Hospitals slap the government with lawsuits over 'two-midnight' policy to reduce observation stays

Faced with growing complaints about the “observation stay loophole,” the Centers for Medicare & Medicaid Services is launching a pilot program that could ultimately help beneficiaries afford nursing home care.

Long-term care groups have long complained that hospitals classify patients as being in under observation, rather than as an inpatient. There’s an incentive for hospitals to classify a patient as receiving observation services: if Medicare decides the hospital has billed it for the inpatient treatment of someone who should have gotten observation services, the agency can deny the entire payment. However, Medicare beneficiaries must stay three days in the hospital as an inpatient in order to qualify for nursing home coverage.

The three-year pilot program allows 380 participating hospitals the ability to rebill for observation services if claims for inpatient care are rejected. The hope is this will reduce the rates of seniors being classified as being in for observation.