CMS Hospital Admission Rule Questioned
January 24, 2014
Katie Sullivan
The American Hospital Association (AHA) expressed its opposition to a controversial regulation from the Centers for Medicare & Medicaid Services (CMS) that would purportedly reduce inappropriate hospital admissions. Otherwise known as the “2-midnight rule,” the regulation aims to reduce the out-of-pocket costs for beneficiaries who are placed on extended outpatient observation in hospitals.
Medicare only reimburses the services seniors receive in a skilled-nursing care facility after a 3-day inpatient hospital stay. If they are not admitted as an inpatient, they end up shouldering costs. The CMS-proposed rule for hospital inpatient services aims to clarify which inpatient admissions are reasonable and necessary.

Hospitals sometimes face financial risk when admitting Medicare patients for inpatient stays because Medicare’s recovery auditor contractors (RACs) can later deny them reimbursement.

Ashley Thompson, AHA's senior vice president and deputy director for policy, said that RACs “get a commission on every claim that they deny.” She added, “Hospitals are forced to appeal a massive number of these claims to get paid for medically necessary services. What most people don't realize is that the majority of these appealed claims, about 72%, are overturned by a judge in favor of the hospital.”

Under the new policy, hospital stays shorter than 48 hours are assumed to be legitimate if coded as outpatient observation; stays over “2 midnights” are assumed necessary for patients and billed as inpatient. CMS said that providers should treat Medicare beneficiaries as inpatients if they expect beneficiaries will “require 2 or more midnights of hospital services, and [physicians] should treat most other beneficiaries on an outpatient basis.” While medical necessity will still be taken into account, if a patient’s stay is fewer than 2 midnights, the hospital will be paid on observation status instead of inpatient status.

The regulation also proposes a 0.2% cut to standard inpatient payments for hospitals’ 2014 fiscal year. CMS said this cut will offset the estimated $220 million increase in inpatient expenditures expected to come as a result of the 2-midnight rule.

“They're proposing to offset this by prospectively a 0.2% cut to inpatient payments for 2014 and then stay in the base, so it's a permanent cut,” said Joanna Kim, vice president of payment policy at the AHA. “We strongly oppose that proposal.”

Around the Web

AHA Plans to Fight CMS' '2-Midnight Rule' This Year [Modern Healthcare]

AHA Eyes 'Extremely Challenging' 2014 [Healthcare Leaders Media]

10 Things to Know About the Two-Midnight Rule [Becker's Hospital Review]