Vulnerabilities Remain Under Medicare’s 2-Midnight Policy

In 2016, the Office of the Inspector General (OIG) published a report, “Vulnerabilities Remain Under Medicare’s 2-Midnight Policy”, summarizing the first findings of hospital billing patterns since the implementation of the Two-Midnight Rule. The results surprised many who believed that a slight adjustment to existing protocols would accommodate the Rule changes. Despite the findings, many hospitals have not addressed the guidance.

In the report, the OIG explains the rationale for the Two-Midnight Rule:

  • Decreased use of short inpatient stays
  • Decreased use of long outpatient stays
  • More consistency and appropriate use of inpatient and outpatient stays

In its analysis, the OIG found the opposite outcome. From a compliance standpoint, hospitals were billing far too many short inpatient stays, which are potentially inappropriate under the policy, costing Medicare nearly $2.9 billion in FY 2014. Surprisingly, the percentage of short inpatient stays had actually increased since the inception of the rule.

Conversely, hospitals continued to bill for a large number of long outpatient stays. This cost hospitals tens of millions of dollars in appropriate, compliant revenue, and transferred inappropriate financial liability onto their patients. Finally, the OIG found wide variations in the application of Part A and B benefits to their beneficiaries.

As a result, the OIG made a number of recommendations that CMS agreed to implement. They focused their analyses of hospital billing to target the hospitals with high or increasing numbers of short inpatient stays. They agreed to focus their auditors on short inpatient stays that are potentially inappropriate under the 2-midnight policy. Additionally, CMS recommended that hospitals with high error rates be subject to broader audits by the Quality Improvement Organization (QIO), and to more aggressively refer hospitals to Recovery Auditor’s Contractor’s (RACS) for more comprehensive audits.

Because traditional UM approaches utilizing commercial screening criteria have continued to result in variability and errors under the Two-Midnight Rule, hospitals should re-evaluate their processes and adopt new methodologies—ones that focus on high-risk claims that the OIG and CMS are scrutinizing. Ironically, for many hospitals, coming into compliance results in increased compliant revenue and a decreased direct cost of performing the reviews.

Versalus Health has led the way in offering data-driven solutions to these inherent risks and has been successful in both maintaining revenue integrity and compliance through ensuring appropriate billing of both inpatient and observation claims.

For more information on the issues affecting your hospital or health system go to the Versalus Health Resource Center.