PPS and non-PPS facilities. This includes the existing prerequisite for Medicare payment for CAH inpatient services that the admitting physician certify that the beneficiary may reasonably be expected to be discharged or transferred to a hospital within ninety-six hours of admission to the CAH (42 C.F.R. § 424.15). Although CMS acknowledged in a September 17, 2013, open door forum that the ninety-six hour discharge/transfer certification requirement is inconsistent with the CAH Condition of Participation requiring transfer or discharge of inpatients within ninety-six hours on average, the agency reminded providers that it cannot advise them to ignore this payment requirement as long as the regulation remains in effect.

In light of the heightened attention to the appropriateness of inpatient hospital services, hospitals should prepare for continued enforcement in this area, and especially so in the coming months.


Whitney C. West

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