IMPROVING PROTECTIONS + NEW REGULATIONS for 2024 MEDICARE ADVANTAGE PLANS REGARDING the TWO-MIDNIGHT RULE

We are in the midst of a sea-change in the relationship between hospitals and Medicare Advantage (MA) plans, thanks to contract policy and technical updates set to go into effect January 1st, 2024. The question is whether we are prepared for this shift. For hospitals, the most important element is CMS’s codifying the requirement that Medicare Advantage plans follow the two-midnight (2MN) threshold for inpatient status. A standard that to date, they have not honored.  

CMS https://www.cms.gov/  has a stated goal of providing enhancements, protections, and guardrails designed to help beneficiaries with increased access, timely care and equity in coverage. There are several key take-aways found within the Medicare program update. However, here we will focus on the 2MN standard. For more background on other important developments, we recommend the excellent piece by Dr. Ronald Hirsch and the Rac Monitor, along with CMS resources at https://www.cms.gov/newsroom/fact-sheets/contract-year-2024-policy-and-technical-changes-medicare-advantage-and-medicare-prescription-drug, https://www.federalregister.gov/documents/2022/12/27/2022-26956/medicare-program-contract-year-2024-policy-and-technical-changes-to-the-medicare-advantage-program 

It is our opinion after decades of working within all levels of Utilization Management (UM), that there has been a longstanding practice by many MA plans, of ignoring or neglecting federal guidelines and policies. This has been profitable to the companies, but at a cost to patients, and the hospitals that care for them. This includes areas such as downgrading acute care stays from inpatient to observation services,  limiting access to inpatient rehabilitation, and refusing coverage for other medically necessary services. These practices have run contrary to the spirit, and at times, the letter of CMS regulations. This has not gone unnoticed by CMS, and relief may be in sight. For example, the new regulations poised to take effect in 2024*, contain the clearest statements to date from Medicare regarding how the Two-Midnight (2MN) rule applies to MA plans. In short, MA plans will be required to follow the 2MN rule. 2023-07115.pdf (federalregister.gov) This change alone, may represent an enormous positive financial impact for hospitals. However, the likelihood of a hospital seeing these gains will be dependent on how effectively they can pivot their current UM process to capitalize on the new realities.  Here, we will provide a little background regarding the Two-Midnight threshold (2MN), and what steps can be taken now to ensure the Utilization Management (UM) team is capturing appropriate inpatient stays. A special focus will be placed on earlier conversion of observation (OBS) patients to inpatient when appropriate, as well as ways to avoid self-denial of short-stay inpatient hospitalizations.

WHAT IS THE TWO MIDNIGHT RULE?

The original Two-Midnight rule stated that: 

“Inpatient admissions were appropriate if the admitting practitioner expected the patient to require a hospital stay that crossed two midnights and the medical record supported that reasonable expectation. Inpatient status was generally not appropriate for hospital stays expected to last less than two midnights. As always, there are exceptions, and CMS identified seven situations where inpatient status may be supported even if the 2MN threshold was not reached (42 CFR.§ 412.3). 

• • • IPO - Procedures identified on the inpatient-only list,

• • • UNEXPECTED

• • • Death,

• • • Election of hospice services

• • • Recovery faster than anticipated,

• • • VENTILATOR SUPPORT.- The need for invasive ventilation support outside of routine procedures,

• • • TRANSFERS - Transfers to another acute care facility,
    • AMA - Leaving against medical advice.”

DO MEDICARE ADVANTAGE PLANS FOLLOW THE TWO MIDNIGHT RULE?

A major impetus for the development of the 2MN criteria was the rising number of hospitalized patients receiving observation services (OBS) that lingered for days in a limbo of being too sick to go home, but not sick enough to meet inpatient criteria. We’ve seen many cases that exceeded 10-15 days, and one that lasted 47 days. With 2MN, the equation shifted from inpatients “must meet inpatient criteria,” to one where inpatient status was appropriate for anyone requiring hospitalization for >2MN, even if not meeting strict screening criteria..  It was reasoned that short IPS stays were unlikely to justify the higher DRG payments, and that many of these could be managed with observation services. CMS believes that by the second midnight the clinician should have adequate information to determine whether the patient is appropriate for discharge or would need continued hospital care as an inpatient. The UM process was therefore streamlined, now that there was a finite duration of OBS. On, or before the second midnight, the patient no longer needed hospital-level care, or they would be converted to inpatient status. Medicare has further clarified that OBS stays > 72 hours are essentially “never events.”

Unfortunately, in the decade since its introduction, the 2MN threshold has not been embraced by payors offering Part C insurance, A.K.A. Medicare Advantage. Instead physician advisors and hospital UM teams have defaulted to an unofficial standard of 48 hours. It is presumed that those needing hospital services for >48 hours, are appropriate for inpatient, if there is active management, and medical necessity is present for hospital services. The reasoning is based upon CMS statements that OBS is not expected to exceed 48 hours in duration, and OBS >48 hours is seen in rare and exceptional cases. OBS > 72 hours is considered medically unlikely and will be denied as such. The appeals process must be followed to have observation services exceeding 72 hours to be considered for payment. https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/clm104c04.pdf

Despite the clear statements that OBS should not exceed 72 hours,  we continue to see MA patients with observation stays of 4 or more days. A conversion to inpatient is denied by the payor based on the case of “not meeting inpatient criteria.” In reality, the hospital should only need to prove that discharge criteria have not been met. In my discussions with the MA directors, they are not willing to be pinned down regarding what they consider to be the maximum number of days someone that requires hospital care, can remain OBS. With the changes set to take effect in January of 2024, this all will change.  Note: for this discussion, we are assuming the patient meets medical necessity for continued hospitalization, is not custodial care, or encountering system delays.

WHY IS THIS IMPORTANT

Lost revenue. Healthcare Insurance companies have enjoyed record profits over the last several years, at the same time that hospitals have posted losses, leading to staffing cuts and even hospital closures. This is especially true for smaller communities, and critical access hospitals. It is critical that these facilities receive payment for services provided in good faith to their patients. Medicare Advantage plans are among the most profitable products for insurance companies, and thanks to aggressive marketing, there is an increasing percentage of Medicare beneficiaries choosing an MA plan.

Why does it matter if someone is inpatient v OBS? While an inpatient and an OBS patient may both be in a hospital bed, the facility payment for the provided services can differ significantly. Using a rough rule of thumb, an inpatient stay generates a $6,000 higher payment than OBS. Given the number of patients with MA plans that are hospitalized each year, hospitals can ill afford to lose out on payments due to them. In addition, due to aggressive marketing campaigns, the MA plans have seen continued growth in their share of the market, and will soon surpass > 50% of Medicare beneficiaries

Negative impacts on key performance and quality metrics. Since OBS cases are excluded from most data sets of hospital performance, there can be a negative impact of quality measures such as mortality rates, length of stay, and other key metrics. 

Now that MA plans are adhering to the 2MN standard, UM teams will need to update their workflows around conversion of OBS → IPS, and shore up the supporting documentation around short inpatient stays. Hospitals are likely to see a dramatic increase in both of these case types in the next few months. Let’s look at prolonged OBS stays and short IPS stays, two commonly encountered situations in UM, that can significantly impact the hospital’s bottom line. Consider how well your facility is prepared to handle such cases from FFS Medicare as well as the MA plans.

PROLONGED OBSERVATION SERVICES

Some encounters may initially be appropriate for OBS, but then require ongoing hospitalization beyond 2MN. These cases will meet the CMS threshold for inpatient status.  Unfortunately, in the hectic environment of acute care hospitals, many patients slip through the cracks and either stay > 2MN in OBS before the IPS order is placed, or worse are discharged without the conversion. This is especially true on weekends and after-hours. Regulations require that the clinician place an order for inpatient, prior to discharge in order for the status to change. At $6,000 per occurrence, these cases can exceed millions of dollars annually at a medium sized hospital with the typical number of OBS stays. To understand the scope of the problem, hospitals should make it a regular practice to track the average OBS length of stay (LOS), percentage of OBS cases > 48 hours, and/or those exceeding 2MN. Retrospective PA secondary reviews are then utilized to determine if the prolonged OBS cases are due to system inefficiencies or a failure to convert to inpatient status. If there are instances of a missed opportunity for IPS, then solutions may be put in place to minimize further events. Later, we will discuss some AI-based solutions.

SHORT INPATIENT STAYS

A person may be hospitalized as an inpatient and meet screening criteria, only to unexpectedly, leave before the second midnight. These “short stays,”  must have evidence of a CMS- recognized exception to the 2MN threshold. If it is not present, the hospital will process a provider-liable self-denial of Part A payment, and bill only Part B services. The result is a significant negative financial impact, typically $6,00 to $8,000 per case, as well as increased processing costs due to the complexity of self-denial claims. Hospitals should make it a regular practice to track the number of provider-liable self-denials, conduct audits to determine why they occur, and then modify the process using successful practices to improve performance. During a recent audit at a community-based teaching hospital, we found only 10% of short inpatient stays (excluding inpatient-only procedures) had adequate documentation to support that status. This would lead to a provider-liable self-denial rate of 9 in every 10 short stays! However, another 50%  had elements that could support inpatient but lacked the appropriate physician documentation. To address the problem, we utilized a concurrent onsite secondary review process, physician education, and other interventions. Over the course of 8 weeks, the numbers improved to 48% of short-stay cases being supported as an inpatient. If AI refinements were included, the projection rate would increase to 70%.  

HOW CAN WE HELP?

This is where SAPHUR’s customizable trigger AI tool called CART can monitor, provide situational awareness, and guidance in real-time to the care team. Adjustments of workflow to reflect changes in rules and regulations such as the Two-Midnight timeline described earlier, can be made quickly, easily, and with minimal disruption. Other triggers can be added or suspended, depending on the hospital’s short and long-term priorities.  

With the CMS updates taking effect in January of 2024, hospitals will need to shift from longstanding practices related to MA patients. Changing practice patterns in hospitals is notoriously difficult to do. Therefore our AI tool is designed to provide clinical decision support to case management and physicians, related to status determinations.

PROLONGED OBSERVATION SERVICES - OPPORTUNITY

Our triggers are designed to continuously monitor  24/7 for key information that impacts the decision for conversion to inpatient, or that support earlier discharge than is the current practice. This early screening by experienced physician advisors, and trigger-based decision-making has led to both decreased OBS LOS, and increased conversion rates to IPS. In one instance, our on-site PA, utilizing CART protocols, showed a 30% reduction in OBS LOS, while peer groups remained unchanged. The percentage of OBS that exceeded 48 hours LOS had a dramatic drop to the negligible rate of 4%. At the same hospital, they saw their rate of conversions from OBS to IPS go from 34% (the regional average) to over 50%.

SHORT INPATIENT STAYS - OPPORTUNITY

CART focuses on concurrent identification of a short stay, allowing for timely screening, and when needed, intervention in support of the inpatient status. At one hospital the rate of self-denials dropped from 90%, down to 52% during a two-month period of enhanced physician advisor screening and intervention. Implementing an AI-based trigger system was projected to prevent another 20% of the cases being denied.

Successful practices gleaned from years of physician advisor experience come together logically via the CART software-built triggers, to impact length of stay, status determinations, and resource utilization. With a 24/7 smart system in place, the software can bridge staffing gaps in utilization management, increase care coordination, and provide a positive financial impact. CART acts as a virtual Physician Advisor and UM team, that expands the impact of the onsite team, but a fraction of the cost.  

To learn more about these and many other AI triggers available through SAPHUR’s EMR CART monitoring software compatible with multi-EHR systems, contact SAPHUR here for a free Physician Advisor consultation. 

* The wording used by CMS, suggests that the 2MN criteria should have always (since 2013) followed the 2MN threshold for inpatient status, and therefore MA plans should apply these criteria immediately. However, this is not clearly spelled out, and several MA plans are pushing back. If we presume the most conservative interpretation, then MA plans will need to follow the 2MN criteria beginning with the 2024 play-year.