Sen. Bill Nelson (D-FL)

The time has come to eliminate hospital stay requirements for beneficiaries to qualify for Medicare coverage of skilled nursing services, experts told a Senate committee Wednesday.

The policy change is needed because the controversial “two-midnight rule” fails to ensure Medicare beneficiaries are covered for medically necessary post-hospital care, panelists told the Senate Special Committee on Aging.

Seniors increasingly have been left on the hook to pay for post-acute care out of pocket, because hospitals have been placing more patients under observation status for extended periods. People currently have to spend three midnights as a hospital inpatient before Medicare Part A will pay for follow-up services, and observation stays do not count toward this threshold.

The Centers for Medicare & Medicaid Services tried to solve this problem by implementing the so-called “two-midnight rule.” This requires hospitals to classify people as inpatients if they stay longer than two midnights. But healthcare providers balked at the rule, and full enforcement has been delayed until 2015.

Sen. Sheldon Whitehouse (D-RI) voiced one common complaint about the two-midnight rule: One person could spend 25 hours in the hospital and pass the two-midnight mark, while another could spend 47 hours there but only be on the premises for one midnight.

Despite issues such as this, reducing the prevalence of lengthy observation stays might be “one benefit” of the policy, said panelist Ann Sheehy, M.D., chief of the Division of Hospital Medicine at the University of Wisconsin at Madison.* However, this only would occur if the rule makes Recovery Audit Contractors less likely to challenge hospitals’ inpatient admissions determinations — and this has not been the case at her hospital, she said. Even during this limited “probe and educate” enforcement period, auditors challenged inpatient decisions that the hospital felt confident in making under the two-midnight rule, and she said this led to lengthy appeals.

A better approach would be to scrap the hospital stay requirement for skilled care entirely, said Bob Armstrong, a nursing home administrator for 29 years and current vice president of elder care services at St. Mary’s Health System in Maine. He noted that CMS has waived the hospital requirement for beneficiaries receiving care through some accountable care organizations and bundled payment systems. The current rule is a holdover from Medicare’s earliest days and is no longer relevant in today’s healthcare system, he said. Several panelists agreed.

Seniors are not the only ones being financially harmed by the status quo — nursing homes and other providers also are taking hits, Armstrong noted. The St. Mary’s nursing home has absorbed thousands of dollars in bad debt because it has declined to bill Medicare beneficiaries unfairly denied coverage due to observation stay issues, he said.

He and other panelists voiced support for proposed legislation to resolve the issue, such as a bill to count observation stays toward the three-midnight requirement.

Sen. Bill Nelson (D-FL) and Sen. Susan Collins (R-ME) are the chairman and ranking member, respectively, of the Special Committee on Aging.

Click here to access panelists’ written testimony and video of the hearing.

*Editor’s Note: This article has been updated to reflect that Dr. Sheehy referred to long observation stays in her testimony. She is not sure how the two-midnight policy might affect the total number of observation stays, as short observation stays have risen sharply, she said in an email to McKnight’s.