Time to Sunset the Two-Midnight Rule

Thursday, February 16, 2017 | Larry Sobal

I was having dinner with a physician group recently and the conversation shifted to the things that frustrate the physicians the most. As you might expect, at the top of the list were dysfunctional electronic medical records (EMR) and the increasing time all the “mouse clicks” take away from direct patient care. Also on the list were phone calls in the middle of their call nights that could have waited until morning. One area you may be surprised to hear, and may not be that familiar with, is physician frustration with CMS’ two-midnight rule.

Let’s start with some two-midnight rule background. Basically, CMS' rule has to do with Medicare reimbursement for hospital patient services regarding the two ways a physician can initiate a patient stay in the hospital. One option is for the patient to be designated as an inpatient. Alternatively, the patient may be placed under 'observation status,' making them an outpatient. The challenge is that Medicare pays for these types of services very differently. And the reimbursement difference between inpatient and outpatient services can be significant not only to the hospital, but to the party responsible for footing the bill.

So why was the rule created in the first place?  It basically started in 2013 when CMS began to express concerns that too many patients were being admitted, and hospitals reimbursed at higher rates, while CMS felt the patients should have been placed in observation status and reimbursed at lower rates. This conclusion was supported, in part, by CMS indicating that between 2006 and 2011, the percentage of observation cases for Medicare beneficiaries lasting longer than 48 hours more than doubled—from 3% to 8%. Essentially, CMS said paying hospitals at inpatient rates was "generally inappropriate" when a physician expects a beneficiary to require care for fewer than two midnights.

The two-midnight rule is seen as undermining physician medical judgment.

This triggered a whole new CMS audit industry, knows as Medicare Recovery Audit Contractors (RACs) and Medicare Administrative Contractors (MACs), whose role, in part, was to comb through medical records of hospitals' inpatient Medicare claims under two midnights and require hospitals to provide certain documentation backing up such admittances. Without sound documentation, the audits could either deny the hospital bill altogether or CMS could recoup payments, and hospitals often cannot re-bill claims under the correct patient status that was rejected.

Why is this on the list of physician frustrations?  Let me summarize some of the many reasons:

• The two-midnight rule is seen as undermining physician medical judgment. CMS has deemed that “two midnights” are the basis for what should or shouldn’t be an inpatient. Why two midnights versus one? That’s not clear to physicians who live with this rule.
• When I say “midnight,” I literally mean midnight. Timing is everything with the two-midnight rule. Since the rule uses midnight as a metric rather than the actual number of hours a patient requires care, placing a patient in admission status at 11:59 pm vs. 12:01 am makes a difference when it comes to billing. If a patient will require 26 hours of care and is admitted at 11:59pm, then they may be placed in inpatient status. If the same patient is admitted at 12:01, just 2 minutes later, they must be placed in observation status according to the two-midnight rule. To a physician, this can seem ridiculous.
• It is seen as disregarding the level of care needed to safely treat patients. An example would be a patient who requires a short period of hospital care that is not expected to exceed two midnights, such as an AMI with successful PCI, but is unable to safely return to their previous living situation. Another example would be an elderly CHF patient who has lost the ability to perform their activities of daily living because of the natural progression of their aging process and are brought to the hospital by family, friends or the police for safety. So if the patient lacks adequate resources to go home, the current regulation mandates the hospital keep the patient as an outpatient until a safe plan can be developed. In cases where guardianship is required, the patient can remain hospitalized as an outpatient for weeks (or months), with absolutely no revenue to the hospital for the ongoing nursing care, room and board. 
• There are significant patient financial implications. Since patients usually have different responsibility for paying for inpatient care versus outpatient care, with a high deductible insurance plan or various eligibility requirements, the patient may incur a much higher out-of-pocket cost if the stay is in observation status.
• In order for Medicare to cover an admission to a Skilled Nursing Facility (SNF), you must first meet the requirement of having a 3-day inpatient stay. Any observation status days don’t count. So let’s say you came to the ER with chest pain and spent one day getting observation services. Then, you were formally admitted to the hospital as an inpatient for 2 more days and were ready for transfer to a SNF. Too bad, since even though you spent 3 days in the hospital, you were considered an outpatient while getting ED and observation services. These days don’t count toward the 3-day inpatient hospital stay requirement, and if you are discharged to a SNF, you (the patient) will incur significant out-of-pocket costs for the SNF care since the care won’t be covered by Medicare. As a physician, you probably then figure out a way to justify a 3^rd inpatient day when it may not be necessary, right? Well, since some people will call that fraud, your choice is to risk that or stick the patient with a large SNF bill. What would you do?
• Finally, a lot of the burden of determining the right category of admission falls on the shoulders of physicians, with documentation being crucial. According to CMS, a proper inpatient hospital stay that spans more than two midnights will need to have "sufficient documentation…rooted in good medical practice." This would include patient history, comorbidities, the severity of signs and symptoms, current medical needs and the risk of an adverse event all being included in a physician's assessment and plan of care. One recent study showed that for every hour doctors spend treating patients during a typical workday, they devote nearly two more hours to maintaining electronic health records (EHR) and clerical work. That may be the most frustrating aspect of all.

Since we are in “repeal and replace” mode, let’s do the same with the two-midnight rule and, in at least one small way, let physicians go back to worrying about the right thing to do for the patient, and less about what arbitrary regulations increasingly require them to do. Let me know if you agree or disagree.

 

Illustration: Lee Sauer

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Larry Sobal is Executive Vice President and a Senior Consultant at MedAxiom. He has a 35-year background as a senior executive in medical group leadership, hospital leadership and health insurance. Larry consults, writes and presents on topics relevant to transforming physician practices and health systems. His weekly blog post comes out on Thursdays and can be accessed at www.medaxiom.com.

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