Hospitals Say CMS Failed to Adequately Explain Pay Cut

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By Michael D. Williamson

Feb. 3 — The CMS still hasn't established a rational and lawful basis for its decision to implement a controversial reimbursement policy that cut inpatient Medicare payments, the largest hospital industry group told the agency Feb. 2.

A court-ordered explanation for the cut from the Centers for Medicare & Medicaid Services failed to disclose key data and methodological assumptions about the payment changes, the American Hospital Association (AHA) said.

Moreover, the methodology provided in the explanation is “fraught with problems that lead to an unreasonable calculation of financial impact,” another hospital industry group, the Federation of American Hospitals, said Feb. 2.

In a December notice (80 Fed. Reg. 75,107), the CMS sought comments on the methodology that cut Medicare Part A inpatient hospital reimbursement by 0.2 percent as part of its original two-midnight payment policy .

Comments (CMS–1658–NC) were due Feb. 2.

Two-Midnight Case

The CMS adopted the two-midnight rule for admissions beginning on or after Oct. 1, 2013. Under the policy, Medicare Part A payment is generally not appropriate for hospital stays not expected to span at least two midnights. When the CMS implemented the two-midnight policy, it also established a 0.2 percent pay cut for inpatient payment. The CMS assumed the two-midnight policy would lead to an estimated $220 million in additional reimbursements for inpatient stays in fiscal 2014, the CMS said in 2013.

However, a federal district court in September said the CMS didn't adequately explain the reasoning for the 0.2 percent pay cut in 2013, and it ordered the agency to explain its rationale for slashing inpatient reimbursements (Shands Jacksonville Med. Ctr. v. Burwell, 2015 BL 305589, D.D.C., No. 1:14-cv-00263-RDM, 9/21/15). Separately, the CMS, in a late October final rule, said it was changing how it reviews short stays, as part of the calendar year 2016 hospital outpatient prospective payment system rule.

AHA: Reimburse Hospitals

The continued absence of a full and transparent explanation of the data the agency used to justify the cut renders the 0.2 percent reduction unfounded, the AHA said. Moreover, actual inpatient claims data demonstrate that predictions that inpatient admissions would increase under the two-midnight policy haven't materialized, according to the group.

This reality “provides further evidence of the lack of a reasoned basis to impose the 0.2 percent reduction,” the AHA told the CMS.

“Consequently, we believe strongly that the agency must reverse its 0.2 percent reduction in full,” the AHA said, adding that inpatient payment rates for fiscal 2014 and subsequent years “must be revised accordingly, and hospitals should be reimbursed for the shortfall in Medicare payments they received for hospital discharges on or after Oct. 1, 2013 that resulted from the CMS' unlawful imposition of the 0.2 percent payment reduction.”

To contact the reporter on this story: Michael D. Williamson in Washington at

To contact the editor responsible for this story: Brent Bierman at