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August 16, 2016



AAOS Comments on CMS Proposed Rule for Physician Reimbursement

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Two-Midnight Rule Update

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Two-Midnight Rule Update

On August 2, 2016, the Centers for Medicare and Medicaid Services (CMS) published a final rule that eliminates the agency’s two-midnight policy, which cut Medicare inpatient reimbursements. The policy has been the subject of a number of legal challenges and continued industry criticism, including a September 2015 ruling by U.S. District Court Judge Randolph Moss that set the wheels in motion for modification of the rule. Judge Moss sided with the American Hospital Association (AHA) in Shands Jacksonville Medical Center v. Burwell and agreed that the payment reduction was put forward without adequate notice and a limited amount of time for meaningful comment. As an AHA statement explained, the new finalized rule “is a mixed bag for hospitals and the patients they serve. On the one hand, we are pleased CMS reversed the effects of the 0.2 percent payment reduction that was part of the original ‘two-midnight’ policy, and restored the resources that hospitals are lawfully due.”

The two-midnight policy was a response to an uptick in observation claims that CMS attributed to hospitals attempting to avoid having their claims challenged by Medicare’s auditors. The agency had expected the policy to produce an increase in inpatient claims, and the 0.2 percent rate reduction was intended to offset the estimated $220 million a year in additional costs to the program. Hospitals and hospital affiliated organizations vehemently disagreed with this assessment and further claimed that the Health and Human Services (HHS) agency exceeded its authority in making the rule.

Read more about the two-midnight policy in AAOS Now online here.

Ultimately, hospitals will see a temporary increase of 0.6 percent in fiscal 2017 to make up for the 0.2 percent reduction to rates over the past few years. Although the fight is not over because the rule makes no provision for disclosure of the data and methodologies that the CMS relied upon in justifying the original pay cut, the decision is still a good outcome in relieving hospitals of this burden.

“In light of recent review and the unique circumstances surrounding this adjustment, for FY 2017, CMS is permanently removing this adjustment and also its effects for FYs 2014, 2015, and 2016 by adjusting the FY 2017 payment rates,” the agency stated.