More than 50 hospitals sue CMS over two-midnight rule cuts

Fifty-five hospitals have filed a lawsuit against the Department of Health and Human Services in response to Medicare payment reductions under the "two-midnight" rule.

FierceHealthFinance obtained a copy of the lawsuit from Foley & Larder LLP, a lawfirm based in the District of Columbia that is representing the 55 hospitals. 

Under the controversial rule, the Centers for Medicare & Medicaid Services treats any hospital stay lasting less than two midnights as an outpatient stay. Anticipating more inpatient stays, CMS proposed an 0.2 reimbursement cut for Medicare payments to offset the increased revenue.

The 55 plaintiffs are not the first providers to challenge the cuts; last year, Florida's Shands Jacksonville Medical Center and the American Hospital Association (AHA) sued over the cuts, and in September a federal judge ruled that while the cuts themselves were legal, HHS violated the Administrative Procedure Act by not giving hospitals enough information on the reasons for the cuts.

The new suit, like the Shands/AHA suit, specifically claims CMS violated the Administrative Procedure Act, depriving hospitals of a sufficient opportunity to comment. It also claims the rule is based on unfounded assumptions, such as taking for granted that about 400,000 stays will shift from outpatient to inpatient stays, while 360,000 inpatient stays will shift to outpatient.

"Because additional hospitals have gotten a decision from the administrative board granting expedited judicial review, that starts a 60-day time period to file in court, so that's why you're seeing more of these suits," Don Romano, of counsel with Foley & Lardner, told FierceHealthFinance. "We're asking the court to stay this case while they decide the other case that's on remand."

In its 2016 final rule, CMS altered the rule's provision for "rare and unusual exceptions," allowing Medicare Part A payments on an individual-case basis. Last December, in response to the earlier ruling, the agency published a clarification of how it calculated the payment cut in the Federal Register. The clarification calls for comments by February 2, with a final notice to be published by March 18.

To learn more:
- here's the lawsuit (.pdf)
- read CMS' rationale (.pdf) for the cuts