April 25, 2016
In our July 13, 2015 alert, we informed our readership of Two-Midnight Rule imposed by the Centers for Medicare and Medicaid Services (CMS) and the role anesthesia could play as a partner with hospitals. After much activity since then, CMS proposes eliminating the payment reduction under the Two-Midnight Rule.
On July 13, 2015, we informed you of CMS’s Two-Midnight Rule. After much pushback from industry stakeholders and from the judicial system since our alert, CMS proposes to eliminate the notorious payment reduction under the Two-Midnight Rule in its FY 2017 Medicare Inpatient Prospective Payment System (IPPS) Proposed Rule (Proposed Rule). Though not slated to be finalized until the latter part of 2016, hospitals and their partners can be optimistic that the penalty under the Two-Midnight Rule may soon be a memory.
The Two-Midnight Rule, effective beginning October 1, 2013, was enacted with the intent of curbing payment for inpatient hospital admissions (i.e., Part A). The Two-Midnight Rule generally states that payment under Medicare Part A is appropriate if the admitting physician has a reasonable expectation that the patient’s stay would span at least two midnights. For patients expected to stay less than two midnights, payment under Medicare Part B (i.e., outpatient services) is appropriate. Moreover, in an effort to offset an expected $220 million spike in inpatient encounters, in 2014, CMS enacted a 0.2 percent decrease in payments under Medicare Part A. Since its inception, the Two-Midnight Rule has been strongly opposed by hospitals with dozens filing suit against the Department of Health and Human Services (HHS).
Shands Jackson Medical Center v. Burwell is a case (one of many) challenging the authority of the Secretary of HHS (Secretary) to impose a 0.2 percent reduction in payment under Medicare Part A. The court stated, in pertinent part, that the Secretary’s methodology in determining the 0.2 percent reduction lacked “sufficient notice of the actuarial assumptions and methodology” and that “disclosure of this information was essential to communicate the basis for the proposed adjustments and to permit meaningful public comment.”1 The court continued to state, “[t]he undisclosed information was central to the analysis that led to the Secretary’s conclusion that 40,000 discharges would shift to inpatient status in 2014, and, without that information, commenters had no basis to understand or to critique the Secretary’s conclusion.”2 As such, the court ordered the Secretary to further explain its methodology and permit an opportunity for comment.
In the December 1, 2015 Federal Register, CMS explained the basis of the 0.2 percent reduction in payment and solicited comments from the public. As a result of the public comments, CMS issued its Proposed Rule.
In an effort to “offset the estimated increase in IPPS expenditures as a result of the 2-midnight policy,”3 CMS proposes to eliminate the payment reduction under the Two-Midnight Rule. In fact, it also proposes a temporary prospective payment increase in FY 2017 of 0.6 percent to make up for the 0.2 percent reduction for FYs 2014-2016.4 Unsurprisingly, hospitals are pleased with the news that the Two-Midnight Rule may be abolished. In a statement released by the American Hospital Association (AHA), AHA’s president, Rick Pollack, states, “[t]oday’s rule includes a very important outcome because it reverses the inappropriate and unfair 0.2 percent payment reduction for inpatient services that was implemented as part of the original ‘two-midnight’ policy.”
Although CMS proposes eliminating the payment reduction after much pushback from industry stakeholders, it does not admit fault in implementing the 0.2 percent reduction, stating it believes its “assumptions underlying the 0.2 percent reduction to the rates put in place beginning in FY 2014 were reasonable at the time.”5 CMS continues to state, “[w]hile we generally do not believe it is appropriate in a prospective system to retrospectively adjust rates even where we believe a prospective change in policy is warranted, we take this action in the specific context of this unique situation….”6
Regardless of CMS’s justifications for implementing the payment reduction under the Two-Midnight Rule or for eliminating it and regardless of whether it believes the payment reduction was a disaster, hospitals can breathe a sigh of relief that the haunting payment cut may soon be issues of the past. Notwithstanding this update and though this does not affect anesthesiologists directly, anesthesiologists should stay informed on this issue to continue to be better partners with their hospitals. CMS is accepting comments to its Proposed Rule until 5pm on June 17, 2016.
With best wishes,
Tony Mira
President and CEO
1Shands, Pp. 33.
2Id., Pp. 36.
3Proposed Rule, Pp. 66.
4Id.
5Proposed Rule, Pp. 793.
6Id. at Pp. 794.
