Two-Midnight Rule: Ready For the Clock to Strike 12?

Two-Midnight Rule:
Ready For the Clock to Strike 12

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The Two-Midnight Rule
Recently, CMS proposed changes to the 2016
Hospital Outpatient Prospective Payment System and
the Ambulatory Surgical Center Payment System,
including modifications to the two-midnight rule.

After multiple delays of the two-midnight rule, CMS announced
a partial enforcement delay through the end of 2015. Providers
and policy experts have continued to voice their objection to
the rule, requesting it be shelved altogether.

The final rule, which includes
the proposed modifications, is
expected to be published in
November 2015, and will go
into effect January 1, 2016.

On the Stroke of Twelve
The rule is fairly straightforward.
In order for a patient to be considered
an inpatient (and eligible for coverage
under Medicare Part A), the stay must
be longer than two midnight counts.
A patient released before two
midnights have passed is considered
an outpatient and only eligible for
benefits under Medicare Part B.
The financial impacts for both patient
and provider can be substantial.

CMS also has a rule requiring
patients to be admitted inpatient for
three midnights in order for
Medicare to cover the costs of care
in a skilled nursing facility (SNF)
following hospital discharge.
Under this rule a patient staying one
or two nights for observation only
will bear much of the medical costs.

Per the Kaiser Family News,
without the inpatient status and
coverage, seniors could pay
thousands of dollars for the nursing
home care their doctor ordered or
try to recover on their own.
Because observation care is
provided on an outpatient basis,
observation patients usually have
co-payments for doctors’ fees and
each hospital service.

Patients without supplemental
insurance could face a formidable
financial burden.
Recently, the U.S. Senate
unanimously approved legislation,
the NOTICE Act, requiring
hospitals across the nation to tell
Medicare patients when they
receive observation care and are
considered outpatients.

Enter Physician Judgment
The two-midnight rule seems clear
cut but in practice implementing
the rule in a healthcare setting can
be more complicated.
CMS states in the background
section of the existing policy* that
minor surgical procedures or
treatments requiring less than 24
hours in the hospital should be
billed as outpatient services.
The recent proposal stresses this
policy will not override the clinical
judgment of the physician.
*Chapter 1, Section 10 of the Medicare Benefits Policy Manual

CMS failed to provide direction on
the required documentation
physicians must furnish to support
their clinical judgment of a short
stay inpatient admission.
Services can provided to a patient
based on the clinical judgment of
the attending physician only to
have that claim denied later in the
adjudication process.

CMS has created a list of inpatient-only
procedures that are not subject to the
two-midnight rule.
These procedures are always covered
under Medicare Part A regardless of
the actual length of stay.
The guidelines indicate when a short
stay could be billed and paid as
Medicare Part A:
• When the severity of the signs and
symptoms of the patient warrant it.
• There is a medical probability of something
adverse happening to the patient.
>
>

In January 2014, CMS identified
medically necessary, newly initiated
mechanical ventilation as the first rare
and unusual exception to the two-
midnight rule.
Some circumstances may also qualify
for Medicare Part A, determined on a
case-by-case basis.

Latest Proposed Changes
One of the proposed changes to the two-
midnight rule could, potentially, be good for
providers.
Effective October 1, 2015, the medical
review strategy will shift from Medicare
Administrative Contractors (MACs) to
Quality Improvement Organizations (QIOs).
Shifting case reviews from a general
auditor to a professional with a clinical
background should provide a better
perspective on borderline cases involving
clinical judgment.

QIOs are focused on improving
the effectiveness, efficiency,
economy, and quality of services
under the Medicare program,
and thus may offer more leeway
than a traditional auditor.
If services are deemed inappro-
priate for inpatient status, the
QIOs refer the claim to the MACs
for related payment adjustments.

The second proposed change is the
“look-back” period for claim review
will now be six months from the date
of service where the hospital
submits a claim within three months
from service date.
This will give the hospital time to
rebill any denied claims. Prior rules
allowed a look-back period of three
years and submission of the claim
within one year from date of service.

A Good First Step
There healthcare industry strongly
opposes the two-midnight rule.
Senior Associate Director of Policy,
Priya Bathija, at the American
Hospital Association (AHA), states the
opposition to the two-midnight rule is
tied to the 0.2 percent payment
reduction that will fund the rule.
The AHA continues to litigate the rule
believing it:
“…undermines medical judgment and
disregards the level of care needed to
safely treat patients.”

A Good First Step
In a published report, Bathija states
that modifying the two-midnight
threshold was a “good first step…it
opens the door to create a new
exception that certain hospital
inpatient services don’t need to
cross two midnights in order to be
considered inpatient and appropriate
for payment under Part A.”
She added that the real impact of the
rule would depend on how it is
finalized and implemented.

The Two-Midnight Rule and You
What impact will the two-midnight rule
have on your organization?
As the rule was supposed to take
effect in 2013, most healthcare
organizations are already monitoring
the potential effects of this regulation.
Many hospitals are constantly
reviewing inpatient and outpatient
cases that are greater than and less
than two days.

Obtaining data to review these cases is
much easier with a Late-Binding™
Enterprise Data Warehouse (EDW).
An EDW pulls information from diverse
source systems needed to review
cases, from billing systems to EMRs.
By applying a simple filter, patterns that
fall outside the parameters of the two-
midnight rule, as well as trends that
could lead to claims denials, can be
quickly identified.

The query shows services currently
coded as outpatient but should be
coded as inpatient because these
services usually involve a stay of
more than two midnights.
The query can also identify conditions
that qualify for a short stay, but are
coded as inpatient, alerting to the risk
of claims denials.

Making changes in physician coding
helps reduce claim denials and
ensures the hospital is reimbursed
properly for its services.
The next step is educating physicians
on the new codes and providing
reports so all can see the adverse
financial effects incorrectly coded
services can bring.

Let Your Voice Be Heard
Whether we like it or not, there will
be a two-midnight rule in 2016.
There is still time to affect the final
outcome. Review the new rules in
detail and voice your concerns to
CMS (online, via mail, or courier)
to ensure your organization and,
most importantly, your patients will
be prepared when the rule takes
effect next year.

More about this topic
Top 7 Healthcare Trends and Challenges for 2015: From Our Financial Expert
Bobbi Brown – Vice President of Financial Engagement
The Intersection of Quality and Innovation at CMS
Dr. John Haughom – Senior Advisor, Health Catalyst
How to Survive CMS’s Most Recent 3% Hospital Readmissions Penalties Increase
Bobbi Brown – Vice President of Financial Engagement
How to Avoid PQRS Penalties and Earn Potential Incentives with Accurate Submission of
Quality Measures – Health Catalyst
5 Ways to Use the ICD-10 Delay to Create a Competitive Advantage for Your Health System
Cessily Johnson – Director of Terminology Services
Link to original article for a more in-depth discussion.
Two-Midnight Rule: Ready For the Clock to Strike 12?

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– John Haughom, MD, Senior Advisor, Health Catalyst

Bobbi Brown is the Vice President of Financial Engagement for Health Catalyst.
Ms. Brown started her healthcare career at Intermountain Healthcare supporting
clinical integration efforts before moving to Sutter Health and, later, Kaiser
Permanente, where she served as Vice President of Financial Planning and
Performance. Ms. Brown holds an MBA from the Thunderbird School of Global
Management as well as a BA in Spanish and Education from Misericordia
University. She regularly writes and teaches on finance-related healthcare topics.
Other Clinical Quality Improvement Resources
Click to read additional information at www.healthcatalyst.com

Two-Midnight Rule: Ready For the Clock to Strike 12?

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