The Centers for Medicare and Medicaid Services (CMS) announced a further delay, through December 31, 2015, of the Recovery Auditors’ (RA) audits of the “Two-Midnight” Rule. Congress previously passed a law delaying enforcement Recovery Audits for the Two Midnight Rule through September 30, 2015. This has now been extended through December 31, 2015 with enforcement audits of suspect non-compliant providers commencing on or about January 1, 2016. The proposed two-midnight rule sets forth criteria to be used in determining whether inpatient admission is reasonable and payable under Medicare Part A. CMS has been particularly concerned with the high rates of hospital outpatients who receive extended observation services, and the rule seeks to reduce or eliminate payment for services that are rendered in a medically unnecessary setting (i.e., inpatient rather than outpatient). Please note that hospital outpatient days do not count towards the three-day inpatient hospital stay that is required before a beneficiary becomes eligible for Medicare coverage of skilled nursing facility services.

The Two-Midnight Rule, adopted for admissions that occurred on or after October 1, 2013, essentially states that:

• Inpatient admissions are payable under Medicare Part A if the admitting physician or practitioner expects the patient to require a hospital stay that crosses two midnights and the medical record supports this reasonable expectation;
• Medicare Part A payments are inappropriate for hospital stays not expected to cover at least two midnights; and
• All treatment decisions for beneficiaries should be based on the medical judgment of physicians and other qualified practitioners.

Following the initial adoption of the Two Midnight Rule, hospitals and practitioners alike raised significant concerns regarding the impact of the rule on provision of care. As a result, CMS is in the process of gathering additional information and is working closely with providers to clarify and distinguish its guidelines on the rule. Proposed updates to this rule include the following:

Increased emphasis on the role of physician judgment in determining which inpatient admissions generally qualify for Part A payment. For inpatient stays of less than Two Midnights, Part A payment would be made on a case-by-case basis based upon the judgment of the admitting physician and supporting documentation in the medical record as to necessity;

• Changes to the enforcement mechanism associated with this standard. The Recovery Audit program will focus only on those hospitals with consistently high denial rates;
• No changes to the policy of Part A payment for hospital inpatient stays expected to be two midnights or longer and which are supported by the medical record. Part A payment will be made for stays of less than two midnights where the physician’s expectation is supported, but the length of stay is less than two midnights due to death, transfer, or other circumstance.
• Quality Improvement Organization (QIO) patient status reviews will focus on education of physicians and hospitals about the Part A payment policy for inpatient admissions.     

CMS will continue to accept comments on the two midnight rule through August 31, 2015 and will respond to comments in its final rule on or around November 1, 2015.