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CMS Inpatient Two-Midnight Rule 2014 Final Rule. Linda Corley, MBA, CPC Vice President – Compliance, Quality Assurance and Associate Development 706 577-2256 Reimbursement “environment” strategy! Importance of Two-Midnight Rule

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CMS Inpatient Two-Midnight Rule 2014 Final Rule

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CMSInpatient Two-Midnight Rule2014 Final Rule

Linda Corley, MBA, CPC

Vice President – Compliance, Quality Assurance and Associate Development

706 577-2256

Reimbursement “environment” strategy!

Importance of Two-Midnight Rule

What’s happening with Medicare inpatient payments?

What is the new inpatient admission “benchmark” for medical necessity?

Why all this focus on Case Management / Utilization Review to ensure “revenue integrity”?

Finalizing Proposed CMS Rules1455 and 1599

Impact on hospital Revenue Cycle collaboration

Preparation and actions to consider for effective reimbursement


Published August 19, 2013 (released August 2nd)

Effective: October 1, 2013 (Q1 CMS fiscal year)

546 total pages in Federal Register, August 2nd publication release was 2,255 pages

Most of the language from the proposed rules remained unchanged

Key pages Federal Register: 50506-50954

Document includes updates on a wide range of topics – today’s focus will be on Two Midnight Rule and its affect on inpatient reimbursement

Overview of IPPS Final Rule

2014 Inpatient Prospective Payment System

  • Let’s take a short quiz on the state of YOUR current Medicare Reimbursement practices before we begin our discussion!

2014 Inpatient Prospective Payment System

  • Reimbursement operations practices:

  • What four (4) initiatives may be lowering your Medicare paymentsfor 2014?

  • Can your Revenue Cycle team produce a positive affect on all four of these?

  • What long-term reimbursement methodologies should your facility address every month?

  • Rate your “patient care management” program (CM, UR, DC Planning) on a 1 (poor) to 5 (excellent) scale.

  • What $$ amount was written-off at your facility last month (and YTD) due to services provided in the “wrong setting,” “not medically necessary,” or “short-stay denied when billed as inpatient care”?

2014 Inpatient Prospective Payment System

  • Reimbursement operations practices:

  • What four (4) Medicare initiatives may be lowering your payments for 2014?

    • Re-admissions

    • Quality Reporting

    • RAC / Revenue Integrity Audit Reviews (MAC, OIG)

    • Two Midnight Rule

  • Can your hospital Revenue Cycle team produce a positive affect on all four of these?

  • What long-term reimbursement methodologies should your facility address every month?

  • MS-DRGs – CMI and LOS

  • ICD-10 effect on patient population / top procedures

  • “Present on Admission” indicators / documentation

2014 Inpatient Prospective Payment System

Reimbursement operations practices:

4. Rate your “patient care management” (CM, UR, DC Planning) program on a 1 (poor) to 5 (excellent) scale.

Time for honest and in-depth evaluation of the “results” of these staff members!

Noted as the “only” identified Revenue Cycle Department whose performance either substantially increases or decreases CASH!

5. What $$ amount was written-off at your facility last month (and YTD) due to services provided in the “wrong setting,” “not medically necessary,” or “short-stay denied when billed as inpatient care”?

Track, Set improvement goals, communicate, reward!

Problematic challenge:

Past challenge for hospitals has been dichotomy of clinical “care plans” and/or “protocols” for patient care, versus Medicare “coverage, coding and billing” requirements.

The two are not the same – but they do overlap!

The overlap is where “pay-for-performance” and value-based purchasing of medical services will be resolved.

The two requirements must be merged!

Each hospital / facility location is different –

Must perform “risk” analysis to identify specific strengths and weaknesses for collaboration of clinical and revenue cycle staff members.

Financial results such as denials, medical necessity write-offs, bundling of services, re-admission data, and quality benchmarks must be shared.

Pay for Performance Dichotomy

2014 Inpatient Prospective Payment System

  • Admission and Medical Review Criteria for Inpatient Services

  • The final rule modifies and clarifies CMS’s longstanding policy on how Medicare contractors review inpatient hospital admissions for payment purposes.

  • A beneficiary is considered an inpatient of an acute care hospital and a CAH if formally admitted as an inpatient pursuant to an order for inpatient admission by a physician.

  • The order must be furnished by a qualified and licensed practitioner who has admitting privileges at the hospital, who is knowledgeable about the patient’s hospital course, medical plan of care, and current condition.

… We (CMS) provided hospital inpatient admission guidance specifying that a physician, or other qualified practitioner (herein we will refer to the physician, with the understanding that this can also pertain to another qualified practitioner)

should order inpatient admission if he or she expects that the beneficiary’s length of stay will exceed a 2-midnight benchmark or if the beneficiary requires a procedure specified as “inpatient-only” under § 419.22.

Page 50944, IPPS Rule

2-Midnight Inpatient Benchmark

Our (CMS) proposed 2-midnight benchmark, which we now finalize, simply modifies our previous guidance to specify that the relevant 24 hours are those encompassed by 2 midnights.

Page 50945, IPPS Rule

The benchmark used in determining the expectation of a stay of at least 2-midnights begins when the beneficiary starts receiving services in the hospital.

We (CMS) do not believe beneficiaries treated in an intensive care unit should be an exception to this standard, as our 2-midnight benchmark policy is not contingent on the level of care required, or the placement of the beneficiary within the hospital.

Page 50946, IPPS Rule

2-Midnight Benchmark (con’t)

“Benchmark of 2 midnights”

The decision to admit the beneficiary should be based on the cumulative time spent at the hospital beginning with the initial outpatient service.

In other words, if the physician makes the decision to admit after the beneficiary arrived at the hospital and began receiving services, he or she should consider the time already spent receiving those services in estimating the beneficiary’s total expected length of stay.

Page 50946, IPPS Rule

The time a beneficiary spends as an outpatient before the formal

Inpatient admission does not count as Inpatient time, but may be

considered by the physician when determining if the expectation

of a stay lasting at least 2-midnights in the hospital is reasonable

and generally appropriate for inpatient admission.

Benchmark vs. Presumption

Important Note!

CMS has responded to a question regarding when a patient is admitted for Observation for one day, and on the second or even third day, the patient’s condition deteriorates; and then the patient is admitted as an Inpatient who is discharged one day after admission. The RACs previously would review this as a 1-day stay – even though the patient was actually in the hospital for three days. How would this scenario be reviewed under the new 2-Midnight Rule?

… Per CMS, as soon as the physician believes that a second day of Observation will be needed, an Inpatient order should be written!

One CMS rep stated: “Under this application of the 2-Midnight Rule, there should be no Observation stays of more than 1 day!

2-Midnight Benchmark

What about InterQual or Milliman “medical necessity” criteria for Inpatient admission?

… Per CMS, the 2-Midnight Rule will apply even if an admission failed InterQual or Milliman …

The only (medical review) question will be

…whether there was a medical reason that required the patient to be in the hospital for at least 2 midnights

…even if that reason is that the patient must remain under Observation for at least 2 days.

One CMS rep stated: “Under this application of the 2-Midnight Rule, there should be no Observation stays of more than 1 day!”

2-Midnight Benchmark

“Presumption of 2 midnights”

Under the 2-midnight presumption, inpatient hospital claims with lengths of stay greater than 2 midnights, after formal admission following the order, will be “presumed” generally appropriate for Part A payment, and

will not be the focus of medical review efforts absent evidence of systematic gaming, abuse or delays in the provision of care…

Page 50949, IPPS

Benchmark vs. Presumption

For payment of hospital inpatient services under Medicare Part A, the order must specify the admitting practitioner’s recommendation to admit “to inpatient,” “as an inpatient,” “for inpatient services,” or similar language specifying his or her recommendation for inpatient care

Page 50942, IPPS

“Admit to Med/Surg” or

“Admit to Dr. Smith”

are no longer acceptable

No longer acceptable “inferred” Inpatient admission order

Verbal order must be properly countersigned by the physician who gave the verbal order!

Physician Order

…while the physician order and the physician certification are required for all inpatient hospital admissions in order for payment to be made under Part A,

the physician order and the physician certification are not considered by CMS to be conclusive evidence that an inpatient hospital admission or service was medically necessary.

The decision to admit is a complex medical judgment, and the 2-Midnight instruction does not override the clinical judgment of the physician …

Admission reviews will continue to play an important role in ensuring hospitals are compliant with CMS guidelines.

Rather, the physician order and physician certification are considered along with other documentation in the medical record.

Page 50940, IPPS

Physician Certification

“(c) The physician order also constitutes a required component of physician certification of the medical necessity of hospital inpatient services under subpart B of Part 424 of this chapter.

(d) The physician order must be furnished at or before the time of the inpatient admission.”

Page 50965, IPPS

Order and Certification

What are the components of a valid Certification for Inpatient admission?

Physician order for inpatient admission

Medical reason for Inpatient hospital stay – Primary Diagnosis

The expected time the patient will remain in the hospital

Plan for inpatient care (services), any diagnostic test orders and findings, and progress notes

Plan for post-hospital care

See new requirements for “discharge planning” documentation

Physician Certification must be documented and signed in the medical record prior to patient discharge!

42 CFR SS 424

Order and Certification

What is your facility’s PLAN?

Written procedures for

Case Managers


Patient Access (Registration) Reps

PFS Medicare Billers

Consider CM – Physician “team” for inpatient documentation!

Consider pre-bill edit to hold Medicare inpatient claims that are one-day stays.

Case Manager or Nurse Auditor Review prior to billing

Take specific deficiencies in documentation and LOS back to physician for review (ideally, back to CM – Phys team)

2-Midnight Rule

“Use of Condition Code 44 or Part B inpatient billing pursuant to hospital self-audit is not intended to serve as a substitute for adequate staffing of utilization management personnel or for continued education of physicians and hospital staff about each hospital’s existing policies and admission protocols.”

Page 50914, IPPS

No substitute for UM Process

“Beneficiaries who are treated for extended periods of time as hospital outpatients receiving Observation services may incur greater financial liability than they would if they were admitted as hospital inpatients.

They may incur financial liability for Medicare

Part B copayments,

the cost of self-administered drugs that are not covered under Part B, and

the cost of post-hospital SNF care because section 1861(i) of the Act requires a prior 3-day hospital inpatient stay for coverage of post-hospital SNF care under Medicare Part A.”

Page 50907, IPPS

Beneficiary Impact

Expect “sub-regulatory guidance” (i.e., more detailed information) in these areas:

“Objective medical information” Page 50944, IPPS

Transfers and impact on 2 midnights Page 50948, IPPS

Refunding the part A deductible to the

patient if rebilling for part B Page 50919, IPPS

Verbal orders for inpatient admissions Page 50941, IPPS

Stays expected to last less than 2 midnights

are generally inappropriate for inpatient

hospital admission (plan to explain situations

when < 2 MN is appropriate for inpatient) Page 50946, IPPS

Documentation expectation and Auditor

focus areas CMS Open Door Forum

Additional Guidance

Case Management Protocols for Inpatient Admissions

Some CMs commented that their current processes provide for admission “to case management protocol” or “to utilization review” rather than specifying inpatient admission.

CMS Response: “As we discussed above, many public comments from physicians indicated that they believed the physician should be involved in the determination of patient status, and we agree.

To reinforce this policy and to reduce confusion among hospitals, beneficiaries, and physicians on the differences between Outpatient Observation and Inpatient services, we (CMS) are providing in this final rule that the order for inpatient admission must specify admission “to or as an inpatient.”

Page 50942, IPPS

Admit to CM Protocol Implications

Cannot be considered inpatient without physician “order” and other documentation to meet medical necessity!

Ensure clarity of the physician order, certification of expected 2-midnight stay, and supporting documentation

Order and documentation must be recorded prior to discharge

OP to IP corrections must take place during hospitalization

Inpatient admission begins at time of order for inpatient services; converting OP to IP later in the stay will result in:

Short stays (1 or 2 day stays) more likely to be audited by MAC, RAC, OIG

Will impact 3-day stay requirement for SNF qualification

Admission Order Review Vital

Physician order narrative must be improved and specific:

Many orders intending for Observation services to be provided actually result in inaccurate Inpatient status because of narrative documented:

“admit to observation”

“admit for observation”

“admit 23 hour observation”

How these will be interpreted under new rule is unclear!

Required: “admit to inpatient”!

Physician order must be signed. Oral order to RN acceptable, but not legal unless signed within time frame in By-laws!

•Observation “time” begins at the time physician order is written.

Status Order

Consider a chart audit to evaluate current processes to get correct orders on the chart at the time of admission!

Whether printed, electronic or handwritten order for Inpatient admission must read:

“Admit to Inpatient” or “Admit to Inpatient services”

Forms or electronic tools should provide alternative choices to inpatient

“Place in Observation,” “Provide Observation services,” “Needs Outpatient services overnight in hospital bed,” or “Post-op Recovery in Observation bed.”

Avoid multiple orders on record that create conflicting status

All hospital patients should have a status order when care begins!

Start educating nurses and physicians, bringing order sets to committees, as well as getting verification processes in place.

Status Order Improvement

For cases with > 2 midnight stay, review to ensure “appropriateness.”

Was the care provided in a timely and efficient manner?

Was there a delay in service that resulted in prolonging the hospital stay?

Why was the Cardiac Catheterization performed on day 3 and not on day 2?

Was there a weekend delay in Stress test, PET scan, or other specialized service, or in the initiation of therapy services?

For “social / personal” discharge challenges, provide HINN and ensure stay is charged and billed appropriately.

Documentation - Efficiency

Educate ALL physicians on documentation requirements:

Order requirements

Certification requirements

“Expectation” of 2 night stay for inpatient admission

Medical necessity rational each day to avoid question of delay in care

Start with ED physicians – if they are driving the majority of admissions

Documentation Improvement

Review cases as close to time of admission as possible

Cases that do not meet screening criteria should be sent to a physician advisor or CM Director for review!

Review should include:

Physician order in medical record

Physician certification in medical record

Documentation of expectation of 2 midnight stay

Documentation supporting medical necessity

Review Considerations

Medical cases or procedures with expected same day or next day discharge (hospital care not expected to span 2 midnights)

Procedures on the Medicare Inpatient Only List remain inpatient, require order pre-procedure and other documentation

Other cases will probably not meet threshold for inpatient consideration

Medical cases or procedures with care expected to span 2 midnights

Need order, and usual medical necessity review approach

Inpatient admissions expected to span 2 midnights but did not – will require additional review

Outpatients whose LOS extends beyond 2 midnights will require additional review

Some inpatients spanning 2 midnights may be pulled by contractors for medical necessity and “efficiency of care” review!

Impacts on CM Process


Must evaluate current practices at each location to prepare strategy

Must have a written plan –

For Physicians

For Patient Care Managers

For Patients

For Patient Access / Registrars

For HIM (medical records documents and Coders)

For PFS (Billers)

Must review admission orders at time of bed placement

Must evaluate today’s admissions based on plan

Must communicate

Must achieve consistency on a daily basis!

Two-Midnight Rule


Linda Corley

706 577-2256

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