A more flexible two-midnight policy could offer good news for hospitals, the AHA said last week in response to the Centers for Medicare & Medicaid Services’ (CMS) release of the proposed 2016 rule for the hospital outpatient prospective payment and ambulatory surgical center payment systems. But the association is dismayed by payment cuts contained in the proposal.

The AHA said a modification proposed to the two-midnight policy is a “good first step” toward addressing hospitals’ concerns about a policy that – if implemented as first proposed in 2013 – could undermine medical judgment and disregard the level of care needed to safely treat patients.

The two-midnight rule isn’t being completely enforced because of the controversy surrounding it. A congressional moratorium that limits CMS from fully enforcing the policy expires Sept. 30. The AHA wants the moratorium extended beyond Sept. 30.

When it issued the policy in 2013, CMS said that “for those hospital stays in which the physician expects the beneficiary to require care that crosses two midnights and admits the beneficiary based upon that expectation, Medicare Part A payment is generally appropriate.”

In the proposed rule released July 1, Medicare would allow for case-by-case exceptions to the policy. Based on the admitting physician’s judgment, certain short stays could be classified as inpatient so that they would be paid under Medicare Part A. Physicians who admit patients for what are expected to be short stays must document factors that support the decision, such as severity of symptoms and the risk of an adverse medical event occurring during the hospitalization.

Hospitals “appreciate [CMS’s] proposal to maintain the certainty that patient stays of two midnights or longer are appropriate as inpatient cases,” said AHA Executive Vice President Rick Pollack. “We also agree with CMS’s proposal that stays of less than two midnights should be paid on an inpatient basis based on the medical judgment of a physician.”


Patient status claims. The agency also proposes to use Quality Improvement Organizations to conduct first-line medical reviews of the majority of patient status claims rather than Medicare Administrative Contractors or Recovery Audit Contractors (RAC), which would focus only on those hospitals with consistently high denial rates.

The proposal would help “prevent RACs from making inappropriate denials of patient status determinations,” Pollack said. “At the same time, we await further clarification on how changes to the RAC program interface with these proposed changes. Significant fundamental RAC reform is still needed.”


AHA takes aim at proposed payment cuts. The AHA sharply criticized the proposed rule’s net decrease in outpatient prospective payment system (PPS) payments of 0.2%, as well as the agency’s continued imposition of a 0.2% inpatient payment cut associated with the costs of implementing the two-midnight policy. “It is unfortunate that CMS maintains the misguided 0.2 percent cut to payments for inpatient hospital services as part of the two-midnight policy,” Pollack said.

The newly proposed 0.2% reduction in outpatient PPS payment largely results from a proposed 2 percentage point cut intended to account for CMS’s overestimation of the amount of packaged laboratory payments for laboratory tests that were previously paid under the Clinical Laboratory Fee Schedule.

The AHA is “dismayed that miscalculations by the actuaries are resulting in penalties to hospitals and the patients they care for,” said Pollack, who urged CMS to reevaluate the actuaries’ estimates.