CMS drops payment cut related to two-midnight rule

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Faced with a legal challenge, the Centers for Medicare & Medicaid Services has killed a two-midnight inpatient payment cut to hospitals.

The agency will not move forward with a 0.2% inpatient payment cut to hospitals under the “two-midnight” rule, giving a partial victory to the hospital industry Tuesday.

CMS had said inpatient admissions that spanned shorter than two midnights could be payable under Medicare Part A, based on the ruling of an admitting physician. As part of that policy, CMS cut inpatient payments to hospitals by 0.2% because it said the rule would boost Part A reimbursements.

Inpatient versus observation stays have been a long-standing issue for long-term care providers, who claim too many beneficiaries are being denied Part A-funded skilled nursing services -- often unkowningly -- because they were not labeled as inpatient while in the hospital. A section of the NOTICE Act now requires hospitals or to give notice to each individual who receives observation services as an outpatient for more than 24 hours.

The two-midnight rule's payment cut hit a roadblock where the American Hospital Association took the Department of Health and Human Services to court last year, resulting in a federal judge telling the department to better justify the cut.

CMS said it stands by its assumptions around the 0.2% reduction as reasonable when first implemented in 2013 but that “taking all the foregoing factors into account” it would remove it. It recommended a one-time boost to hospitals of .6% to offset losses.

Additionally, CMS estimates hospitals will have a $164 million increase in capital payments in fiscal year 2017, and that “the cumulative operating and capital payments would result in a net increase of approximately $539 million to IPPS providers.” However, CMS also proposed a recoupment adjustment for 2017 of -1.5%, drawing the ire of the AHA.


The AHA said its court challenge resulted in CMS to “restore the resources that hospitals are lawfully due."

“We are deeply disappointed that the rule nevertheless includes another large, unwarranted reduction to America's hospitals, health systems and the patients they serve. While a cut in the hospital update factor was mandated by law in 2012, CMS's proposal is significantly larger than Congress indicated and the hospital field anticipated,” the association wrote in a statement. “Congress was clear in its passage of physician payment reform last year that this cut should be 0.8%, but CMS ignored this directive and almost doubled the reduction.”

Representatives of LeadingAge and AHCA declined to comment on Tuesday..