At the Margins

HOPPS proposal: What's next for the two-midnight rule?

by Eric Fontana

Late Wednesday, CMS released the Hospital Outpatient Prospective Payment System (HOPPS) Proposed Rule for CY 2016. While the rule proposes a -0.2% reduction for hospital outpatient payments, the two-midnight rule is grabbing all the early headlines.

We're providing a complete breakdown of the HOPPS proposal during our annual webconference on August 11. In the meantime, here's our first take on the two-midnight-related proposals.

The two-midnight rule not going anywhere just yet

CMS’s stance to maintain the two-midnight standard may come as a surprise. The proposal affirms the presumption of two-midnights will remain for all hospital inpatient admissions, and that anything longer than the benchmark is generally appropriate for payment under Part A. Cases that don’t span at least one midnight will be prioritized for review.

In the proposal, CMS recognized MedPAC’s recent calls for the rule to be scrapped—but as none of MedPAC’s recommendations were submitted during prior calls for comment, CMS doesn’t appear to have considered them as part of its decision making. Our take is that you probably haven’t heard the last discussion about the future of the two-midnight rule.

Despite upholding the rule, CMS will take things 'case by case'

While CMS has proposed to continue with the two-midnight requirement, they have also proposed a modification to the "rare and unusual exceptions" policy that would enable a "case-by-case" approach to determine when cases shorter than two midnights are appropriate for Part A payment.

The key here, as always, is that documentation is important. CMS proposes that admissions will be payable under part A if documentation in the medical record supports the physician’s expectation of the need for a two-midnight stay. Nevertheless the rule probably won’t put rest to unresolved tensions around defining an inpatient level of care for those dealing with the law on a daily basis. Expect a healthy volume of comments when the final rule rolls around.

QIOs taking the lead, RACs reserved for repeat offenders

The amnesty period on post-payment review of short stay cases appears to be coming to an end. Under this proposal, Quality Improvement Organizations (QIOs) would take ownership for reviewing samples of short stay claims to determine medical appropriateness. QIOs would play a dual role; referring denials to Medicare Audit Contractors (MACs) for payment adjustment, and working with hospitals to educate and improve organizational processes.

Repeat offenders beware. Hospitals with consistently high denial rates or those failing to improve after educational intervention will see RACs introduced into their hospital’s post-payment short stay review process.

CMS didn’t specify how many claims RACs could review under such circumstances, but hospital claim volume and denial rates (identified by the QIO) would be considered. However, it’s important to note that CMS expects this process, if finalized, to apply regardless of whether the two-midnight rule remains unchanged or is modified.

We expect questions during the comment period about how the QIO driven-process compares to the previous RAC-led system, especially around interpretation of rules and anticipated outcomes.

Despite the decline in short stay cases from 2013 to 2014 (roughly 10.3% to 9.2% of all inpatient stays by our analysis), a substantial volume of short-stay cases remain. CMS has admitted that length of stay will be the triggering factor for reviews meaning a substantial proportion of cases may be eligible for post-payment audit.

CMS says -0.2% payment adjustment was the right decision

In the FY 2014 Inpatient Final Rule, CMS made a one-time, 0.2% inpatient rate reduction to offset the expected admissions growth resulting from the two-midnight rule. CMS used this proposal to highlight case shifts from 2013 to 2014 showing significant growth in 2-4 day stays (+3.0%), alongside a reduction in long-stay (2+ days), observation (-11%), and short stay (0-1 days) inpatient cases (-9.0%). CMS believes this provides evidence of case movement into longer length of stay profiles, justifying the payment adjustment.

Nothing set in stone

As always, we must note the rule is a proposal and doesn’t go into effect until January 1, 2016. We now enter a 60-day comment period, open until August 31. As we’ve seen in the past, proposals may change significantly prior to the release of the final rule, expected around November 1.

Don't forget to sign up for our webconference

June 4

Join us on August 11 from 3-4:30 p.m. ET to get a complete breakdown of the HOPPS proposal.

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