CMS Proposes Settlement Over Hospitals’ ‘Two-Midnight’ Rule Appeals

On Friday, CMS offered to pay hospitals 68% of what they have billed the government to settle pending appeals challenging Medicare's denials of reimbursement for short-term care, the New York Times reports (Abelson, New York Times, 8/29).

Background

The final rule for the fiscal year 2014 Inpatient Prospective Payment System instituted a time-based presumption period for medically necessary inpatient care. Under the rule -- also known as the "two-midnight" rule -- an admission is assumed to be appropriate for a Medicare Part A payment if a physician expects a patient's treatment to require a two-night hospital stay and admits him or her under that assumption. In January, CMS announced it was instructing auditors to wait until Oct. 1 to begin scrutinizing such short inpatients stays (California Healthline, 2/3). According to FierceHealthFinance, hospitals appeal about half of all short inpatient claim disputes denied by recovery auditor contractors, or RACs (Shinkman, FierceHealthFinance, 8/30). There is a backlog of as many as 800,000 appeals from hospitals, and disputes have been taking 18 months or longer to be resolved, according to the Times (New York Times, 8/29).

Details of CMS Settlement Offer

Hospitals have until Oct. 31, 2014, to participate in the settlement, although they can request an extension (Modern Healthcare, 8/30). The settlement payments would apply only to patient admission dates prior to Oct. 1, 2013, and would exclude payments for beneficiaries enrolled in Medicare Part C (CMS notice, 8/29). CMS said it would then pay hospitals within 60 days of agreeing to the settlement (New York Times, 8/29).

CMS said its settlement offer could help hospitals "alleviate the administrative burden of current appeals on both the hospital and Medicare system."

Reaction

The American Hospital Association, which has sued CMS over the two-midnight rule, said the agency's offer could "provide some temporary relief" but criticized the proposal as being overly narrow and "fail[ing] to address the underlying cause of the problem -- overzealous RAC reviewers."

Federation of American Hospitals President Chip Kahn said, "I anticipate that many FAH members will take advantage of this voluntary settlement" (Modern Healthcare, 8/30).

Meanwhile, Mark Polston -- a partner at the health care law firm King & Spalding, which represents some hospitals appealing Medicare claim denials -- called CMS' settlement offer "a big step forward to get rid of a major problem." However, he added that hospitals "will have to consider whether this is a good deal for them" and will need to consider how quickly CMS would pay them if they decide to participate (New York Times, 8/29).