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House Republicans Release Proposal to Eliminate Two-Midnight Rule

In November 2014, Republicans in the U.S. House of Representatives circulated a “discussion draft,” which proposed significant reforms to the process by which Medicare reimburses hospitals for short stays. Perhaps most notably, the GOP proposal would eliminate the two-midnight rule. Since its enactment, the two-midnight rule has remained controversial among healthcare providers. Under the two-midnight rule, an admission is appropriate only when the patient remains in the hospital for two midnights. However, since its adoption, the rule has created confusion and elicited criticism from providers who claim that it undermines their clinical decision-making process. Acknowledging the issue, the Centers for Medicare and Medicaid Services (CMS) limited enforcement of the two-midnight rule and solicited stakeholders for suggestions on improving it.

The discussion draft also proposes the establishment of a new Medicare payment system for hospital stays. Under the proposal, the payment system would go into effect in fiscal year 2020 and unify the currently separate inpatient and outpatient payment systems. During the five years before the implementation, CMS would be tasked with developing a transitional, per-diem payment system for short-term hospital stays. Additionally, CMS would restrain Recovery Audit Contractors (RAC) until the new payment system is adopted. This reprieve is important when establishing a new payment system because of the RAC program’s onerous presence in the healthcare industry. Just last year, the RAC program recouped over $3 billion in Medicare overpayments, and audit appeals have created such a backlog that many appellants are waiting over three years for a decision. The backlog of appeals violates the statutory requirement for Administrative Law Judges to decide Medicare appeals within 90 days of the request for hearing.

Also included in the GOP’s discussion draft is a partial elimination of the Patient Protection and Affordable Care Act’s (ACA) moratorium on the expansion of physician-owned hospitals. Currently, the law prohibits new physician-owned hospitals, expansion of existing physician-owned hospitals, and an increase in the percentage of physician ownership in existing physician-owned hospitals. Any reduction of the physician-owned hospital limitation would be welcomed news in the physician community. Further, in an effort to curb costs, the proposal also includes provisions that would promulgate a nationwide bundled payment program. Upon analyzing these proposals, many stakeholders believe that the circulation of the discussion draft indicates the direction of the anticipated Medicare debate in Congress and expect several of these provisions to be at the forefront of discussions in the next congressional session.

Wachler & Associates has been involved in policy formation regarding the two-midnight rule and we believe that any change to the rule will have widespread impact on providers and the Recovery Audit program. Our firm will continue to monitor breaking national healthcare news and provide timely updates. If you have questions regarding the discussion draft, the two-midnight rule, the moratorium on physician-owned hospitals, or any other health law compliance matter, please contact an experienced healthcare attorney at 248-544-0888 or via email at wapc@wachler.com. To remain updated on healthcare news, subscribe to Wachler & Associates’ health law blog by adding your email address and clicking “Subscribe” in the window on the top right of this page.