CMS Seeks Input on Hospital Rule in Response to Court Decision

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By Michael D. Williamson

Nov. 30 — The CMS is asking for new comments on a controversial reimbursement policy for short-term hospital admissions in response to a federal district court decision earlier this year.

In a notice (RIN 0938-ZB23; CMS-1658-NC) released Nov. 30, the Centers for Medicare & Medicaid Services said it is seeking comments by Feb. 2 on the methodology that cut Medicare Part A hospital reimbursement by 0.2 percent as part of its original two-midnight payment policy.

Hospital groups told Bloomberg BNA Nov. 30 that they're evaluating the notice and plan to critique the methodology the CMS used to justify the pay cut.

The notice is expected to be published in the Dec. 1 Federal Register.

Two-Midnight Court Case

The CMS adopted the two-midnight policy for admissions beginning on or after Oct. 1, 2013. Under the original policy, Medicare Part A payment wasn't generally provided for hospital stays not expected to span at least two midnights.

However, a federal district court in September said the CMS didn't adequately explain the reasoning for 0.2 percent pay cut in 2013. That case is Shands Jacksonville Med. Ctr. v. Burwell, 2015 BL 305589, D.D.C., No. 1:14-cv-00263-RDM, 9/21/15 (185 HCDR, 9/24/15). 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 (211 HCDR 211, 11/2/15).

Methodology Outlined

In the notice, the CMS outlined the methodology it used to justify the 0.2 percent pay cut associated with implementation of the original two-midnight policy.

When the CMS originally proposed the pay cut, it began modeling the impact of the two-midnight policy on hospital payments by recognizing that some cases that were previously outpatient cases “will become inpatient cases and vice versa,” according to the notice. The CMS also anticipated the two-midnight policy would result in an estimated $220 million in additional reimbursements for inpatient stays.

Hospital Industry Response

Two groups representing the hospital industry said the cut can't be justified.

For example, a spokeswoman for the American Hospital Association (AHA) told Bloomberg BNA Nov. 30 that the notice was mandated by the court as a result of the group's litigation contesting the 0.2 percent cut associated with the two-midnight policy.

“We do not believe this cut was or can be justified,” but the AHA is evaluating the notice and will submit a robust critique to the CMS as part of the comment process, the spokeswoman said.

Likewise, Sean Brown, vice president of communications for the Federation of American Hospitals (FAH), a trade association that represents for-profit hospitals, told Bloomberg BNA in a Nov. 30 e-mail that the group continues “to believe that the 0.2 percent cut was not justified, as demonstrated by our empirical analysis described in comments to the 2016 Outpatient Prospective Payment System proposed rule.” The FAH plans to respond to CMS once “we fully review today's notice,” Brown said.

The Association of American Medical Colleges (AAMC), a trade group for academic medical centers, took a slightly different stance. In a statement e-mailed to Bloomberg BNA Nov. 30, a spokeswoman for the group said, “Whether or not CMS can justify the 0.2% reduction taken in 2014, the data for subsequent years has shown that there has not been a shift to the inpatient setting.”

In fact, the AAMC's analysis of the data “suggests a dramatic drop in short stays in the first quarter of FY 2014, which was concurrent with a dramatic increase in observation stays,” the spokeswoman said. “This suggests that the implementation of the two midnight rule caused a net outflow of inpatient short-stay claims to outpatient observation.”

The AAMC spokeswoman also told Bloomberg BNA that the group will be commenting on the notice.

Actuarial Work

Actuaries at the CMS are conducting an analysis of claims experiences for the 2014 and 2015 fiscal years in light of available data to determine the impact of the two-midnight policy, the notice said.

“Because that analysis is not yet complete, we are not proposing in this notice with comment period to reconsider the 0.2 percent reduction,” the CMS said. “However, we are seeking comment on whether we should await the completion of the actuaries' analysis of FY 2014 and FY 2015 data before resolution” of the Shands Medical Center suit.

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

To contact the editor responsible for this story: Janey Cohen at

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