CMS Final Rule ‘Permanently’ Removes Two-Midnight Payment Cut

23835693_lDive Brief:

  • CMS on Tuesday finalized the 2017 Medicare payment rates under the Inpatient Prospective Payment System (IPPS) and the Long-Term Care Hospital (LTCH) Prospective Payment System.
  • The agency, under the final legislation for 2017, is “permanently removing” the -0.2% adjustment of compensation for inpatient services related to the “two-midnight rule.” This will increase FY 2017 payments by approximately 0.8%, the agency mentioned in a fact sheet.
  • Under the two-midnight rule, hospital stays spanning less than two evenings are considered outpatient visits and paid accordingly. Those lasting two nights or longer are compensated as inpatient care.

Dive Insight:

In April, CMS took the industry by surprise by proposing to drop the estimated $220 million payment cut related to the “two-midnight” policy. The payment adjustment caused quite the stir when it hit the scene in 2014. The agency largely argued it was necessary to offset an expected increase in inpatient cases related to the two-midnight policy.

However, after some lawsuits (more than 50 hospitals filed a suit against HHS in January) as well as a federal judge asking for justification over the adjustment, CMS has taken a step back from the payment reduction.

The agency finalized an increase of about 0.8% for inpatient payment rates to offset the estimated costs of the two-midnight rule and its effect in the last three years.

“In light of recent review and the unique circumstances surrounding this adjustment, for FY 2017, CMS is permanently removing this adjustment and also its effects for FYs 2014, 2015, and 2016 by adjusting the FY 2017 payment rates,” the agency stated.

Other provisions

By law, CMS is required to update payment rates for IPPS hospitals annually, and to account for changes in the costs of goods and services used by these hospitals in treating Medicare patients, as well as for other factors.

In addition to the two-midnight payment change, CMS finalized a 1.5% payment reduction targeted to recover $11 billion lost related to coding overpayments that began in 2008. The American Taxpayer Relief Act of 2012 requires CMS to recover the lost funds by FY 2017.

This reduction is not without its own controversy. The agency had kept the adjustment at -0.8% for the last three years. Modern Healthcare’s Virgil Dickson reported the industry was not pleased when the proposed rule was released in April and sought to raise the reduction’s percentage. However, the agency stated the 0.8% reduction rate was not enough to recover the money by its target date. “For FY 2017, CMS calculates that $5.05 billion of the $11 billion requirement remains to be addressed,” the fact sheet stated. “Therefore, CMS is finalizing a -1.5% adjustment to complete the statutorily-specified recoupment.”

All in all, CMS estimated that total Medicare spending on inpatient hospital services will increase by about $746 million in FY 2017.


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