The Centers for Medicare & Medicaid Services should withdraw its two-midnight policy and target Recovery Audit Contractor reviews to hospitals with the most short inpatient stays, the Medicare Payment Advisory Commission said in final recommendations approved today. The commission also recommended tying a RAC’s contingency fee to its denial overturn rate, shortening the RAC look-back period for patient status reviews, and evaluating a formula-based payment penalty for hospitals with “excess” levels of short inpatient stays. With respect to other payment issues, the commission recommended expanding the three-day hospital stay requirement for skilled nursing facility coverage to allow up to two outpatient observation days to count towards meeting the criterion. It also recommended requiring beneficiary notification of outpatient observation status, and packaging payment for self-administered drugs provided during outpatient observation stays into the hospital outpatient prospective payment system. “The AHA commends MedPAC’s willingness to tackle the complicated two-midnight policy,” said Linda Fishman, AHA senior vice president of public policy analysis and development. “Our hospitals have appreciated the clarity CMS has provided in that patient stays spanning at least two-midnights will be paid as inpatient stays. However, our members have expressed strong disagreement that patient stays of less than two midnights should be considered as outpatient cases regardless of patients’ clinical severity and resource use. CMS must pay hospitals fairly and adequately for the care they provide to Medicare patients, including short-stay cases. We believe the current enforcement delay must be continued until CMS brings resolution to this issue. If the two-midnight policy is withdrawn, as the commission recommends, hospitals would no longer be required to follow this arbitrary time benchmark. However, hospitals would lose the certainty of an inpatient payment for a stay spanning at least two midnights, and be subject to the overzealous audits of the Recovery Audit Contractors. While we appreciate MedPAC’s recommendations that attempt to address the RAC program’s misaligned financial incentives, they do not fully address the program’s systemic problems. We urge the commission to examine additional fundamental RAC reforms, including the contingency fee structure that encourages RACs to deny claims.” For more information, see AHA’s recent letter to MedPAC.