Two-midnight rule drives down Medicare improper payments

Medicare written on paper with a stethoscope
Medicare’s improper payment rate dropped more than a percentage point in 2016 thanks to a sharp decline in improper hospital payments. (Getty/Designer491)

The controversial two-midnight rule, which established a new benchmark for inpatient hospital claims, helped drive down improper payment rates by more than a percentage point in 2016, according to federal officials.

Medicare’s improper payment rate dropped from 12.1% in 2015 to 11% in 2016 thanks to a sharp decline in improper hospital payments, according to a blog post by two senior officials at the Centers for Medicare & Medicaid Services. Improper payments for inpatient hospital claims dropped from 9.2% in 2014 to just 3.8% in 2016, a savings of more than $6 billion.

Officials attributed the sharp decline to payment changes implemented through the two-midnight rule, which allowed inpatient claims to be paid under Medicare Part A only if a physician expected the patient to require a hospital stay that lasted at least two midnights. In 2015, CMS amended the rule following pushback from the hospital industry to allow physicians more leeway in making that determination.

CMS officials added that a “comprehensive educational campaign” and probe audits of short-stay claims helped the agency work with providers to review billing errors and improve subsequent claims, with more attention devoted to providers with major errors. The agency resumed short-stay payment reviews in September following a temporary suspension due to rule-interpretation issues.

The CMS says it plans to further reduce improper payments by focusing on prior authorization and preclaims reviews within particularly vulnerable industries like home health and inpatient rehabilitation. Federal officials have previously highlighted preauthorization and the Fraud Prevention System as key elements of reducing Medicare’s double-digit improper payment rate.