CMS extends grace period on 'two-midnight' billing rule

The Centers for Medicare & Medicaid Services has quietly extended a grace period regarding audits and reviews of payments related to hospital stays shorter than the "two-midnight" threshold it established earlier this year, AHA News Now reported.

Medicare recovery audit contractors, better known as RACs, will begin to scrutinize such claims beginning April 1, according to the publication. The new deadline gives hospitals a three-month extension of the grace period, which was supposed to end on Jan. 1.

RACs instead will sample only a small number of bills that hospitals submit to the Medicare program until the grace period ends, according to Law 360. A CMS Q&A on the issue said it would scrutinize no more than 25 claims per hospital.

After April 1, RAC reviews will take place for all submitted hospital inpatient claims that do not break the two-midnight threshold. Such reviews will also take place immediately rather than retroactively, often months or even years after they were first received and paid.

According to the Q&A, any claims submitted for stays that break the two-midnight threshold are considered medically necessary and not subject to RAC review.

CMS formulated the new guidelines after both hospitals and consumers complained about vague rules regarding admissions versus observation care. Hospitals started to keep patients they suspected would remain for just a couple of days under observation care rather than admitting them as inpatients and risk an audit--a practice that often cost them money.

Conversely, Medicare would not cover any patients transferred from hospital observation care to a skilled nursing facility (SNF), often leaving the patients and their families on the hook for SNF bills that reached well into the five figures.

Under the new rules, patients who receive hospital emergency room care--whether or not they are formally admitted--will trigger the "two-midnight" threshold, according to Law 360.

To learn more:
- read the AHA News Now article
- here's the Law 360 article (registration may be required)
- check out the CMS Q&A (.pdf)