Federal judge says hospitals should have more time to comment on two-midnight rule

A federal judge has thrown out a facet of the Centers for Medicare & Medicaid Services' (CMS) proposed two-midnight rule, which may delay implementation of a planned payment cut. 

CMS had estimated that implementing the two-midnight rule would shift about 40,000 patient encounters from the outpatient to the inpatient setting, leading to an additional $220 million in payments to providers. The U.S. Department of Health and Human Services (HHS) had proposed a 0.2 inpatient payment cut to offset the increase in revenue--a cut that was scheduled to go into effect at the end of this year.

Shands Jacksonville Medical Center in Florida and the American Hospital Association filed suit in federal court in the District of Columbia to overturn the pay cut specific to the two-midnight rule. U.S. District Court Judge Randolph Moss concluded that HHS was within its legal authority to make the change, but had violated the Administrative Procedure Act by not meeting all the rulemaking requirements, leaving hospitals less than fully informed regarding the federal government's rationale for the cuts.

"The Court agrees with Plaintiffs that the Secretary did not provide sufficient notice of the actuarial assumptions and methodology she employed and that disclosure of this information was essential to communicate the basis for the proposed adjustments and to permit meaningful public comment," Moss wrote. He ordered HHS to provide further justification and additional opportunity for hospitals to comment, and gave the parties until Oct. 1 to come up with a timetable to reissue the rule.

The two-midnight rule has been the subject of fierce debate between the federal government and the hospital community, leading to protracted litigation, and CMS has backed off on enforcement of the rule more than once. The agency had also cut off reviews of short-stay Medicare claims for the time being, and the federal administrative law courts have been clogged with appeals from hospitals regarding payment clawbacks pertaining to short hospital stays.

To learn more:
- read the AHA News Now article 
- check out the court decision (.pdf)