Hospitals Object to HAC Policy, Lack of ‘Two-Midnight’ Solution in Proposal

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by Nathaniel Weixel  

June 27 — Hospital groups said the Centers for Medicare & Medicaid Services needs to change the hospital-acquired conditions (HAC) reduction program in its fiscal year 2015 inpatient prospective payment system (IPPS) proposed rule.

In comment letters (docket CMS-1607-P) to the CMS ahead of the June 30 deadline, the American Hospital Association (AHA), the Premier healthcare alliance and the Association of American Medical Colleges (AAMC) also outlined their views on the design of an alternate payment methodology for short inpatient hospital stays, which they said should supplement and possibly replace the controversial “two-midnight” policy.

The AAMC provided a summary of its comments ahead of the full letter, which will be released June 30.

According to both the AHA and Premier, the CMS needs to eliminate the overlapping measures among the HAC program, the hospital value-based purchasing (VBP) program and the Readmissions Reduction Program. According to Premier, the policies are “essentially three legs of the same stool and should be implemented consistently.”

According to the AHA, “the overlap of measures between the HAC and the hospital VBP programs creates the potential for unfair double payment penalties, and could send conflicting signals about the true state of hospital performance.”

In addition, the hospital groups said a short-stay payment (SSP) policy would supplement the existing two-midnight policy and would reimburse hospitals more accurately and fairly.

The proposed rule, published May 15, would increase payments to inpatient hospitals by 1.3 percent for fiscal year 2015. However, aggregate payments (operating and capital) are expected to drop $241 million, the agency said.

HAC Reduction

The CMS will implement the HAC Reduction Program for the first time in FY 2015. The Affordable Care Act requires the agency to impose a 1 percent reduction in Medicare payments for hospitals in the top quartile of risk-adjusted national HAC rates.

According to the AHA, that policy is “poorly designed.”

For example, the AHA said that “even though it is arbitrary to do so, CMS must assess HAC penalties on 25 percent of hospitals each year, regardless of any significant improvements in a hospital's performance, whether there is a significant difference between its performance and that of the rest of the field, or the overall progress the field has made in improving performance on measures.”

Additionally, the AHA said it doesn't support using the same measures in both the HAC Reduction Program and VBP program because they use different ways to identify good versus bad performance.

“This could lead to inappropriate and unfair double payment penalties, or worse, send conflicting signals about the true state of performance on these measures to hospitals and patients,” the AHA said.

The AAMC said the HAC policy would disproportionately target teaching hospitals as low-performers, which may be because of technical issues related to measurement rather than true differences in quality.

The AAMC called on the CMS to limit the HAC penalty to hospital base operating payments only, at least for a transition period—a request that was echoed by Premier.

In addition, the AAMC asked the CMS “to consider hospital comparisons within peer cohorts to remove any systematic bias that could affect comparisons across different hospital provider types.”

Two Midnights

The CMS didn't directly address the two-midnight rule in the proposal, but it asked for comments on a series of questions to potentially modify the policy.

The AAMC urged the CMS to revise or replace the two-midnight rule with a policy “that does not sacrifice the critical role of medical judgment and adequate reimbursement for medically necessary short hospitalizations.”

Under the two-midnight policy, a Medicare patient must be expected to need hospitalization for at least two midnights—that is, a day and night, a second day and a second night until at least midnight—before the patient can be admitted as, and billed to Medicare as, an inpatient.

The hospital groups told the CMS they appreciated that there was a need for some sort of policy on inpatient admission criteria. The policy grew out of concern related to the growing length of stay for hospital observation services.

However, Premier told the agency “it is now clear in hindsight that this policy has had the exact opposite effect as was intended. Hospitals and physicians are thoroughly confused, and worse, so are beneficiaries.”

According to Premier, providers have had to invest “significant time” trying to explain to beneficiaries what the policy is and how it affects them. Premier said it is difficult for patients to understand that they were in a hospital bed, “and yet they were under an outpatient stay where their financial liability might be far greater. Neither providers, nor CMS, want to see such unintended consequences on beneficiaries.”

The AAMC urged the CMS to revise or replace the two-midnight rule with a policy “that does not sacrifice the critical role of medical judgment and adequate reimbursement for medically necessary short hospitalizations.”

To contact the reporter on this story: Nathaniel Weixel in Washington at

To contact the editor responsible for this story: Ward Pimley at