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BUSINESS OF
MEDICINE
Two-Midnight Policy –
Rates, Enforcement and Professional Judgment
By Pamela C. Smith, Ph.D.
The ‘Two-Midnight’ policy continues to raise questions of author- and white, and regulated by the government.
ity. Does the secretary of the Department of Health & Human Serv- Notwithstanding the across-the-board cuts, the two-midnight pol-
ices (HHS) have the authority to make across-the-board reductions
in payments? Are physicians still allowed to use their professional icy has seen other changes to its enforcement policies since first issued
judgment when admitting patients? These are valid questions that — specifically review strategies. Upon initial implementation,
have yet to be answered in today’s world of fraud, abuse, oversight, Medicare Administrative Contractors (MACs) would conduct Inpa-
and accountability. tient Probe and Educate reviews for admissions prior to Sept. 30,
2015. CMS will now have Quality Improvement Organization
The secretary’s ability to make across-the-board reductions was (QIO) contractors conduct reviews of short inpatient stays, rather
partially decided on Sept. 22, 2015, when a U.S. District judge ruled than the MACs.[2] CMS initially instructed MACs to implement
the secretary can reduce reimbursement rates. But the agency failed patient status reviews, and Congress imposed a moratorium on cer-
to adequately explain and justify its 0.2 percent reduction under the tain patient reviews by Recovery Audit Contractors. This morato-
two-midnight policy. The decision of Shands Jacksonville Medical, rium has been lifted through the “Medicare Access and CHIP
et al. v. Burwell provides a quick stay in the battle over who has au- Reauthorization Act of 2015” — which states “nothing in this section
thority to reduce reimbursement rates. shall be construed as limiting the secretary’s authority to pursue fraud
and abuse activities…”[3] According to CMS, beginning in 2016,
The timeline for this rate reduction battle dates back to 2013, recovery auditors will conduct reviews that have been referred by
when the Centers for Medicare & Medicaid Services (CMS) updated QIOs that exhibit persistent noncompliance. Recovery auditors may
its FY 2014 payment policies and rates regarding inpatient hospital also conduct reviews unrelated to patient status — including coding
admissions. According to CMS, these changes were made to “provide reviews, and determining the medical necessity of procedures.
greater clarity to hospital and physician stakeholders”[1]. Estimates
indicated that implementing the two-midnight rule would cost ap- The two-midnight policy will continue to raise concerns about
proximately $220 million which led to the across-the-board reduc- fairness, decision making, accountability and enforcement. To answer
tion of 0.2 percent for inpatient service payments. the two questions proposed earlier — yes, the secretary can make
across-the-board reductions in payment rates. However, disclosure
The plaintiffs in Shands argued the reduction in payment is invalid of critical assumptions and detailed methodology should be provided
because the Medicare Act does not authorize the Secretary to make to promote active discussion and comment by stakeholders. Sec-
across-the-board reductions. They also argued the secretary did not ondly, yes, physicians are still ‘allowed’ to use their professional judg-
disclose critical information about the methodology used to obtain ment when admitting patients. Will ‘allowing’ professional judgment
the 0.2 percent reduction. The court determined the secretary failed create a slippery slope between professional judgment and legislative
to disclose critical information in her methodology and deprived in- oversight intended to prevent fraud and abuse? These and numerous
terested parties an opportunity to comment. The secretary was not other questions concerning decision making and enforcement have
forced to adjust the 0.2 percent reduction, but must provide the court yet to be answered.
(by Oct. 1) with a timetable for repromulgation of the proposed rule
and comment opportunity. REFERENCES
1 https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-
Physician judgment is the other critical element of the two-mid-
night policy. When first issued in 2013, critics complained that these sheets/2015-Fact-sheets-items/2015-07-01-2.html
new rules undermined clinical decision making. In response to this 2 https://www.federalregister.gov/articles/2015/07/08/2015-
criticism, CMS proposed changes to the policy in July 2015 which
will allow physicians to exercise judgment for admitting patients. 16577/medicare-program-hospital-outpatient-prospective-pay-
CMS proposed to allow exceptions to the two-midnight policy “to ment-and-ambulatory-surgical-center-payment
be determined on a case-by-case basis by the physician responsible 3 https://www.congress.gov/114/plaws/publ10/PL AW-
for the care of the beneficiary, subject to medical review.” The pro- 114publ10.pdf
posal would classify certain short stays as inpatient, based on the ad-
mitting physician’s judgment. If patients are expected to be short Pamela C. Smith, PhD, is a professor in the depart-
stays, physicians must document numerous factors that support that ment of accounting at the University of Texas at San An-
decision. In the era of documented Medicare fraud, it appears physi- tonio.
cian judgment and decision making must now be spelled out in black
visit us at www.bcms.org 35
