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CMS Delays Enforcement of Two-Midnight Rule

Rule presents hospitals and health systems with reimbursement challenges

The Centers for Medicare & Medicaid Services (CMS) has announced an expected extension of the enforcement delay for recovery auditors’ patient status reviews (PSRs) related to the “two-midnight rule” through December 2015. The enforcement delay was set to expire September 30.

In general, the two-midnight rule states that:


  • Inpatient admissions will generally be payable under Part A if the admitting practitioner expected the patient to require a hospital stay that crossed two midnights and if the medical record supports that reasonable expectation.

  • Medicare Part A payment is generally not appropriate for hospital stays not expected to span at least two midnights. 

According to the CMS, the congressionally imposed moratorium on PSRs by recovery auditors will expire on October 1, 2015. However, the CMS will not approve recovery auditors to conduct PSRs for dates of admission of October 1, 2015 through December 31, 2015.

Beginning in January 2016, recovery auditors will conduct PSRs only for providers that have been referred by quality improvement organizations (QIOs) as demonstrating persistent noncompliance with Medicare payment policies, such as having high denial rates and consistently failing to adhere to the two-midnight rule (including repeatedly submitting inappropriate inpatient claims for stays that do not span one midnight), or failing to improve their performance after QIO educational intervention. Recovery auditors may continue to conduct reviews of short-stay inpatient claims for other reasons, including CMS-approved claim reviews unrelated to patient status (e.g., coding reviews and reviews to determine the medical necessity of the procedure conducted).

Hospitals have strenuously opposed the two-midnight rule, which they say will result in reduced reimbursements and will shift costs onto patients.

In September 2013, when the rule was first announced, Jerry Arndt, senior vice president for business services at Gundersen Lutheran, a 325-bed integrated health care organization based in La Crosse, Wisconsin, told HealthLeaders Media that the two-midnight rule felt like a punishment for running a competent, well-managed shop.

“It's just another one of those absolutely classic examples of being penalized for being efficient. If you can discharge somebody with a one-night stay, then it will get paid as an observation as opposed to discharging them at 12:05 a.m.,” he said. “It's another example of having to choose between doing what is right and what maximizes revenue, and this is really, really getting to be a difficult situation.”

Sources: HealthLeaders Media; August 14, 2015; CMS; August 12, 2015; and HealthLeaders Media; September 30, 2013.

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