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Federal Health Care Programs

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The Centers for Medicare and Medicaid Services (CMS) recently issued instructions to Medicare Administrative Contractors (MACs) regarding distribution of settlement amounts resulting from 2-Midnight Rule related lawsuits.  On November 9, 2017, CMS released a Change Request (CR 10377) containing the instructions, through CMS Transmittal 1969.  In the CR, CMS guided the MACs on how to ensure that relevant hospitals receive additional payments due to the partial settlement agreement (the “Agreement”) resulting from the four previous lawsuits.  CMS entered into the Agreement related to the following cases: 1) Oakwood Healthcare Center v. Burwell (D.D.C. 15-1470); 2) Oakwood Healthcare Center v. Burwell (D.D.C. 16-1042); 3) Dignity Health et al v. Sebelius (D.D.C. 14-0536); and 4) Shands Jacksonville Medical Center, Inc. et al. v. Burwell (D.D.C. 15-1150).  These lawsuits challenged a 0.2% percent downward adjustment to the Inpatient Prospective Payment System (IPPS) under the 2-Midnight Rule, beginning in Fiscal Year 2014.  The lawsuits alleged that CMS lacked authority to impose the downward payment adjustment.  In turn, CMS insisted that the payment cut was necessary due to anticipated increases in inpatient hospital expenses associated with the 2-Midnight Rule’s implementation.  According to the Agreement, CMS will apply an interest adjustment factor to determine payment for discharges occurring at the hospitals involved in the lawsuits, between June 1, 2017, and May 31, 2018.

Under the 2-Midnight Rule, CMS instructs providers that Medicare beneficiaries should generally only be admitted to the hospital as inpatients if the treating provider expects the beneficiary to require a hospital stay that crosses two midnights.  If the treating provider does not expect a hospital stay to last more than two midnights, beneficiaries generally should be treated under outpatient or observation status.

The CMS Change Request is available at:

https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/2017Downloads/R1969OTN.pdf.

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