The New Two-Midnight Rule – Scrutiny Delayed for 90 Days

The Center for Medicare and Medicaid Services (CMS) released what has become known as the “Two Midnight Rule” on August 2, 2013 in the Inpatient Prospective Payment System (IPPS). The Final Rule is available in the August 19, 2013 Federal Register.
Last week, in response to provider concerns and a letter from more than 100 members of Congress asking for postponement of the rule, CMS announced a 90 day implementation period beginning on October 1, 2013.

A Brief Explanation of the Two Midnight Rule

CMS has indicated a concern about the growth in observation care in hospitals, and the two-midnight rule is an attempt to address that concern by creating a time-based presumption to address medical necessity of an inpatient stay.
The final rule essentially provides that to be considered medically necessary and qualify for payment under Medicare Part A, a hospital inpatient admission must span at least two midnights. Under this rule, at the time of admission, the physician must indicate an expectation that (s)he expects the patient to require a stay that crosses two midnights. The decision to admit the patient to the hospital must be based on that expectation. In light of this rule, hospitals and their physicians must be especially diligent about documentation at the time the patient is admitted to demonstrate the provider’s expectation that it is medically necessary for a patient to stay at the hospital for at least two nights.
The clock begins running (for calculating the two midnights) as soon as the patient first receives services in the hospital. Those services can include outpatient observation, emergency department services, operating room services, or others. Although these services are not “inpatient” services, they nevertheless can be considered by the hospital (and the Medicare contractor) in determining whether the patient’s stay spanned two midnights. CMS has instructed the Recovery Audit Contractors (RACs) that if the admission does not include two midnights, it will not be paid under Medicare Part A.
The next question is how hospitals will be reimbursed for admissions that do not cover two-midnights if they are not getting paid under Part A. CMS provides a good deal of discussion on this issue in the final rule. The short answer is that the admissions should be treated as an outpatient encounter and be billed under Medicare Part B. This concept arises in part from a separate proposed rule CMS issued in March 2013, which allows for an additional Medicare Part B payment where a Part A claim is denied because the patient should have been an outpatient rather than an inpatient. However, the final rule also lists a litany of services excluded from the proposed Part B inpatient services reimbursement: those that are paid under other Part B methodologies such as outpatient therapy services, clinical diagnostic lab services, and others. There are a host of other payment issues that the final rule addresses including patient liability for the Part B inpatient services, the impact on coverage of SNF services, time limits on claims filing, appeal procedures for the denial of a Part A claim, and application of the new rule to the patient’s Part A limits on utilization of inpatient days.

Current Status – 90 Day Suspension of Scrutiny

In response to confusion and questions that abound on the new requirements, last week, CMS delayed scrutiny under this rule. More specifically, it issued “Frequently Asked Questions” guidance on September 27, 2013 which addresses the Two-Midnight Rule and associated changes in Part A / Part B reimbursement.
In the FAQs, CMS instructed the MACs and RACs (Medicare Administrative Contractors and Recovery Audit Contractors) to apply a “two midnight presumption.” In other words, the MACs and RACs should not select inpatient claims for review if the stay spanned two midnights. Additionally, for 90 days, the MACs and RACs are not permitted to review all of a hospital’s inpatient claims where the stay spanned less than two midnights.
Instead, to provide more guidance and help with provider understanding, CMS has instructed the MACs to review a small sample of inpatient claims where the stay spanned less than two midnights. For each hospital, the MACs will look at 10-25 of these claims with dates of October 1, 2013 through December 31, 2013. The purpose of the review is to determine each hospital’s compliance with the new rule to help CMS develop further education and guidance.
If the MAC’s review indicates no problems, it will cease further review of that hospital’s October 1, 2013 to December 31, 2013 claims. If there are issues, the MAC will conduct education for the hospital and will do additional follow-up. Notably, since the reviews are conducted on a pre-payment basis, the plan is for hospitals to rebill the denied inpatient hospital admissions in accordance with the new inpatient rule.
The MACs and RACs will not review any claims related to Critical Access Hospitals.

Where To Find More Information

The Final Rule is available in the August 19, 2013 Federal Register, and may be viewed here: (see the section beginning at page 412 and following of the .pdf which provides information on the new rule at 78 F.R. 50906). The CMS FAQs that delay scrutiny are available here:

Written by: Emily Grey

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