The Two-Midnight Rule 2021 - Five Immediate Actions for Hospitals and Compliance Officers

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[co-author: Matthew Schwartz]

In November of 2020, the HHS Office of Inspector General (OIG) announced it was resuming audits of inpatient (IP) claims with short lengths of stay and added the audits to its annual work plan for 2021. In addition, the Centers for Medicare and Medicaid Services (CMS) announced a three-year phase-out of the Inpatient Only List (“CMS IPOL”) beginning in 2021. With these two factors in mind, hospitals and compliance officers must place a renewed focus on the TwoMidnight Rule. It’s Groundhog Day.

With the OIG starting Two-Midnight audits again, providers are likely experiencing déjà vu. Inpatient short stays have been on the radar for hospital compliance officers and the OIG for years. Circa 2012, through the Recovery Audit (RAC) program, CMS began noticing high rates of error with respect to patient status in certain short-stay Medicare claims submitted for inpatient hospital services. CMS and the RACs indicated the inpatient care setting was medically unnecessary, and the claims should have been billed as outpatient instead. At the same time, billing compliance issues were arising from patients placed in “extended observation” status, a practice which impacted patient copays as well as patients’ ability to qualify for Skilled Nursing Facility (SNF) care through the SNF Three-Day IP Stay Rule...

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