Lawmakers, hospitals call for delay of 'two midnight' rule

In related news, federal judge dismisses observation status lawsuit

Update: On Thursday afternoon, CMS announced that it would delay scrutiny of the two-midnight rule.

More than 100 House members and the American Hospital Association (AHA) are urging federal officials to delay a controversial rule on Medicare inpatient admissions that is set to take effect on Oct. 1.

The final rule for the fiscal year 2014 Inpatient Prospective Payment System instituted a time-based presumption period for medically necessary inpatient care. Under the rule, an admission is assumed to be appropriate for a Medicare Part A payment if a physician expects a beneficiary's treatment to require a two-night hospital stay and admits the patient under that assumption. The new rule was intended to limit the use of observation status in hospitals.

However, a bipartisan group of lawmakers—led by Rep. Allyson Schwartz (D-Pa.)—are arguing that the rule could subject Medicare patients to added costs.

In a letter sent Tuesday to CMS Administrator Marilyn Tavenner, the lawmakers lay out their concerns:

  • The rule increases out-of-pocket costs for hospitalization and post-acute skilled-nursing care because it presumes that patients expected to be in the hospital for fewer than two days should be admitted to observational care, not inpatient care.
  • Medicare requires a 20% per-service copayment on observational care and does not cover post-acute care in those cases. In contrast, Medicare fully covers inpatient care and post-acute care needed in those cases.
  • Hospitals could lose money, because they will be reimbursed for observational care under Medicare physician rates, rather than higher hospital rates that apply to inpatient care.

The lawmakers called for a six-month delay so CMS can consider changes to the criteria that hospitals receiving Medicare reimbursement should use when determining whether to admit a patient.

The observation status conundrum
Berwick: Throw out the three-day inpatient stay rule
Some hospitals admit just 10% of patients
Observation v. inpatient? Amid audits, hospitals struggle to decide

Modern Healthcare notes that the lawmakers' concerns echo those posed by the hospital industry and other stakeholders. For example, AHA in a letter last week urged CMS to postpone the rule by three months so that hospitals can integrate guidance on the admission and review criteria.

Judge dismisses lawsuit challenging observation status

In related news, a federal judge on Monday dismissed a lawsuit filed against the federal government by 14 Medicare beneficiaries who were denied nursing home coverage. The plaintiffs were admitted to the hospital as observation patients, and their stays thus did not count toward the three-day eligibility requirement.

The beneficiaries argued that there is little difference between admitted and observation status, but as observation patients, they were required to pay tens of thousands of nursing home bills. The lawsuit aimed to eliminate the observation classification or mandate that hospitals information patients of their status and create a clear appeals process that observation patients can use to appeal Medicare's coverage decisions.

However, Judge Michael Shea in Hartford, Conn., ruled against the beneficiaries, basing his decision on a 2008 federal court decision that upheld HHS's right to let hospitals and physicians decide when a patient should be admitted to a hospital. He noted that federal law limits Medicare nursing home coverage to inpatients, also.

Alice Bers, an attorney for the not-for-profit Center for Medicare Advocacy, lamented the judge's ruling.

"The decision removes much of the responsibility for observation status from the Secretary of [HHS] and places it on hospitals and doctors, even though the Secretary is in charge of making sure that hospitals meet their Medicare obligations," she wrote (Carlson, Modern Healthcare, 9/24 [subscription required]; Jaffe, "Capsules," Kaiser Health News, 9/23).

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