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July-August 2020

Coding Corner: Days of Our Lives — A Dive Inside the Intricacies of the Two-Midnight Rule
By Monique Griffin, CPC-A
For The Record
Vol. 32 No. 4 P. 6

In response to high error rates in the medical necessity to inpatient admissions uncovered by the Recovery Audit Contractor (RAC) program, the Centers for Medicare & Medicaid Services (CMS) implemented the “Two-Midnight Rule” in 2013. The rule also served to clarify the criteria used to determine when inpatient admission is “reasonable and necessary” and therefore would be payable under Medicare Part A.

It was also noted that many Medicare patients were receiving extended outpatient or observational services. Patients and patient advocates expressed concern that this could negatively affect Medicare coverage when the patient transferred to a skilled nursing facility. To transfer to a skilled nursing facility and receive Medicare benefits, a Medicare patient is required to have a three-day inpatient hospital stay. Extended outpatient stays or stays for observation do not count toward the three-day requirement.

“The hospital inpatient stay is paid at 100% under Part A benefits; hospital outpatient services are Part B and are covered 80%. So, Medicare is very sensitive to beneficiary liability in this setting,” says Colleen Deighan, RHIA, CCS, CCDS-O, an outpatient consultant for the Consulting Services business of 3M Health Information Systems.

How the Rule Works
The original Two-Midnight Rule stated that in order for inpatient admissions to be payable under Part A, the admitting physician expects the patient to require a hospital stay that crosses two midnights and the medical necessity is supported in the patient record.

Medicare Part A payment was generally not appropriate for hospital stays expected to last less than two midnights. Exceptions to this include procedures identified on the inpatient-only list or procedures identified as “rare and unusual.” These exceptions are deemed to be appropriate for Medicare Part A payment.

Even in its first iteration, the rule stated that all patient treatment decisions were based on the judgment of the physician or other qualified provider.

“It’s important to point out that the Two-Midnight Rule does not prevent a physician from providing service in the hospital regardless of the length of the stay. CMS recognizes that is a very clinically driven decision and a complex decision,” Deighan says.

Once the Two-Midnight Rule was adopted and entered into practice, hospitals, physicians, and other practitioners reached out to CMS with concerns that the new policy was negatively impacting facilities and medical professionals. This spurred CMS to review and possibly update the Two-Midnight Rule.

CMS received input from all direct stakeholders, including physicians and hospitals, as well as from the Medicare Payment Advisory Commission, beneficiary advocates, and members of Congress. Medicare Administrative Contractors (MACs) provided data from the Probe and Educate process in which it worked with hospitals to clarify Medicare payment policy parameters in regard to inpatient and outpatient patient status.

After weighing all factors, CMS updated the Two-Midnight Rule in the 2016 Hospital Outpatient Prospective Payment System final rule, which upholds the benchmarks originally established by the original but allows for greater flexibility for determining when an admission not lasting two midnights should be payable under Part A. These exceptions would be decided on a case-by-case basis hinging on the documentation in the patient’s medical record and subject to medical review.

“That’s where there is the biggest vulnerability,” Deighan says. “It’s those short-stay admissions to treat conditions such as pulmonary embolism, diabetic ketoacidosis, or an anaphylactic reaction where that patient is experiencing a life-threatening situation. It may be quickly reversed but requires inpatient admission. Making certain that all the documentation is there—the history, the physical exam, and the progress notes—really supports the need for inpatient care.”

If a patient is admitted and the physician expects the stay to span two midnights but that benchmark is not achieved because of unforeseen circumstances such as patient death, clinical improvement, transfer, or patient leaving against medical advice, the service is eligible for Part A payment.

“It’s important to remember that the Two-Midnight Rule clock starts when orders for admission are given and they must be dated, timed, and authenticated,” says Toni Elhoms, CCS, CPC, CRC, CEO of Alpha Coding Experts.

It’s important to note that excessive wait times and triage are not allowed in the calculation of two midnights.

Coding and Compliance
When coding for the Two-Midnight Rule, documentation is paramount. Jennifer Bishop, CCS, CCS-P, CHRI, CIRCC, vice president of content at Vitalware, says, “Be sure the physician documents, documents, documents at the onset why they are expecting it to span two midnights or why they think the patient can be discharged next day and doesn’t qualify for inpatient admission.”

This information is invaluable to coders.

“It has to come down to the severity of the illness, intensity of the service, and potential adverse outcomes if the patient isn’t put in the right care setting,” Bishop says. “Those are the things that separate the person that needs to be inpatient from outpatient. Additional comorbidities, adverse outcome, severity, intensity are all things to look for.”

3M offers software that can assist with correct coding for inpatient prebill review by creating an edit and bumping it to a second-level review as part of the coding process, Deighan says.

“Technology that does retrospective code auditing also can help if utilized to analyze trends and assess your denials. It’s important to understand where coding can help tell the story around where the organization is having challenges,” she adds. “Is it certain diagnoses? Is it certain diagnosis-related groups? Is it certain service lines? You have to start somewhere, so you can utilize software to know where you can actually proactively mitigate risk to really drive permanent change. So you can analyze it at the case level concurrently, but also, retrospectively, you can have a huge impact by identifying problem areas and changing behaviors to mitigate risk.”

When coding the Two-Midnight Rule, it is imperative to understand the inpatient-only list, in which CMS enumerates the procedures that are to be performed on a Medicare beneficiary as an inpatient service only.

Basically, the Two-Midnight Rule is to limit excessive inpatient admissions without medical necessity, but Deighan points out an interesting consequence of the inpatient-only exception: “Generally the provider expects the patient to span two midnights but the other scenario is the patient is having a procedure on the inpatient-only list and the physician might say, ‘I don’t expect this patient to be here for two days but it is on the inpatient-only list, so I have to admit them.’”

Bishop notes that it can be challenging to code the inpatient-only procedures if the responsible parties such as patient registrars or physicians are not educated on which procedures are on the list. If a patient needs an inpatient-only procedure but is admitted as an outpatient, incorrect codes would be submitted.

Deighan concurs, “There has to be a good front-end revenue cycle process at registration or scheduling of surgery to ensure the patient status is correct, so an inpatient-only procedure isn’t scheduled in the outpatient setting. Otherwise, by the time the coder gets it, the patient is gone, the care is done. Coders still have to code the case as an outpatient procedure, but they know it’s going to result in either the organization not receiving proper payment or not getting paid at all with the claim denied.”

“It’s important coders and everyone has access to the inpatient-only list because it can change quarterly, although it usually only changes annually,” Bishop says.

Vitalware includes the updated list as well as Vital Alerts for coding changes that can be organized and distributed by departments. These lists and alerts are also accessible in the database for each of its hospital clients.

If a procedure is not on the inpatient-only list and the physician believes the patient status does not warrant a two-midnight stay, the service must be provided as outpatient and is eligible for Part B payment.

Two-Midnight Rule in Court
On May 26, the US Court of Appeals for the District of Columbia Circuit denied an appeal brought by UF Health Jacksonville in Florida and Trinity Medical Center in Birmingham, Alabama, against Health and Human Services (HHS) over a 0.2% reduction for payments associated with the Two-Midnight Rule.

In a fiscal year 2014 cost-saving effort, HHS implemented the rate reduction until a review of the actuarial processes behind the cut was conducted. HHS then eliminated the rate reduction and subsequently implemented a one-time 0.6% reimbursement rate increase for fiscal year 2017 to account for the three years of cuts.

“I think this is an unfortunate decision,” Bishop says of the ruling. “CMS has designed the Inpatient Prospective Payment System rates to cover the costs of care for the inpatient Medicare population without any additional margin. When they arbitrarily decide to make a cut to those rates, they are paying hospitals less than the cost of care, according to their own calculations. This is contrary to the intent and mission of Medicare and leaves hospitals with a deficit when caring for Medicare patients that must be covered in other ways.”

The ruling, which has no implications in regards to coding and documentation, deals only with prior payments affected by the reduction, Deighan says. Nor does the lawsuit impact any of the guidelines for applying the Two-Midnight Rule when coding, she adds.

Whether inpatient or outpatient, two midnights or one, short stays are inherently challenging because they require case management, utilization review, and compliance with the various organizations charged with overview such as the Office of Inspector General, Quality Improvement Organizations, MACs, and RACs. On top of that, there’s the possibility of litigation.

“Everyone should be concerned about the Two Midnight Rule,” Deighan says. “It’s not new. It’s not going away. As a coding professional, you have to be a critical thinker to be effective in today’s revenue cycle. So you have to be curious and always learning. Understand how you contribute to achieving compliance with the rule and how you can help your organization be successful.”

— Monique Griffin is a sports, marketing, and content writer who recently earned her CPC-A.