1. 2-Midnight Rule: Where Are We Now? Christy D. Jordan Southeast Georgia Health System 6327044

2. How Did We Get Here? - CMS “Pressures” Resulting in 2-Midnight Rule (1) Beneficiary Concern Regarding Duration of Care Provided in Observation Status –“Long stay” observation cases increased from 3% in 2006 to 8% in 2011 –Part B, rather than Part A, classification results in higher out- of-pocket expenses for patient and does not count toward three-day eligibility requirement for SNF coverage (2) Purported High Error Rate for Inpatient vs. Observation Audit Reviews (3) Rapid Increase in RAC Reviews for Inpatient vs. Observation Status 2

3. 2-Midnight Rule – What Is It? Presumption that hospital stays spanning 2 or more midnights after beneficiary is formally admitted as inpatient reasonable and necessary as long as the stay at the hospital is medically necessary. –Applies to surgical procedures, diagnostic tests and other treatments. –Does not apply to “inpatient only” procedures even if physician expectation is less than two midnights. –Does not apply in specific circumstances approved by CMS even if physician expectation is less than two midnights. Ex – New Onset Mechanical Ventilation 3

4. 2-Midnight Rule – What Is It? Inverse also true: patient expected to be in hospital less than two midnights, presumption that payment under Part A not appropriate. Expectation of short term treatment in intensive setting NOT an exception unless outlined in regulatory guidance. Solely based on physician expectation not what actually happened. 4

5. 2-Midnight Rule – What Is It? “Unforeseen circumstances” may result in a shorter than expected stay: Death Transfer Patient leaving AMA Unforeseen recovery Election of hospice care These cases are appropriate for inpatient classification and payment under Part A. 5

6. 2-Midnight Rule – What Time Counts? Generally, clock starts ticking when hospital care begins. –Excludes wait time, registration time and triage time. –Can include observation care, ED care, OR care or care in other treatment areas. Time for delays because of “convenience” to be excluded. –Example - certain services not available on weekends. –Challenge for community hospitals. 6

7. 2-Midnight Rule – Medical Necessity CMS claims shift from whether or not “intensity” of care provided dictates observation vs. inpatient classification, to simpler rule that if patient requires medically necessary services for 2 or more midnights, inpatient admission is appropriate. CMS specifically provides that it will not look to InterQual and Milliman for 2-midnight determination. “That will not be a factor any longer.” – Jennifer Dupee, CMS Nurse Consultant, Transcript of CMS National Provider Call, Jan. 14, 2014. 7

8. 2-Midnight Rule – What Claims Are Subject to Medical Review? MACs directed by CMS not to focus medical reviews on stays spanning more than 1 midnight after formal admission. –Exception: Evidence of systemic gaming, abuse or delays in care to attempt to qualify for two midnight presumption. –Patients converted from observation to inpatient during admission still subject to review. Code 72 can be used to identify these claims. 8

9. The “Probe & Educate” Period Implementation originally planned for October 1, 2013. Based on provider feedback, CMS indicated that no claims submitted for services provided between October 1, 2013 and December 31, 2013 would be subject to review by RAC for inpatient vs. observation determination. –Instead, MACs to select 10 claims for most hospitals and 25 claims for very large hospitals to evaluate implementation of the rule and educate providers. Called the “probe and educate” period. Subsequent further delay to September 30 for enforcement to allow more probing and educating. 9

10. The “Probe & Educate” Period April 1, 2014, President signed Protecting Access to Medicare Act of 2014 –Medical Reviews through Probe & Educate process continue until March 31, 2015 –Prohibits CMS from allowing RACs to conduct hospital patient status reviews with dates of admission from October 1, 2013 to March 31, 2015 CMS reports that as of May 12, 2014, MACs have completed most first probe reviews and are beginning to provide educational information based on findings. 10

11. Reimbursement Impact -CMS expects implementation to increase IPPS expenditures by $220 million. -CMS actuary analysis expects increase of 40,000 inpatient admissions annually -2-day stays expected to be significant -CMS finalized a 0.2% hospital payment reduction to offset the expected increased expenditures. -Moody’s predicts most hospitals will see reduction in revenue. 11

12. Legal Challenges Challenges filed in District Court of District of Columbia –Challengers include AHA, Banner Health, Wake Forest Baptist Medical Center and Greater New York Hospital Association, among others Challenges Relate To: –2-Midnight Rule Challenge Usurping Physician Determination. New rule focuses on length of time in the hospital rather than a physician determination as required by longstanding Medicare statutes, regulations and manual guidance. One-Year Post Date of Service Claims Filing Deadline for Part B Claims Submitted After Denial of Part A Claim. Challenged because initial RAC denial occurs more than one year past the date of service, so rule not practical. 12

13. Legal Challenges 2-Midnight Rule Challenges, cont’d Requirement for Written Physician Order for Medicare Payment. Claim that this requirement is contrary to Medicare statute and that it is only required for extended hospital stays, not short hospital stays. 0.2% Payment Reduction Challenge –Among other things, claims implementation of 2-Midnight rule violates APA, particularly meaningful participation in notice and comment process –Alleges CMS’ assertion that policy change will increase reimbursement to hospitals is a fiction “CMS cannot cut reimbursement to hospitals while hiding behind faulty assumptions and violating federal law.” Complaint, 1:14-cv-00607, at ¶ 8. 13

14. Discussion of Collateral Consequences Medical Malpractice claims for “failure to admit” Pending RAC Appeals for Inpatient vs. Observation prior to implementation of the 2-Midnight Rule 3-Day Inpatient Requirement for SNF Coverage Unchanged 14

15. Resources CMS Special Open Door Forum, Sept. 26, 2013. Transcript available at http://www.cms.gov/Research-Statistics-Data-and-Systems/Monitoring- Programs/Medicare-FFS-Compliance-Programs/Medical- Review/Downloads/SpeciaOpenDoorForumTranscriptThursdaySeptember09262013.p df http://www.cms.gov/Research-Statistics-Data-and-Systems/Monitoring- Programs/Medicare-FFS-Compliance-Programs/Medical- Review/Downloads/SpeciaOpenDoorForumTranscriptThursdaySeptember09262013.p df CMS FAQs on 2-Midnight Rule, available at http://www.cms.gov/Research-Statistics- Data-and-Systems/Monitoring-Programs/Medical- Review/Downloads/QAsforWebsitePosting_110413-v2-CLEAN.pdfhttp://www.cms.gov/Research-Statistics- Data-and-Systems/Monitoring-Programs/Medical- Review/Downloads/QAsforWebsitePosting_110413-v2-CLEAN.pdf Reviewing Hospital Claims for Patient Status: Admissions On or After October 1, 2013, available at http://www.cms.gov/Research-Statistics-Data-and- Systems/Monitoring-Programs/Medicare-FFS-Compliance-Programs/Medical- Review/Downloads/ReviewingHospitalClaimsforAdmissionforPosting03122014.pdfhttp://www.cms.gov/Research-Statistics-Data-and- Systems/Monitoring-Programs/Medicare-FFS-Compliance-Programs/Medical- Review/Downloads/ReviewingHospitalClaimsforAdmissionforPosting03122014.pdf American Hospital Association vs. Sebelius, 1:14-cv-00607 (Complaint available at http://www.kslaw.com/library/pdf/amicus-2percent-cut-comp.pdf) Case No. 1:14-cv- 00609; (Complaint available at http://www.kslaw.com/library/pdf/complaint- 2midnight.pdf) District Court, District of Columbia (filed April 14, 2014). http://www.kslaw.com/library/pdf/amicus-2percent-cut-comp.pdfhttp://www.kslaw.com/library/pdf/complaint- 2midnight.pdf 15

16. Questions & Answers 16