Two-midnight rule discontinued for inpatient payment cuts

The Centers for Medicare and Medicaid has discontinued enforcement of the two-midnight rule.  This move followed a notable court case related to the cuts as well as intense industry criticism.  There will be a one time pay increase as a result, in order to compensate hospitals for previous cuts.  In 2017 hospitals also will see a 0.6% increase to ongoing reimbursement.

The two-midnight rule imposed cuts based on hospital practices related to placing patients on observation status.  The policy was initially intended to dissuade hospitals from placing patients on observation status for more than two days if an appropriate inpatient admission was justified.  CMS’s decision was in part motivated by the court ruling in Shands Jacksonville vs. Burwell.  In this decision the federal judge ordered CMS to provide better reasoning for the cuts in question.


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