The two-midnight rule is driving up inpatient costs for Humana.
On a July 31 call with investors, Humana CEO Jim Rechtin said inpatient admissions in Medicare Advantage were higher than expected in the back half of the second quarter of 2024.
Humana's medical loss ratio was 89% in the second quarter, up from 86.3% in the same time period last year.
Susan Diamond, Humana's CFO, said the two-midnight rule was likely the largest factor driving higher inpatient costs.
At the beginning of 2024, new CMS regulations took effect requiring Medicare Advantage plans to provide coverage for an inpatient admission, rather than observation, when the admitting physician expects the patient to require hospital care for at least two midnights.
The increased inpatient admissions Humana has observed tend to be lower acuity and lower cost, Ms. Diamond said. The increased inpatient stays correlated to a decrease in observation stays, meaning the two-midnight rule is likely to blame for rising utilization.
"We would say this is also consistent with what we've seen reported from the hospital systems with their results in terms of volume and revenue per patient," she said. "So we do believe it's all consistent."
In April, Nashville, Tenn.-based HCA Healthcare CFO Bill Rutherford said the two-midnight rule was providing a "moderate benefit" to the system's revenues.
Mr. Rechtin said the company is enhancing claim audits and negotiating with providers to mitigate the impact of the rule. Despite the increase in inpatient admissions, the company's overall medical benefit ratio was lower than expected for the quarter, he said.
The company also raised its Medicare Advantage member growth expectations for the year, offsetting the higher inpatient costs. Humana expects to add 225,000 members in 2024, a growth rate of 4.2%.
In addition, the company said it expects to lose a "few hundred thousand" members through market and plan exits in 2025.