CMS instructs MACs on 2-midnight rule settlement agreements

CMS announced partial settlement agreements and instructions for Medicare Administrative Contractors (MAC) in relation to several 2-midnight rule cases.

Transmittal 1969, dated November 9, outlines how MACs can ensure hospitals receive payments related to the 0.2% downward payment adjustment in the inpatient prospective payment system (IPPS) for fiscal year 2014. The settlement agreement between CMS and the hospitals that challenged the payment adjustment is intended to offset the adjustment the agency insisted was necessary due to anticipated increased inpatient hospital expenses associated with 2-midnight rule implementation.

The agreement will result in the application of an interest adjustment factor for determining payment between June 1, 2017, and May 31, 2018, for discharges at facilities named in the transmittal. Hospitals eligible for an adjustment should refer to Attachment A of Transmittal 1969 to see if their provider number is listed.

The debate over CMS’ 0.2% IPPS payment adjustment is longstanding. In 2015, the American Hospital Association (AHA) and several hospital organizations rallied against the payment cut by filing a lawsuit against CMS, stating that it did not have the authority to impose such a payment cut. CMS later stated the reduction was imposed because it anticipated that 2-midnight rule implementation would result in an increased number of outpatient cases moved to the inpatient setting, which would drive up costs.

The AHA penned several letters that illustrated its displeasure with the rule and even called it “unlawful.” A February 2016 letter from AHA Executive Vice President Tom Nickels stated that CMS “failed not only to provide critical factual information underlying the methodology behind the reduction but also to provide a reasoned explanation for the many assumptions made in its modeling.”