The two-midnight rule and Medicare Advantage: 8 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.

"Whether the admission actually crossed two midnights is not a factor in the inpatient admission criteria," CMS wrote in Feb. 6 guidance. "An MA organization may evaluate whether the admitting physician’s expectation that the patient would require hospital care that crosses two-midnights was reasonable based on complex medical factors documented in the medical record."

8 key updates:

1. CMS' expansion of the two-midnight rule could affect more than 20% of Medicare Advantage patients this year and has led to increased inpatient volumes and revenue growth for hospitals in the first quarter, according to a report published May 13 by Strata Decision Technology. 

2. Nashville, Tenn.-based HCA Healthcare CFO Bill Rutherford told investors in April that although it is still early, the system is starting to see "encouraging signs" from the two-midnight rule. 

"We do believe it's providing a moderate benefit," he said. "But on the other side, it's still early and not all claims have completed the adjudication process."

3. Several MA plans continue to disregard CMS' directive, St. Louis-based Mercy CFO, Cheryl Matejka, told Becker's in March.

"When we bill for something, whether it's inpatient or outpatient, we need to be paid for that," she said. "The government is also trying to address some of the challenges around preauthorization. With preauthorizations or authorizations for post-acute care — whether that be home care or skilled nursing care — it's clear there are some challenges with that happening efficiently within the system."

4. Steve Filton, CFO of King of Prussia, Pa.-based Universal Health Services, shared cautious optimism about the rule on a February earnings call.

"We believe there may be an incremental opportunity there, but I don’t think we necessarily feel it’s material until we really see the behavior on the part of the payers change," he said. 

5. Kevin Hammons, CFO of Franklin, Tenn.-based Community Health Systems, said on a February earnings call that it is too early to see the effects of the rule, "but there certainly should be some benefit from the new guidance."

"We have yet to see any real change that's meaningful or measurable, but having said that, we do expect there to be some favorable movement into 2024," he said. 

6. 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. 

7. 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."

8. 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.

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