Hospitals plan three-pronged attack on the 'two-midnight rule'

Proposed payment cut 'arbitrary and capricious,' they argue

Hospital groups are mobilizing a three-pronged offensive against a controversial rule for Medicare inpatient admissions that they argue could be financially devastating to their institutions.

A controversial policy

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 "two-midnight" 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 rule was intended to limit the use of observation status in hospitals, which has skyrocketed in recent years. The number of Medicare observation patients increased to 1.6 million in 2011, a 69% jump in just five years.

To assuage the concerns of hospitals transitioning to the regulatory framework, CMS introduced a three-month "probe and educate" period.

However, the agency also proposed a 0.2% hospital payment reduction to offset the cost of implementing the policy. Estimates indicate the rule could increase inpatient expenditures by about $220 million.

Hospitals prepare for battle

Last week, members of the American Hospital Association (AHA) prepared to bring a federal court challenge against CMS over the new payment policy, which is set to take effect on March 31, 2014.

Banner Health in Arizona, Einstein Healthcare Network in Pennsylvania, Wake Forest University Baptist Medical Center in North Carolina, and the Mount Sinai Hospital in New York filed appeals asking CMS's Provider Reimbursement Review Board to grant an expedited judicial review for the hospitals' claims that the 0.2% payment cut is unlawful.  

The Hospital Association of New York (HANYS) and the Greater New York Hospital Association (GNYHA) also support the move. "Our coalition contends that the reduced inpatient payment they receive under the final rule is arbitrary and capricious," wrote HANYS president Dennis Whalen in a memo, adding that the payment cut does not comply with a federal law regarding "proper notice and comment and was not codified in regulation as the law requires."

Meanwhile, the AHA discussed legislative efforts against the two-midnight policy during a call last week outlining the association's lobbying agenda. The group is lending its support to a House bill that would delay post-payment reviews until October and implement a new payment policy for short inpatient stays in 2015 (Nahmias, Capital New York, 1/23; Zigmond, Modern Healthcare, 1/23 [subscription required]).

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