Hospital Groups Criticize Lack of Action On Medicare's Two-Midnight Rule

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By Michael D. Williamson  

Aug. 6 — Health-care industry groups criticized a final rule recently issued by the CMS because it didn't replace or revise a controversial provision related to short-term hospital stays.

The policy at issue is the Centers for Medicare & Medicaid Services' two-midnight rule. Under this CMS policy, adopted in 2013, a Medicare beneficiary is not an “inpatient” unless the admitting physician expects that beneficiary to need care in the hospital for a period spanning two midnights. Hospital and other health-related groups say the two-midnight rule shortchanges hospitals because it leads to incorrect reimbursements by the CMS.

In addition, many in the health industry worry that the two-midnight requirement increases costs for Medicare beneficiaries and has caused providers to increasingly classify patients under “outpatient observation,” even when they are admitted to a hospital to receive care. Despite opposition from hospital and other health groups at the time, the two-midnight rule took effect Oct. 1, 2013.

On Aug. 4, the CMS released a final rule (CMS-1607-F and CMS-1599-F3; RINs 0938-AS11; 0938-AR12; and 0938-AR53) containing its inpatient prospective payment system (IPPS) update for fiscal year 2015, which is expected to be published in the Aug. 22 edition of the Federal Register. The IPPS final rule, however, didn't include any changes to the two-midnight rule.

Groups React

Several hospital and health groups reacted with concern about the lack of changes to the two-midnight rule. Darrell G. Kirch, the president and chief executive officer of the Association of American Medical Colleges (AAMC), a Washington-based association of academic hospitals, said in an Aug. 4 statement that the organization was “disappointed” that the CMS “did not include a policy that would revise or replace the Two-Midnight Rule” in the final IPPS rule.

Kirch also said, “The AAMC strongly urges CMS to issue supplemental guidance that would allow hospitals to bill short stays as inpatient when a physician's clinical judgment concludes a hospital stay is medically necessary.” The two-midnight rule, Kirch continued, ignores “physicians medical judgment, results in inadequate reimbursement to hospitals for medically-necessary care, and creates confusion and new financial liabilities for Medicare beneficiaries.”

The American Hospital Association's senior associate director for policy, Priya Bathija, told Bloomberg BNA in an Aug. 5 e-mail, “It is clear that even upon implementation of short-stay policy, the two-midnight policy will continue to fail if it is not combined with comprehensive reform and management of the RAC [Recovery Audit Contractor] program.”

Bathija also said that the AHA will continue its efforts to work with the CMS “on a short-stay policy that will more accurately pay for short inpatient stays.”

Another Washington-based hospital group, the Federation of American Hospitals (FAH), offered more muted reaction. In an Aug. 5 e-mail to Bloomberg BNA, the FAH didn't explicitly criticize the IPPS final rule's lack of two-midnight rule revisions. Instead, the FAH said it said looks forwards to working with the CMS on changes to the two-midnight rule.

The group also said in its e-mail that it supports a short-term hospital stay policy it previously suggested to the CMS that “would respect a physician's judgment on patient status.” According to the FAH's e-mail, its preferred policy is “modeled on the post-acute care transfer policy.”

AHCA/NCAL Wants Legislative Fix

When reached for comment about the lack of change to the two-midnight rule, Clifton J. Porter II, the senior vice president of government affairs of the American Health Care Association/National Center for Assisted Living (AHCA/NCAL), a group that represents elder and disability care centers, said in an Aug. 5 e-mail to Bloomberg BNA, “AHCA/NCAL continues to support legislation that would address problems posed to both beneficiaries and providers as a result of the increased use of outpatient observation services as an alternative to inpatient admission.”

To increase inpatient status classifications, Porter said the AHCA/NCAL supports passage of three pieces of legislation pending before Congress: the Improving Access to Medicare Coverage Act of 2013 (S. 569/H.R. 1179), the Creating Access to Rehabilitation for Every Senior (CARES) Act of 2013 (H.R. 3531) and the Fairness for Beneficiaries Act of 2013 (H.R. 3144).

More Guidance Possible

The CMS May 15 welcomed suggestions about the two-midnight hospital stay requirement in the IPPS proposed rule.

In the IPPS final rule, the CMS said it “received a number of public comments regarding the current regulation,” even though the IPPS proposed rule “did not include any proposed regulatory changes relating to the 2-midnight benchmark.”

Responding to the public comments about the hospital-stay requirement after the proposed rule's publication, the CMS said in the IPPS final rule that it will continue to consider suggestions about further exceptions to the two-midnight rule. In addition, the final rule said the CMS will “issue additional subregulatory guidance to our claim review contractors, if necessary, to ensure consistency in application of the 2-midnight policy.”

The hospital industry also has challenged the two-midnight rule in court, filing a complaint in April.

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

To contact the editor responsible for this story: Brian Broderick at

The IPPS final rule is at


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