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Medicare Proposes to Ease ‘Two-Midnight’ Coverage Rule on Observation Stays

Policy change would take effect in November

Medicare has proposed to ease a coverage policy on short hospital stays that has been criticized because it can result in higher costs for seniors, according to an article in the Minneapolis Star-Tribune. Under Medicare, coverage for inpatient and outpatient care is determined under different payment rules. In some cases, a hospital admission classified as “inpatient” can result in lower bills for beneficiaries.

A problem arises when patients are admitted for short observation stays. Medicare policy generally requires a hospitalization to span at least two midnights to qualify as an inpatient case. But the new Medicare proposal would allow case-by-case exceptions. Based on a doctor’s judgment, certain short hospital stays could be covered under inpatient payment rules.

The current policy — known as the “two-midnight rule”— has been in effect since 2013, but it hasn’t been enforced because of the controversy surrounding it. A congressional moratorium that prevents Medicare from carrying out the policy expires on September 30.

Medicare’s original concern was that hospitals could use the differences in payment rules to game the system.

Reaction from the American Hospital Association was mixed. While welcoming the flexibility on short hospital stays as “a good first step,” the trade group said it is disappointed that the proposal maintains certain payment cuts.

The new policy would not take effect until November, following a public comment period.

Source: Star-Tribune; July 1, 2015.

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