Earlier this month, CMS released the Hospital Outpatient Prospective Payment System (HOPPS) Proposed Rule for CY 2016. While there are a number of payment updates proposed in the plan, the two-midnight rule is garnering most of the attention. The proposal seeks to significantly expand a current exception to the two-midnight rule, but  it also raises serious questions regarding the practical implications of the potential rule change. In addition, CMS announced changes regarding the review of patient status claims. No later than October 1, 2015, CMS intends to have Quality Improvement Organization (QIO) contractors conduct reviews of short inpatient stays rather than the Medicare Administrative Contractors. Those hospitals that are found to have high denial rates will be referred to Recovery Audit Contractors (RACs) for further audits.

Here are some key takeaways from CMS’ HOPPS proposal:

  • With some exceptions, CMS pays for inpatient visits under the Hospital Inpatient Prospective Payment System (IPPS) established by Medicare Part A. Reimbursements rates are prospectively set based on the severity of a patient's condition and other factors. While CMS has proposed to continue with the two-midnight requirement, they have also proposed a modification to the "rare and unusual exceptions" policy that would enable a "case-by-case" approach to determine when cases shorter than two midnights are appropriate for Part A payment.
  • The proposal would allow physicians to exercise judgment to admit patients for short hospital stays on a case-by-case basis and remove oversight of those decisions from its RACs and instead ask QIOs to enforce the policy. RACs, meanwhile, would be directed to focus only on hospitals with unusually high rates of denied claims. 
  • Documentation of physician decision making is key. CMS proposes that admissions will be payable under Part A if documentation in the medical record supports the physician’s expectation of the need for a two-midnight stay. Nevertheless the rule probably will not put to rest the unresolved tensions around defining an inpatient level of care for those dealing with the law on a daily basis.
  • Hospitals with consistently high denial rates or those failing to improve after educational intervention will see RACs introduced into their hospital’s post-payment short stay review process.
  • CMS did not specify how many claims RACs could review under such circumstances, but hospital claim volume and denial rates (identified by the QIO) would be considered. Notably, CMS expects this process, if finalized, to apply regardless of whether the two-midnight rule remains unchanged or is modified.
  •  There will likely be questions during the comment period about how the QIO-driven process compares to the previous RAC-led system, especially concerning interpretation of rules and anticipated outcomes.

As is always the case, the devil is in the details - how and when this will be implemented has yet to be seen. Right now, this is a proposal, and it does not go into effect until January 1, 2016. Presently, the 60-day comment period remains open until August 31. As in the past, proposals may change significantly prior to the release of the final rule, expected around November 1.

For more information from the CMS on the proposed two-midnight rule changes, please see this helpful fact sheet.