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What is Medicare’s ‘two-midnight rule’?

When a clinician admits a Medicare beneficiary for inpatient care, their choice may have been influenced by a Centers for Medicare and Medicaid Services (CMS) standard that sounds like a term from a spy novel: the two-midnight rule.

The two-midnight rule is used when a clinician believes that a Medicare beneficiary needs hospital care that will likely eclipse two midnights—requiring inpatient care instead of cheaper outpatient care, Regan Tankersley, an attorney at the law firm Hall Render who advises healthcare systems, told Healthcare Brew.

“It’s a more expensive setting, it’s more expensive care, and so it costs more for the payer,” she said.

CMS first implemented the two-midnight rule in 2013 to provide hospitals with a benchmark on what types of care qualify for Part A coverage, meaning the insurer fully covers treatment costs for services, such as hospital inpatient care or time in a skilled nursing facility. Under Part B coverage, which includes outpatient services, the insurer pays a lower percentage of those costs, usually 80%, according to Medicare.

By mischaracterizing coverage under Part A, a provider could overcharge the insurer for treatments, according to Tankersley. Before the rulemaking clarified what coverage could qualify under Part A, CMS auditors found inconsistencies in medical claims the agency received from hospitals.

“[T]hrough the Recovery Audit program, CMS identified high rates of error for hospital services rendered in a medically unnecessary setting (i.e., inpatient rather than outpatient),” a 2015 CMS fact sheet stated.

According to one 2016 Office of the Inspector General for the Department of Health and Human Services (HHS-OIG) report, Medicare may have paid nearly $3 billion in short inpatient stays wrongly categorized under Part A in 2014.

On the other hand, mischaracterizing coverage as Part B could prevent patients from accessing coverage for certain services, such as admission to a skilled nursing facility, according to the report.

“It took some of the guesswork away for hospitals as to when they should admit patients,” Tankersley said.

The rule cleared away “fear” on the provider side that “we admit them because we think they’re sick enough, and then Medicare or an auditor comes back and says, ‘No, we think they should have been an outpatient,’ and then they recoup that payment,’” she added.

Enrollment in Medicare Advantage (MA), a program through which private insurers contract with Medicare to provide coverage, has grown to more than 30 million members, up from 14.4 million members, when the two-midnight rule took effect, according to KFF. Last June, CMS and HHS added a new rule to the Federal Register: MA plan providers must follow the two-midnight payment structure, too.

“A lot of Medicare Advantage plans or commercial plans have a pre-authorization [for inpatient admission],” Tankersley said. Before the rule, MA plans might “come back and say, ‘No, we’re not going to let this be admitted.’ And then you’re back into this outpatient bucket and services.”

This article was initially published by Healthcare Brew, a branch of Morning Brew.

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