The two-midnight rule and Medicare Advantage: 7 updates

In 2024, Medicare Advantage plans must provide coverage for an inpatient admission when the admitting physician expects the patient to require hospital care for at least two midnights, otherwise known as the two-midnight rule.

The rule was included in the 2014 Medicare inpatient prospective payment system final rule. In 2023, CMS clarified in its final rule that MA plans must also follow the two-midnight rule, its case-by-case exception and the inpatient-only list beginning in 2024.

"It's going to be critical that hospitals work with their doctors to improve their documentation, not only to support the need for the patient to be in the hospital, but for how long they expect that patient to be there," Ronald Hirsch, MD, vice president of regulations and education group at R1 Physician Advisory Services, told Becker's in June. "MA plans are theoretically going to have to pay for a lot more inpatient admissions, so they're going to audit a lot more."

Seven key updates:

1. On Feb. 6, CMS issued guidance to insurers regarding implementation of the two-midnight rule. "MA plans are required to follow these inpatient admission criteria," the agency wrote, while clarifying that "MA plans do not have to follow the 'two-midnight presumption,' which relates to medical review instructions within traditional Medicare. 

The agency also clarified that MA plans must provide coverage when the physician does not expect the care to cross two midnights but determines inpatient care is still necessary (case-by-case exception), and when the inpatient admission is for a surgical procedure specified as inpatient only under Medicare (inpatient-only list).

2. UnitedHealthcare issued its own two-midnight guidance in January, noting that MA plans may "adopt internal coverage criteria when the applicable coverage criteria in original Medicare laws, national coverage determinations and local coverage determinations are not fully established." CMS allows UnitedHealth to use InterQual criteria to assist in creating internal coverage criteria. InterQual is a clinical decision support software that was developed by Change Healthcare and purchased by UnitedHealth in 2022.

3. On Feb. 2, Becker's discussed the two-midnight rule with Chip Kahn, president and CEO of the Federation of American Hospitals.

"[The final rule] doesn't say MA plans have to adhere completely to the two-midnight rule per se, but it sends a clear message that they have to adhere to it, at least in spirit. 

"If you look at data from the last couple of years, there's a broad disparity between denials from MA plans versus fee-for-service. Those denials from MA plans are just turning a lot of inpatient days into observation days. 

"At the end of the day, there is physician discretion here and the physicians are basically treating many patients in the inpatient setting. MA plans are going to find ways to contain what they're willing to pay for services. That's fair game to the extent that they have good clinical justifications, but if it gets in the way of the physician-patient relationship, then they're doing the wrong thing and Medicare isn't treating everybody the same. 

"CMS now has a request for information out in which they're asking for information about what they should be measuring and looking at to make sure that the health plan is doing their job."

4. Centene's CFO, Drew Asher, addressed the two-midnight rule when asked by investors Feb. 6: "We've been on top of that, preparing for that, thinking through that as we formulated our forecasts for 2024, and we think we've got that captured," he said. 

5. CVS Health's CFO, Tom Cowhey, said Feb. 7 the company has made internal adjustments in response to the two-midnight rule and rising MA utilization rates.

"One of the things that we spent a lot of time looking at specifically was inpatient," he said. "And there are some puts and takes there. But on the whole, that category remains consistent with our expectations. Now, we did make a provision in our bids, which is incorporated in our guidance for the changes that would happen in January from the two-midnight rule."

6. Humana's CFO, Susan Diamond, told investors Jan. 25 the company is "looking at" the effect of the two-midnight rule as one potential underlying cause for rising MA utilization rates and related financial losses in the fourth quarter.

7. Nashville, Tenn.-based HCA Healthcare's CFO, Bill Rutherford, told investors Jan. 30 that it is too early to understand the two-midnight rule's effect on the health system, but the company expects it to benefit patients.

"Over time, there could be some moderate positive results for us," he said. "But we've seen no impact yet."

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