OIG: Two-midnight rule can lead to inappropriate hospital billings

Dive Brief:

  • Hospitals inappropriately billed for up to 39% of short inpatient stays under the two-midnight policy in 2014, according to a recent report published by the HHS Office of the Inspector General (OIG).
  • Medicare, which pays more for some short inpatient stays than for short outpatient stays even if stays are for similar reasons, spent nearly $2.9 billion on the potentially inappropriately billed stays identified by OIG.
  • OIG recommended CMS conduct routine analyses of hospital billing to identify organizations that may be billing inappropriately and to explore ways of protecting Medicare beneficiaries from adverse consequences of inappropriate billing.

Dive Insight:

While inpatient stays have decreased since the two-midnight rule was implemented, the report highlights there are vulnerabilities to the policy that allow inappropriate billing to occur. In some instances, inappropriate billing can make it more difficult for patients to qualify for skilled nursing facility (SNF) services.

The two-midnight rule was initially implemented to reduce the number of short inpatient stays and long outpatient stays. Short inpatient stays have become less common, but hospitals are still billing for a large number outpatient stays. This is significant because patients need to acquire three inpatient nights in a hospital before they qualify for SNF services.

Inappropriate billing can also be costly for Medicare. There is a financial incentive for hospitals to bill for short inpatient stays rather than outpatient stays because Medicare pays more in these instances even if similar services are provided, according to OIG. For instance, the average Medicare payment for outpatient stays related to digestive disorders was $789 while the average payment for inpatient stays was $4,578.

The two-midnight rule has been controversial since it was introduced and several recent changes have been made to the policy. One of these allowed individual physicians to make determinations regarding the necessity of an inpatient stay on a case-by-case basis, according to OIG. Additionally, payment rates will no longer mean a negative adjustment for inpatient services related to the two-midnight rule beginning in fiscal year 2017. 

Filed Under: Hospital Administration Policy & Regulation
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