5 August 2014

What Will the Two-Midnight Rule Cost Hospitals?

One year ago, the Centers for Medicare and Medicaid Services (CMS) adopted the “two midnight” rule, which called for doctors to admit a hospital patient as an inpatient case only if he or she required at least two nights of observation. The law was designed to reduce unnecessary hospital stays, but groups like the American Hospital Association (AHA) immediately pushed back – they argued that this “wholly arbitrary requirement” was a “black-line rule” that takes clinical decisions out of the doctor’s hands.

How does this policy affect a hospital’s bottom line? A report from Moody Investor Services estimates that the two-midnight rule could end up reducing average reimbursement per case by $3,000 to $4,000, since CMS typically reimburses hospitals at lower rates for outpatient cases. This will also impact the volume of patients, which may mean decreased hospital efficiency and overall earnings. Tenet Healthcare, a major hospital system, anticipates losing up to $25 million on both volume and earnings as a result of this rule.

Often times, hospital administrators look to emergency department (ED) doctors to guide whether a patient should be admitted or not. In an interview with Fierce Healthcare, Catherine Polera, Chief Clinical Officer of Emergency Medicine, discussed what this law could mean to these teams. She predicts that some ED patients may sign themselves out against medical advice when they learn they could be responsible for a portion of their hospital bills. This contributes to higher Left Before Being Seen scores for hospitals and increased costs, as these patients will often require additional care when they return to the ED even sicker than before.

In April, the AHA banded together with other associations and hospital groups to file two lawsuits against the U.S. Department of Health and Human Services to challenge the rule. As the U.S. population ages and more individuals are eligible for Medicare, this remains an issue of concern for hospital administrators. The actual implementation of the law has been delayed to 2015 – for now.