Is Medicare Abolishing the “Two Midnight Rule”?

I was never very good at math, either

I was never very good at math, either

In the U.S., Medicare pays most of the hospital bills for people over 65. If a Medicare patient comes to the emergency department or is otherwise “admitted” for treatment, that hospital stay is considered “observation” if  you can be sent home before the third midnight strikes. Observation status has some important financial implications for the patient; probably more expenses out-of-pocket compared to a regular or full admission.

MedPageToday reported that this “two midnight rule” is being abolished by Medicare.

Most of you are probably already bored by this. I bring this up here because the issue is important to my work as a hospitalist, and I want the public to know what physicians are dealing with as we try to stamp out disease and suffering.

MedPageToday linked to the pertinent announcement by Medicare (aka CMS):

“IPPS Rate Adjustments for Documentation and Coding and Two Midnight Policy:

In the FY 2017 IPPS final rule, CMS is finalizing two adjustments in addition to its annual rate update for inpatient hospital payments.

First, CMS is finalizing the last year of recoupment adjustments required by the American Taxpayer Relief Act of 2012 (ATRA). Section 631 of ATRA requires CMS to recover $11 billion by FY 2017 to fully recoup documentation and coding overpayments related to the transition to the MS-DRGs that began in FY 2008. For FYs 2014, 2015, and 2016, CMS implemented a series of cumulative -0.8 percent adjustments.  For FY 2017, CMS calculates that $5.05 billion of the $11 billion requirement remains to be addressed.  Therefore, CMS is finalizing a -1.5 percent adjustment to complete the statutorily-specified recoupment.

Second, CMS is taking action regarding the -0.2 percent adjustment it implemented in the FY 2014 IPPS/LTCH PPS final rule to account for an estimated increase in Medicare expenditures due to the Two Midnight Policy.  Specifically, in the FY 2014 IPPS/LTCH PPS final rule, CMS estimated that this policy would increase expenditures and accordingly made an adjustment of-0.2 percent to the payment rates.  CMS believes the assumptions underlying the -0.2 percent adjustment were reasonable at the time they were made.  Additionally, CMS does not generally believe it is appropriate in a prospective payment system to retrospectively adjust rates.  However, in light of recent review and the unique circumstances surrounding this adjustment, for FY 2017, CMS is permanently removing this adjustment and also its effects for FYs 2014, 2015, and 2016 by adjusting the FY 2017 payment rates.  This will increase FY 2017 payments by approximately 0.8 percent.”

Source: Hospital Inpatient Prospective Payment System (IPPS) and Long Term Acute Care Hospital (LTCH) Final Rule Policy and Payment Changes for Fiscal Year (FY) 2017

I’m not dumb. I’m not under the influence of drugs or alcohol. But I’ve read that twice and I don’t understand what it has to do with eliminating the “two midnight rule.” I understand very little of it. If you can explain it to me in plain English, please do so.

Steve Parker, M.D.

PS: Medicare is the reason I closed my office-based medical practice and became a hospitalist in 2001

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