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122 Short-Term Acute Care Hospitals File Lawsuit Against HHS Over Two-Midnight Rule

August 1, 2016
by Heather Landi
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More than 100 short-term acute care hospitals are listed as plaintiffs in a lawsuit filed against the U.S. Department of Health and Human Services (HHS) Secretary Sylvia Mathews Burwell over payment cuts in the Centers for Medicare & Medicaid Services (CMS) two-midnight rule for Medicare inpatient admissions.

Short-term acute care hospitals that participate in the Medicare and Medicaid program are paid under the inpatient prospective payment system (IPPS). The two-midnight rule directs CMS payment contractors to presume hospital stays are appropriately billed as inpatient admissions rather than outpatient observation visits if they span two midnights. The rule also reduces inpatient prospective payment system rates for fiscal years 2014 through 2018 by 0.2 percent, or $220 million in the aggregate for each year.

In the lawsuit, the plaintiffs allege that the Final Rule is “confusing, ambiguous and internally inconsistent as to the extent of a one-day stay (a stay in which the patient was not expected to, and does not, cross two midnight) can be appropriately inpatient.”

The lawsuit also cites a September ruling in the Shands Jacksonville Medical Center v. Burwell civil case, in which hundreds of hospitals challenged the same rate reduction at issue in this lawsuit. The judge in that case ruled the HHS secretary must provide better justification for the part of the two-midnight rule that would cut inpatient payments to hospitals.

In April, CMS published a Notice of Proposed Rulemaking for the IPPS rule for fiscal year 2017 that proposed to remove the 0.2 percent downward adjustment going forward via a permanent, prospective, upward adjustment beginning in FY 2017. Hospitals will also see a temporary increase of 0.6 percent in fiscal 2017. That would make up for the 0.2 percent reduction to the rates the past three years.

The hospital plaintiffs allege that there “were not given a meaningful opportunity to comment on the proposal to reduce operating and capital IPPS payments by 0.2 percent.” And, the lawsuit states the HHS Secretary’s actions were in violation of the Administrative Procedure Act and were “without observance of procedure required by law.”

The lawsuit also states, “The Final Rule is arbitrary and capricious because its assumptions, that approximately 400,000 encounters will shift from outpatient to inpatient and approximately 360,000 encounters will shift from inpatient to outpatient, causing a net gain of 40,000 inpatient stays, are mere speculations based on CMS’s faulty assumptions concerning how hospitals and Medicare contractors will react to the 2 Midnights policy, which is confusing, ambiguous, and internally inconsistent.”

And, the plaintiffs also alleged in the lawsuit that the 0.2 percent cut in hospital reimbursement is “invalid because it exceeds CMS’s statutory authority. The statutory authority relied upon by CMS in the Final Rule, as delegated by the Secretary to CMS, does not permit CMS to make across-the-board decreases in the base amount of operating and/or capital inpatient prospective payments due to hospitals.”

The plaintiff hospitals have asked the court to declare the rule’s 0.2 percent IPPS payment cut invalid, require HHS to recalculate the payment rates for fiscal year 2014 in order to offset the cuts hospitals incurred under the two midnight rule and require HHS to award the hospitals the payment difference.



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