OIG: Inpatient stays down under two-midnight rule but vulnerabilities remain

Medicare written on paper with a stethoscope
A new report finds that the Centers for Medicare & Medicaid Services must improve oversight of hospital billing under the two-midnight rule and increase protections for beneficiaries. Photo credit: Getty/Design491

Although inpatient stays have decreased since Medicare established the two-midnight rule, a new Office of Inspector General report finds several weaknesses remain in the policy.

The report (PDF) states that the Centers for Medicare & Medicaid Services must improve oversight of hospital billing under the policy and increase protections for beneficiaries.

The policy allows Medicare to pay for inpatient claims if the physician expects that the Medicare patient’s care will last at least two midnights. Shorter stays are billed as outpatient services. The controversial policy was implemented in 2014 to reduce improper payments for short inpatient stays, inconsistent use of inpatient and outpatient stays among hospitals, and the number of Medicare beneficiaries who had long outpatient stays and thus didn’t quality for skilled nursing facility services.

The OIG report analyzed Medicare hospital claims for inpatient and outpatient stays in fiscal years 2013 and 2014 to determine differences in types of stays before and after the government implemented the policy in 2014.

The good news is that the number of inpatient stays has decreased and the number of outpatient stays increased since the implementation of the policy. In addition, short inpatient stays decreased more than long outpatient stays. However, the OIG found five vulnerabilities still exist:

  • Hospitals may be inappropriately billing for short inpatient stays under the policy. Forty percent of all short inpatient stays were potentially inappropriate, the report found, noting that Medicare paid nearly $2.9 billion for these claims in fiscal year 2014.
  • Medicare pays more for some short inpatient stays than for short outpatient stays even though the hospitalizations are for similar reasons.
  • Hospitals continue to bill for a larger number of long outpatient stays.
  • Medicare patients pay more for outpatient stays and have limited access to skilled nursing facility services than they would as inpatients.
  • Hospitals still vary in how they use inpatient and outpatient stays.

To address these issues, the OIG suggests that the CMS take a tougher stance on enforcement of the policy. Indeed, enforcement has been limited since the policy was implemented, according to the report. Hospitals may also have financial incentives to use short inpatient stays, and in fact, some hospitals have increased their use of these stays since the policy took effect, the OIG said.

The OIG recommends that the CMS conduct routine analysis of hospital billing, targeting for review hospitals that have high numbers of short inpatient stays that might be inappropriate. “Such oversight is even more important given the change made in 2016 to allow for case-by-case exceptions to the two-midnight policy. This policy change has the potential for abuse and should be monitored closely,” the report said.

In addition, the OIG suggests that the CMS:

  • Analyze the potential impact of counting time spent as an outpatient toward the three-night requirement for skilled nursing facility services so that Medicare patients can have access to the services.
  • Look for ways to prevent Medicare patients from paying more for outpatient stays than they would as inpatients.

The CMS agreed to all the recommendations, according to the report.