A recurring theme in our blog posts is the need for payment policy to reflect a clearly defined purpose. Start with what you want to achieve and work backwards to a policy that delivers it. The ongoing saga of the CMS 2-Midnight rule is an excellent case study for this principle.
First, some history: CMS was/is faced with two related but distinct challenges. The first is the inexorable rise in observation stays, particularly those stays which exceed 48 hours. CMS observed an increase in the average duration of observation cases exceeding 48 hours from three percent in 2006 to eight percent in 2011. A subsequent OIG study put the rate at 11 percent in 2012. Extended observation creates a knock-on effect for beneficiaries, both for personal liability and qualification for post-acute care benefits. Hospitals blamed the increase upon aggressive Recovery Audit Contractors and rules that only paid for ancillary tests for inpatient admissions deemed unnecessary after review. This is not a determination that the service was not medically necessary, but rather that it need not have required an inpatient stay. Continue reading