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April 26, 2016



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CMS Won’t Continue
Two-Midnight Cuts

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CMS WonÕt Continue Two-Midnight Cuts

In a recently released inpatient prospective payment system (IPPS) proposed rule, CMS detailed a removal of the controversial 0.2 percent payment reduction associated with the agency’s two-midnight rule. CMS also announced that it will pay back hospitals for the years the cut was in place.

“CMS believes the assumptions underlying the -0.2 percent adjustment were reasonable at the time they were made,” the agency says in a fact sheet on the proposed rule. “Additionally, CMS does not generally believe it is appropriate in a prospective payment system to retrospectively adjust rates. However, in light of recent review and the unique circumstances surrounding this adjustment, for FY 2017, CMS is proposing to permanently remove this adjustment and also its effects for FYs 2014, 2015, and 2016 by adjusting the FY 2017 payment rates.”

Under the original two-midnight rule, which started in October 2013, CMS said Medicare Part A payment generally was not appropriate for hospital stays not expected to span at least two midnights. Instead, CMS felt that shorter stays are considered outpatient and should be paid at the lower outpatient rate. Read more about the two-midnight rule in AAOS Now. When it initiated the policy, CMS cut inpatient payments to hospitals by 0.2 percent (or roughly $220 million nationally) to offset the fact that the two-midnight rule would actually increase Part A reimbursements. However, hospitals sued the health and human services secretary over the pay cut, arguing that CMS violated the Administrative Procedure Act and based the rule on unfounded assumptions.

While many groups, including AAOS, applauded the two-midnight update, some organizations expressed concern about other changes put forth in Monday’s inpatient prospective payment proposal – including several cuts. The American Hospital Association’s Rick Pollack stated that “Congress was clear in its passage of physician payment reform last year that [a cut in the hospital update factor] should be 0.8%, but CMS ignored this directive and almost doubled the reduction.”

“The proposed rule proposes policies that continue a commitment to increasingly shift Medicare payments from volume to value,” CMS stated. “The Administration has set measurable goals and a timeline to move the Medicare program, and the health care system at large, toward paying providers based on the quality, rather than the quantity of care they give patients. The proposed rule includes policies that advance that vision and is one of several proposed rules that reflect a broader Administration-wide strategy to create a health care system that results in better care, smarter spending, and healthier people.”

View the CMS fact sheet online here.