EXECUTIVE SUMMARY
The American Hospital Association (AHA) and other hospitals are suing CMS, challenging the 0.2% cut in Medicare reimbursement that CMS instituted to compensate for the financial effect of the Two-Midnight rule.
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CMS’ actuaries reported that inpatient claims are likely to increase under the rule, resulting in $220 million additional reimbursement for hospitals.
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Hospitals disagree and a study commissioned by the AHA concluded that the CMS study was based on data not available to the public and that data from the Medicare Provider and Analysis Review (MedPAR) would lead to a different conclusion.
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The AHA suit asks CMS to rescind the cut, restore the base rate for Medicare payments to its previous level, and reimburse hospitals retroactively for the reductions.
Hospitals across the country have filed lawsuits challenging the decision by CMS to reduce Medicare reimbursement by 0.2% to compensate for the financial effect of the Two-Midnight rule.
CMS claims that under the rule, the number of patients who are admitted as inpatients will increase, resulting in $220 million in additional reimbursement each year. Their calculations are disputed by several studies, including one commissioned by the American Hospital Association (AHA).
A coalition of hospitals and hospital associations led by the AHA filed a lawsuit in April 2014 challenging the 0.2% reduction, and a separate suit challenging the Two-Midnight rule itself. The suit challenging the 0.2% reduction was consolidated with several other similar lawsuits by the federal court.
“The hospitals argued that CMS did not follow proper procedure and did not provide sufficient information about how the analysis was derived. Therefore, the lawsuits say, the 0.2% reduction is arbitrary and capricious,” says Lawrence Hughes, JD, assistant general counsel for the AHA.
“We are asking CMS to rescind the cut in its entirety, to restore the base rate for Medicare payments to where it was before the cuts, and to pay hospitals back for the reductions they have received since the 0.2% cut when into effect,” Hughes adds.
AHA is also challenging the entire Two-Midnight rule, saying that it does not meet the Medicare statute requirements.
After hearing oral arguments, the federal court agreed that CMS had not followed the proper procedures or provided sufficient rationale for the cuts and ordered CMS to provide additional information and offer the healthcare field and the public a chance to comment on the proposal. The comment period ended Feb. 2.
Since then, other hospitals and hospital groups have filed other lawsuits challenging the reduction.
CMS released additional information on how they determined the effect the Two-Midnight rule would have on reimbursement, but the AHA feels the data do not support the 0.2% cuts, Hughes says. In a Feb. 2 letter to Acting CMS Administrator Andrew Slavitt, Thomas P. Nickels, executive vice president of AHA wrote, “Despite offering some additional details, CMS’ explanation still fails to establish a rational and lawful basis for the imposition of the 0.2% reduction.”
Nickels told CMS that an analysis of actual inpatient claims since the Two-Midnight rule was implemented has not resulted in the increase of inpatient cases. Instead, there has been a net decrease in inpatient stays, he adds.
An analysis by Watson Policy Analysis, commissioned by the AHA, contradicted the CMS assumption that that reimbursement would increase by $220 million a year under the Two-Midnight rule due to more patients being admitted as inpatients. The Watson report pointed out that the CMS actuaries used data that was not available to the public and assumed mistakenly that data from the Medicare Provider and Analysis Review (MedPAR) would yield similar results.
The Watson report’s analysis using the MedPAR data concluded that “the CMS published figure of $220 million as the financial impact of the Two-Midnight rule is questionable. A more likely figure is 0 net change or a change in the other direction, resulting in a positive, rather than a negative, adjustment.”
The hospital industry is pleased with the changes to the Two-Midnight rule that CMS announced in the Outpatient Prospective Payment System final rule in October 2015, says Priya Bathija, JD, MHSA, senior associate director for policy for the AHA. In the final rule, CMS modified the controversial Two-Midnight rule to allow shorter stays to be billed as inpatient stays based on physician judgment, and shifted enforcement of the rule to two Beneficiary and Family-Centered Care Quality Improvement Organizations (QIOs), Livanta and KEPRO.
“The hospitals feel the changes are a good first step to address a critical problem,” Bathija says. “We believe that the decision of whether a patient is an inpatient or an outpatient should be based on the judgment of the physician and the patient’s medical condition,” she adds.
Hospitals also are pleased that CMS is shifting patient status reviews away from the Recovery Auditors and to the QIOs, Bathija says.
“We think this is a good step toward instituting a thorough review and educational process rather than arbitrary denials. We are cautiously optimistic, but only time will tell if CMS has made the situation better,” she says.
