Two-Midnight Rule Rescission Puts Hospital Litigation Back in Motion

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By Eric Topor

Aug. 3 — The HHS's decision Aug. 2 to end its two-midnight policy experiment for Medicare inpatient hospital payments starting in fiscal year 2017 brings ongoing litigation over the rule out of hibernation.

Litigation in the lead lawsuit over the two-midnight rule, which slashed Medicare inpatient reimbursements starting in FY 2014, was halted in May pending publication of a final rule from the Centers for Medicare & Medicaid Services that was expected to eliminate the two-midnight rule entirely ( Shands Jacksonville Med. Ctr. v. Burwell, D.D.C., No. 14-cv-263, stay granted 5/19/16 ). However, the new rule doesn't necessarily spell the end of lawsuits challenging the rate cut.

The rule makes no provision for disclosure of the data and methodologies that the CMS relied on in justifying the original pay cut, which was one of the bases of the Shands lawsuit, as well as a more recently filed lawsuit in Adventist Bolingbrook Hosp. v. Burwell, D.D.C., No. 16-cv-00940, filed 5/18/16 . Mark D. Polston with King & Spalding LLP, who represents the plaintiffs in Adventist, told Bloomberg BNA Aug. 3 that his clients are evaluating the new final rule, but stressed that “CMS hasn't really addressed the data question in the lawsuit.”

Court Ordered CMS Explanation

The U.S. District Court for the District of Columbia ordered the CMS to provide an explanation of how the CMS arrived at its conclusion that the two-midnight rule would result in a net increase in hospital inpatient admissions, which was the stated justification for the 0.2 percent rate cut (185 HCDR, 9/24/15). Polston said that the “underlying lawsuits were about CMS's decision to cut the payment rate,” based on that inpatient admissions assumption, and he said the new final rule “still doesn't address that portion of the [two-midnight] rule.”

The final rule released Aug. 2 did eliminate the two-midnight rule, which generally limits reimbursement for inpatient admissions to stays that span at least two midnights, and stated that hospitals would be compensated for the 0.2 percent Medicare payment rate cut from FYs 2014-2016 with a one-time increase in payment rates of 0.6 percent in FY 2017. Christopher L. Keough with Akin Gump Strauss Hauer & Feld LLP is counsel for the plaintiff hospitals in the lead lawsuit, and he declined to comment to Bloomberg BNA Aug. 3, citing the ongoing nature of the litigation.

Kenneth R. Marcus, with Honigman Miller Schwartz and Cohn LLP in Detroit, told Bloomberg BNA Aug. 3 that two lingering questions concerning the new final rule and the ongoing litigation were whether the 0.6 percent FY 2017 payment increase will adequately compensate affected hospitals, and whether hospitals involved in the litigation would receive attorneys' costs and fees incurred. Marcus said whether individual hospitals would be made whole from the FY 2017 rate increase will require “an empirical analysis to be conducted on a hospital-specific basis.”

Key Points, Next Steps

The plaintiff hospitals in the lead lawsuit over the two-midnight rule's validity have 14 days from the publication of the final agency rule to file a joint status report on how the parties intend to proceed in the lawsuit, given the specifics of the new final Medicare payment rule. The rule is scheduled for official publication Aug. 22.

The Department of Health and Human Services conceded in the rule that hospitals involved in litigation over the two-midnight rule will also be paid interest as required by statute on their FY 2016 payment increase. Polston said the CMS should “extend interest [payment] to all hospitals, not just litigating hospitals.”

The CMS also addressed public comments that certain hospitals that were closed or had declining patient trends might not be made whole by the FY 2017 rate increase, while new hospitals would receive a disproportionately positive increase in FY 2017 payments without necessarily incurring the rate cut from the prior three fiscal years. The CMS said the new rule's “differential positive or negative impact on an individual hospital” was “an appropriate consequence” of the rule, though the CMS said it would make additional provisions for hospitals that were converted or closed during FYs 2014–2016.

To contact the reporter on this story: Eric Topor in Washington at

To contact the editor responsible for this story: Kendra Casey Plank at

For More Information

The final rule is at

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