At the Margins

MedPAC recommendation: Withdraw the two-midnight rule

by Eric Fontana

MedPAC just released its June 2015 Report to Congress. As usual, it's loaded with details and we're currently working our way through them. However, one thing caught my eye almost immediately: MedPAC recommended that CMS "withdraw" the two-midnight rule.

Along with this recommendation, MedPAC suggested that CMS should direct RACs to focus on hospitals with high rates of one-day stays, and even evaluate establishing a penalty for hospitals with "excess" rates of short inpatient stays.

To be clear, MedPAC makes recommendations to CMS all the time, and CMS isn't bound to act on any of them.

However, we also know that MedPAC has been evaluating 'two-midnights' for some time, and therefore such a recommendation, combined with the repeated extensions to the "probe and educate period," begs the question whether the two-midnight rule now has a shelf life.

How is the two-midnight rule affecting your bottom line?

No matter what happens to the two-midnight rule, one thing is certain—short-stay cases are likely to remain a focus for CMS.

Where CMS could go from here

But if we speculate for a moment and assume that the two-midnight rule does go away, what might come next?

MedPAC's recommendation for establishing a penalty for hospitals with high one-day stay rates is certainly interesting. According to the report, such an approach would be "formula-based," perhaps removing RACs altogether from the process.

Admittedly, there are some important details that need to be figured out before such penalties could be rolled out, including: how to define a short-stay case, exactly how a threshold for "excess" one-day stays would be determined, and what an appropriate penalty would be.

On the surface these elements sounds a little bit like another CMS penalty based initiative: the Hospital-Acquired Conditions (HAC) Reduction Program.

If you haven't heard of the HAC program before, it's CMS's way of penalizing hospitals with the highest quartile of HAC rates—meaning worst performing—and levying a 1% payment reduction for Medicare inpatient cases. The measures are statistically risk-adjusted, and allow CMS to compare observed and expected proportions of cases.

It wouldn't be surprising to see similar elements arise if CMS end up adopting some type of short stay penalty. Not surprisingly, MedPAC actually discusses evaluating excess cases and levying inpatient payment reductions in the report as one of several potential approaches.

Responding to the Two-Midnight Rule

Of course, it's also possible that none of these recommendations make their way into CMS policies at all, but the MedPAC announcement is interesting nonetheless.

We'll now wait until July, when the hospital outpatient proposed rule (HOPPS) will likely come out, to see if CMS makes any significant announcements related to the two-midnight rule. Whether the two-midnight policy is upheld or abandoned altogether, you'll want to understand where your organization stands on short-stay cases relative to other hospitals.

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