Foley & Lardner LLP

08 August 2013
American Health Lawyers Association

CMS Final Rule Adopts Proposal for "Two Midnights" Policy

On August 2, the Centers for Medicare & Medicaid Services (CMS) issued the Fiscal Year 2014 Inpatient Prospective Payment System (IPPS) Final Rule (CMS 1599-F) which, among other things, adopts the proposal that CMS issued earlier this year with respect to when a physician's decision to admit a patient to the hospital as an inpatient, as opposed to treating the patient on an outpatient basis, will or will not be presumptively appropriate.

Under the finalized policy, hospital inpatient admissions are presumed to be appropriate for beneficiaries who require more than one Medicare utilization day (defined by encounters crossing "two midnights"). Conversely, an inpatient stay of less than two midnights (and not involving services designated by CMS as inpatient only) are presumed to be inappropriate (meaning that the services should have been provided on an outpatient basis) unless there is clear physician documentation in the medical record supporting the physician's order and expectation that the beneficiary required care spanning at least two midnights (although the stay actually lasted less than that amount of time). CMS warns that if a hospital is systematically prolonging the provision of care in order to cross two midnights, its contractors will disregard the presumption that stays of at least two midnights are appropriate when conducting review of that hospital.

The Final Rule also provides that if an unforeseen circumstance, such as beneficiary death or transfer, results in a shorter beneficiary stay than the physician's expectation of at least two midnights, the patient may be considered to be appropriately treated on an inpatient basis. The rule is not clear as to whether inpatient stays lasting less than two midnights can be considered reasonable and necessary where the physician expected the stay to last less than two midnights but believed admission was necessary due to the patient's medical condition.

CMS estimates that the change in policy will result in an increase in hospital encounters that are deemed proper inpatient admissions, which it says will increase IPPS expenditures by approximately $220 million. CMS invokes its exceptions and adjustments authority to make a reduction of 0.2% to the standardized amount and the hospital-specific payment rate to offset the $220 million increase.

Access the Final Rule.

Access CMS' press release on the Final Rule.

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