Understanding Medicare’s Powerful ‘Two-Midnight Rule’
TL/DR –
The Centers for Medicare and Medicaid Services (CMS) uses a “two-midnight rule” when a clinician believes a Medicare beneficiary requires inpatient care that will likely last more than two nights, which is more expensive than outpatient care. The rule was implemented in 2013 as a benchmark to define types of care that qualify for full coverage under Medicare’s Part A. Prior to the rule, CMS auditors encountered inconsistencies in medical claims from hospitals, with a 2016 report showing Medicare may have mistakenly paid nearly $3 billion for short inpatient stays wrongly categorized under Part A in 2014.
The Two-Midnight Rule and Medicare Coverage
The Two-Midnight rule by the Centers for Medicare and Medicaid Services (CMS) influences the admission of Medicare beneficiaries for inpatient care. This rule is applicable when a clinician anticipates that a patient’s hospital stay will exceed two midnights, calling for costlier inpatient care rather than less expensive outpatient care.
According to Regan Tankersley, an attorney at Hall Render who advises healthcare systems, the Two-Midnight rule is more costly for the payer as it involves a more expensive setting and care.
The rule was introduced by CMS in 2013 as a standard to determine the types of care that qualify for Part A coverage. Under Part A, the insurer covers full costs of services like hospital inpatient care, while under Part B, usually 80% of outpatient services costs are paid by the insurer, as per Medicare.
Before the introduction of the Two-Midnight rule, providers could potentially overcharge insurers by incorrectly categorizing treatments under Part A. This led to inconsistencies in medical claims received by CMS from hospitals. A CMS fact sheet from 2015 highlighted high error rates for hospital services rendered in medically unnecessary settings.
A 2016 HHS-OIG report revealed that Medicare may have paid nearly $3 billion in 2014 for short inpatient stays that were wrongly categorized under Part A. Similarly, mischaracterizing coverage under Part B could hinder patients from accessing services like skilled nursing facility admissions.
With the Two-Midnight rule, the guesswork for hospitals regarding patient admissions has been significantly reduced. It has minimized the risk of recoupment of payment by payers due to mischaracterization of hospital stay as inpatient care.
Enrollment in Medicare Advantage (MA) has seen a significant increase from 14.4 million to over 30 million members since the implementation of the Two-Midnight rule. Last year, CMS and HHS added a new rule to the Federal Register, making MA plan providers also follow the Two-Midnight payment structure.
According to Tankersley, many Medicare Advantage plans or commercial plans require pre-authorization for inpatient admission. Before this rule, MA plans could reject inpatient admissions, pushing more patients into outpatient services.
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