Despite offering some additional details, the Centers for Medicare & Medicaid Services (CMS) failed again in its Dec. 1 notice to establish a rational and lawful basis for cutting inpatient prospective payment system (PPS) payments by 0.2% in conjunction with its two-midnight policy, the AHA told CMS on Feb. 2.

The AHA faulted the agency for its continuing failure to “disclose key data and methodological assumptions, which prevents our being able to comment on the agency’s assumptions and estimates.” In the Feb. 2 letter rebutting the agency’s justification for the payment cut, the AHA also said a “number of the methodological and data choices made were arbitrary and capricious because they were not explained and/or because they were unreasonable on their face.”

In response to a federal judge’s ruling, CMS stood behind the inpatient payment cut to hospitals imposed under its two-midnight policy in its Dec. 1 notice and request for comment. At issue is the agency’s contention that the two-midnight change will yield an increase in inpatient admissions – it estimates a potential 40,000 net increase in inpatient discharges – at a cost of $220 million to Medicare. Based on that estimate, CMS reduced compensation for inpatient services by 0.2%.

But the AHA told the agency that its estimate is unjustified, based on an association analysis that used public Medicare Provider Analysis and Review data and made more appropriate assumptions about potential shifting of medical Medicare Severity-Diagnosis Related Group claims to the outpatient setting.

“The shifts from inpatient to outpatient essentially net each other out, necessitating no need, and providing no basis, for the 0.2% cut,” wrote AHA Executive Vice President Tom Nickels.  

The cut was first included in the agency’s fiscal year (FY) 2014 inpatient PPS final rule and took effect Oct. 1, 2013. In this week’s letter, the AHA urged CMS to fully reverse the 0.2% reduction, revise inpatient PPS base payment rates accordingly and reimburse hospitals for the resulting Medicare payment shortfall for discharges beginning Oct. 1, 2013.

Visit for more on the AHA’s letter.

A federal court last October rejected CMS’s arguments that it met all of the procedural legal requirements for rulemaking when it imposed the 0.2% cut in its inpatient PPS final rule for FY 2014. The court ordered the agency to publish additional justification for the reduction and allow further opportunity for hospital comments.

The court’s order was issued in a consolidated federal case that includes a lawsuit brought by the AHA, four hospital associations and four hospital organizations. 

While it has not backed away from its 0.2% payment cut, CMS in October altered its two-midnight policy so that certain hospital stays that do not cross two midnights may be considered appropriate for payment under Medicare Part A if a physician determines and documents in the patient’s medical record that the patient required reasonable and necessary admission to the hospital.