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CMS Issues Proposed Updates to the “Two-Midnight” Rule

On July 1, 2015, CMS released proposed updates to the “Two-Midnight” rule regarding when inpatient admissions are appropriate for payment under Medicare Part A.  The proposed updates were included in the calendar year (CY) 2016 Hospital Outpatient Prospective Payment System (OPPS) proposed rule.  As per the fact sheet, CMS is:

  1. Proposing to change the standard by which inpatient admissions generally qualify for Part A payment based on feedback from hospitals and physician to reiterate and emphasize the role of physician judgment
  2. Announcing a change in the enforcement of the standard so that Quality Improvement Organizations (QIOs) will oversee the majority of patient status audits, with the Recovery Audit program focusing on only those hospitals with consistently high denial rates.

For hospital stays that are expected to be two midnights or longer, CMS policy remains unchanged.  That is, if the admitting physician expects the patient to require hospital care that spans at least two midnights, the services are generally appropriate for Medicare Part A payment.  For stays expected to last less than two midnights (and the procedure is not on the inpatient only list or otherwise listed as a national exception), an inpatient admission would be payable under Medicare Part A on a case-by-case basis based on the judgment of the admitting physician.  The documentation in the medical record must support that an inpatient admission is necessary, and is subject to medical review.

CMS’ does reiterate the expectation that it “would be rare and unusual for a beneficiary to require inpatient hospital admission for a minor surgical procedure or other treatment in the hospital that is expected to keep him or her in the hospital for a period of time that is only for a few hours and does not span at least overnight.”  CMS indicates that they will monitor the number of these types of admissions and plans to prioritize these types of cases for medical review.

CMS also announced changes to the approach toward educating providers and enforcing the Two Midnight rule.  Specifically, CMS has decided to use QIOs, rather than Medicare Administrative Contractors (MACs) or Recovery Auditors, to conduct the first line medical reviews of providers who submit claims for inpatient admissions.  CMS indicates that QIO patient status reviews will focus on educating doctors and hospitals about the Part A payment policy for inpatient admissions. Recovery auditor patient status reviews will be conducted by the recovery auditors for those hospitals that have consistently high denial rates based on QIO patient status review outcomes.

Finally, CMS indicates that, upon procurement of the new recovery auditors, or sooner, if possible, the following changes to the Recovery Audit program (RACs), will be implemented:

  1. To address hospitals’ concerns that they do not have the opportunity to rebill for medically necessary Medicare Part B services by the time a medical review contractor has denied a Medicare Part A claim, CMS is changing the recovery auditor “look-back period” for patient status reviews to 6 months from the date of service in cases where a hospital submits the claim within 3 months of the date that it provides the service.
  2. CMS has announced limits on additional documentation requests (ADRs) that are based on a hospital’s compliance with Medicare rules, incrementally applied ADR limits for providers that are new to recovery auditor reviews, and diversified ADR limits across all types of claims for a certain provider.
  3. CMS has also announced a requirement that recovery auditors must complete complex reviews within 30 days and that failure to do so will result in the loss of the recovery auditor’s contingency fee, even if an error is found.
  4. Finally, CMS will require recovery auditors to wait 30 days before sending a claim to the MAC for adjustment.  This 30-day period allows the provider to submit a discussion period request before the MAC makes any payment adjustments.

CMS will be accepting comments on the Two Midnight portion of the proposed rule until August 31, 2015 and will respond to comments in a final rule to be issued on or around November 1, 2015.  The proposed rule will appear in the July 8, 2015 Federal Register.

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