As part of the 2016 Hospital Outpatient Prospective Payment System (OPPS) proposed rule (CMS-1633-P), CMS released proposed changes to the Two Midnight Rule.  These proposed changes are described in the CMS Fact Sheet released July 1, 2015 (link below).  CMS declined to abolish the Two Midnight Rule, and instead noted that the proposed changes are intended to address two issues:

“Proposing to change the standard by which inpatient admissions generally qualify for Part A payment based on feedback from hospitals and physician to reiterate and emphasize the role of physician judgment;  and

….Quality Improvement Organizations (QIOs) will oversee the majority of patient status audits, with the Recovery Audit program focusing on only those hospitals with consistently high denial rates” (emphasis added).

According to CMS, the proposed change in the review standard for inpatient cases subject to the Two Midnight Rule does not affect cases in which the admitting physician expects the patient to require hospital care that spans at least two midnights.  The change relates only to cases in which “the physician expects the patient to need less than 2 midnights of hospital care and the procedure is not on the inpatient only list.”  The proposed rule provides that if the physician expects the patient to need less than 2 midnights of hospital care, the case may still be payable as an inpatient admission based on the “judgment” of the admitting physician that inpatient services are warranted. The proposed regulations indicate that the payment determination will be made on a case by case basis. The proposed regulations note that these cases are subject to medical review by the QIO.  Further CMS reiterates that (as with all inpatient status determinations) the inpatient admission decision must be supported by the documentation in the medical record.

The proposed rule provides that the QIO will conduct reviews of short inpatient stays.  The proposed time frame is for the new process to be in place October 1, 2015 to have QIOs review a sample of post-payment claims and make a determination of the medical appropriateness of the admission as an inpatient. No clear standards for medical review have been promulgated.  Interestingly, in addressing the QIO review, CMS provided that “…we would expect it to be rare and unusual for a beneficiary to require inpatient hospital admission after having a minor surgical procedure or other treatment in the hospital that is expected to keep him or her in the hospital for a period of time that is only for a few hours and does not span at least overnight.”  Thus, it appears that in addition to temporal factors (how long the patient is expected to require services in the hospital), once again, there is an issue of intensity of service because the standard does not appear tied to the Two Midnight Rule.  Regardless of the lack of clarity regarding the standard to be applied it appears that CMS plans to initiate the review process in the 4th quarter of this year.  Finally, please note that the comment period ends August 31, 2015.

QIOs will refer cases to the MAC for payment adjustments.  In addition, if the QIO determines that a hospital has high denial rates, fails to adhere to the Two Midnight rule, or fails to respond to QIO guidance, the hospital will be referred to the recovery auditors for further audit.  Recovery auditors may resume review of patient status determinations for stays on and after October 1, 2015, but the regulatory commentary provides that those reviews will focus on providers referred by the QIO.  The new recovery auditor contracts are not in place, but once in place, should limit the look back period to 6 months and should contain other changes from current practices that were outlined in a previous MedManagement bulletin.  We will keep you posted about contractual developments with the recovery auditors.

This bulletin is intended to alert you to the changes and to direct you to the CMS transmittal and the federal regulations. We will follow this notice with more detailed communication. We will be reaching out to each of our clients to discuss the proposed rule and the implications for review in your organization.  We will also provide education opportunities.

The proposed rule is scheduled to be published in the Federal Register on July 8th. The pre-publication PDF version is available via the following link
The discussion begins on page 585.

Link to CMS Fact Sheet:

As always, should you have questions, please do not hesitate to contact us. We look forward to talking with you!

Joan C. Ragsdale, JD                                                  Ann M. Purdy
Chief Executive Officer                                              Chief Compliance Officer
Direct Line: 205-970-8804                                         Direct Line: 205-314-8859