Becker's Hospital Review

54 Financial Management C MS' two-midnight rule will reduce rev- enue for most hospitals when it takes ef- fect this October, according to a report from Moody's Investors Service. The two-midnight rule was established by the 2014 Medicare inpatient prospective payment rule. According to the policy, inpatient admis- sions spanning at least two midnights qualify for Medicare Part A payments. Inpatient stays lasting fewer than two midnights must be treated and billed as outpatient services. CMS introduced the policy to better monitor Medicare reimbursement for short inpatient stays and ensure inpatient ad- missions are medically necessary. Hospital leaders, physicians and healthcare groups have fiercely opposed the rule, saying it is unclear and undermines the medical judgment of physicians. Moody's expects the rule to weaken hospital op- erating profitability in calendar year 2014 and beyond as it lowers Medicare reimbursement, although the regulation's impact will vary across the nonprofit hospital sector. Here are six key observations from the report on what the two- midnight rule means for hospitals. 1. The rule could decrease revenues for hospitals by $3,000 to $4,000 per case as more stays are clas- sified as outpatient. Inpatient stays have Medicare reimbursement rates that are, on average, two or three times higher than outpatient cases, accord- ing to Moody's. 2. The two-midnight rule is expected to speed up the decline in inpatient volumes as care shifts to an outpatient setting. The rule adds to other pres- sures driving the rise in outpatient admissions, including Medicare reviews of medical necessities and changes in care delivery models. 3. Low-acuity community hospitals will see the biggest impact, since they tend to have a greater share of cases that involve short hospital stays, ac- cording to Moody's. These hospitals with low av- erage lengths of stay are generally smaller, lower- rated and are therefore less capable of handling reduced revenue than other hospitals. 4. The drop in revenue will also affect all hospi- tals that rely on inpatient care for most of their operating profit, regardless of their size. For this reason, tertiary hospitals and academic medical centers that focus on inpatient care will see nega- tive financial effects. Meanwhile, hospitals that perform large numbers of surgeries on an inpa- tient basis won't be hit as hard, since CMS classi- fies many inpatient surgeries as "inpatient only." 5. Moody's anticipates smaller hospitals with less integrated staffs will be at a disadvantage when it comes to adapting to the rule change. While larger hospitals probably won't have problems enacting physician documentation changes to ensure com- pliance with the rule, smaller hospitals with limit- ed medical and support staffs may face challenges. 6. The two-midnight rule could have one upside for hospitals: Moody's predicts the new regulation could ease the pressure of Medicare recovery audit contractor reviews. RACs have reviewed the medi- cal necessity of many short-stay admission claims, contributing to the shift from inpatient care to outpatient settings and reducing hospital revenue. By clearing up any ambiguity regarding short-stay admissions, the two-midnight rule could make the RAC situation less stressful for providers. n Most Hospitals to See Less Revenue under Two-Midnight Rule By Helen Adamopoulos Six Very Good R e a s o n s Why Most IDNs Rely on TECSYS TECSYS' dominance in health systems is not just about robust so ware technology, it is more about deep exper se, experience and industry know-how that enable IDNs to be totally informed—before, during and a er their supply chain transforma onal ini a ve. TECSYS – The leader in supply chain and consolidated service center solutions to Health Systems Empowered to transform their supply chain into an op mized network through to point-of-use. Received health system-specific so ware solu ons for the efficient and effec ve execu on of demand planning, inventory management and on- me delivery of supplies for pa ent-centric care. Gained total inventory visibility across their care delivery con nuum. Minimized obsolescence, reduced supply spend by millions. Reclaimed millions in uncharged supplies to become billable items. Freed up clinicians to focus on quality pa ent care. Call us today at 1.800.922.8649 and get on the proven path of best-in-class supply chain performance. V i s i t u s a t b o o t h # 1 6

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