THE 2024 TWO MIDNIGHT RULE AND WHY PAYERS ARE SO CONCERNED

In January of this year, CMS expanded the Two-Midnight Rule (TM), which requires that a patient be admitted as inpatient when the clinician determines the patient requires more extensive treatment and services will encompass more than Two Midnights, versus the “old days” of being held in observation status as an outpatient.

Originally, CMS deployed the rule in 2014, CMS initially implemented the Two-Midnight Rule in 2013 to facilitate the removal the many barriers’ patients faced when they needed urgent and medically necessary care. Of note, an inpatient stay reimburses at higher levels versus outpatient care. Which is why MA payers are laser focused on reducing re-admissions. However, now that the new rule is in effect, Medicare Advantage plans are also required to follow the rule, along with the case-by-case exception and use of the inpatient-only list. However, several MA plans continue to disregard this directive.

The rational for CMS to deploy the updated Two-Midnight (TM) Rule was to ensure reductions in the following areas of healthcare:

• Overwhelmingly high error rates for inpatient stays, which did not meet medical necessity
• Patients in expanded outpatient “observation” status, which end up costing patients more in out-of-pocket (OOP) money for unnecessary or lengthy Skilled Nursing Facility (SNF) stays.

The TM Rule assists and ensures that patients receive an appropriate and medically necessary level of care, since a stay in Observation is intrinsically less invasive versus an inpatient stay. MA payers prefer Observation status, as it is less costly for them and keeps readmission numbers down.

The question becomes, how will this impact Medicare Advantage Payers going forward, since their focus is on reducing inpatient hospital and SNF stays. This move by CMS in January could potentially affect more than 20% of Medicare Advantage patients. In a report from Strata Decision Technology, on May 13, 2024, the data showed significant increases to inpatient numbers with a spike in revenue for inpatient stays in hospitals during the first quarter. The StrataSphere data of MA patient visits are from 2023, a year before the TM Rule was inclusive of those patients, and upwards of 22% of visits were found to be labeled observation status for at least two or more days.

As of March 2024, there was an increase of close to 4% year to year in inpatient admissions with a decline of outpatient admissions slightly over 5%. That’s just the first quarter of implementation – Overall, inpatient revenue surpassed outpatient revenue, which is a stark contrast prior to 2023, per the data from StrataSphere. Year-over-year growth in inpatient revenue topped outpatient revenue in March for the first time in more than two years, according to the report. StratsSphere’s report on the new TM Rule is comprised of data collected from over 450 hospitals around the country.

As with any policy or rule, there are some exceptions, and the TM Rule is no different. Under the new TM Rule, there is an exception which allows for patients to be admitted as inpatients, even when the expected length of the stay may be under two midnights. An example of this would be when a provider feels there is medical necessity to support the admission, but it is done on what is called a case-by-case basis. The following illustrates more of these exceptions in the TM Rule:

• Medical Necessity for an emergent Inpatient only procedure
• Discharging the patient would potentially lead to a higher probability of an adverse event
• Medical Necessity supports giving a high-risk medication which requires an inpatient stay due to the high level of care needed to monitor the patient’s response.

In any of these situations, the onus of admitting the patient is on the admitting physician and it is up to them to exercise their clinical judgement to support a determination to admit and that the criteria are met for the inpatient stay.

Additionally, here are some great examples of documentation and adverse events that would support medical necessity for a two-midnight stay:

• A mechanical vent is ordered for a patient with acute COVID 19 and is in respiratory failure
• The severity of a clinical condition, like Congestive Heart Failure or Stage 4 Kidney Failure, is indicated and the Admitting provider documents all of this with a plan of care (POC) and provides an estimate for duration of stay.
• Always ensure that all comorbid conditions are listed with specificity and how they can potentially and negatively impact the primary reason for the admission. Good opportunity to use M.E.A.T. – Monitor, Evaluate, Assess, Treat
• All documentation must be bulletproof and make it abundantly clear the without question, the reason for the inpatient admission.
• Unexpected and potentially adverse complications, which can cause circumstances that disrupt an inpatient stay, such as transfer to a higher-level trauma hospital, sudden death from cardiac arrest, or the patient leaves against medical advice (AMA).
• Patient presents with life-threatening arrhythmia on an EKG and is declining rapidly in the ED, critical care services are deployed
• Patient presents post op from a lower extremity surgery and clinical indications show a deep vein thrombosis (DVT) and emergent care is required

Any of the above potential situations that indicate the use of a higher level of specified resources for a patient including personnel, where a length of stay would be under two-midnights, and the documentation shows medical necessity, CMS allows a case-by-case exception.

Currently, Medicare Advantage Plans provide over 50% of health insurance to our nation’s seniors, which equates to over 30 million people per the data from StrataSphere, that’s a huge number of insured lives, so no wonder MA plans are concerned about costs being driven up with more inpatient stays.

Takeaways:

• Continue to educate providers on the Two-Midnight Rule for 2024 forward and assist them with documentation reviews to better support any admissions and exceptions a patient may require for acute care under the new TM Rule.
• Check with contracted payers to ensure they are following the new guidelines and not giving pushback to submitted claims.

Happy Coding!

For more information on the Two-Midnight Rule and to read more on the information in this article, please visit the links below:

• https://www.cms.gov/newsroom/fact-sheets/fact-sheet-two-midnight-rule-0
• https://www.beckershospitalreview.com/finance/2-midnight-rule-could-affect-20-of-medicare-advantage-patients.html
• https://www.beckerspayer.com/policy-updates/the-2-midnight-rule-and-medicare-advantage-6-things-to-know.html
• https://info.stratadecision.com/hubfs/Performance%20Trends%20May_HC.0000.05.24_Final.pdf
• https://www.beckerspayer.com/policy-updates/the-two-midnight-rule-and-medicare-advantage-7-updates.html
• https://evidence.care/the-cms-two-midnight-rule-and-medical-necessity-criteria/#:~:text=For%20example%2C%20a%20patient%20may,given%20in%20an%20inpatient%20setting
• https://www.sunflowerhealthplan.com/newsroom/shpbn-2024-021.html#:~:text=The%20two%2Dmidnight%20presumption%20directs,and%20necessary%20Part%20A%20payment.