New CMS Instructions for the 2-Midnight Rule

MACs given new directions on 2-midnight rule
settlement agreements

The Centers for Medicare and Medicaid Services (CMS) recently announced partial settlement agreements and instructions for Medicare Administrative Contractors (MACs) in relation to several 2-midnight rule cases. Under the 2-midnight rule, Medicare beneficiaries should be admitted to the hospital as inpatients only if they are likely to spend two nights – or cross two midnights – in the hospital. However, there is a concern that some physicians may be reluctant to admit Medicare beneficiaries, particularly on the basis of potential complications. If a physician believes the patient may experience problems after an ordinarily non-overnight procedure, the physician may place the patient in observation status. Changing to observation status is preferred over risking payment denial by admitting a patient who does not end up spending two midnights in the hospital.

On November 9, 2017 CMS issued a Transmittal outlining how MACs can ensure hospitals receive payments related to the 0.2% downward payment adjustment in the inpatient prospective payment system (IPPS). The settlement agreement stemmed from the American Hospital Association’s (AHA) 2015 challenges to CMS’s 0.2% IPPS payment adjustment. The AHA and other hospital organizations filed suit arguing that CMS lacked authority to impose the payment cut. CMS insisted the cut was necessary due to anticipated increases in inpatient hospital expenses associated with the 2-midnight rule implementation. The agreement reflected in the Transmittal will result in the application of an interest adjustment factor for determining payment between June 1, 2017 and May 31, 2018 for discharges at facilities.

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