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Two-Midnight Rule in 2024: CMS Pushes for Consistency in Coverage

Upcoming regulatory changes affecting the Two-Midnight Rule in 2024

January 2024

Brian Herdman, Director

The new year brings new regulations, rates, and rule updates. These changes are nothing new for those of us in healthcare reimbursement, but for those involved in compliance with Medicare’s Two-Midnight Rule, there are two important updates for 2024. One of these is a rule taking effect after a long time coming; the other is a proposal that could be yet another thorn in CaseManagement/Utilization Review’s side. However, the goal for both changes is to improve access to covered services for Medicare beneficiaries.

The first of these rules(CMS-4201-F), the one that’s a long time coming, pertains to regulations for Medicare Advantage (MA) plans. For years, providers have commented that MA plans have had the flexibility to disregard Medicare rules when it suits them. In 2022, the OIG released a thorough study into denial rates from MA plans and found that they routinely denied payment for services that would have been paid by Medicare (often after the care had been delivered). The effect of this practice is that Medicare beneficiaries in MA plans are denied services that traditional Medicare covers.

This rule was first introduced in December 2022, finalized in April 2023, and went into effect on January 1, 2024. This update mandates that MA plans follow Medicare coverage policies when they exist, including the Two-Midnight Rule, inpatient-only list, and Medicare’s numerous Local/National Coverage Determination policies. The final rule did allow a sliver of difference between coverage policies if the MA plan can point to peer reviewed research in support of a contrary policy. Still, this exception requires up-front communication and documentation of the rule and rationale. Providers will needto hold Managed Medicare plans accountable to these new rules by appealing determinations that do not adhere to the new regulations.

The latest proposed rule, which is not yet implemented, stems from a legal case in which a Medicare beneficiary filed a lawsuit against HHS. This occurred after the individual was denied coverage for a skilled nursing episode following a hospital stay that transitioned from inpatient to observation status. The court eventually found that when a patient is initially admitted as an inpatient and subsequently converted to observation by the hospital, the patient has the right to appeal the decision (Alexander v. Aza). The proposal (CMS-4204-P) would have a Beneficiary & Family Centered Care - Quality Improvement Organization(BFCC-QIO) -- make a determination one day after the patient initiates the appeal. Patients may also initiate a non-expedited or retrospective review of their inpatient/outpatient assignment. Providers are encouraged to comment on the proposed rule. Given that the rule is a response to a legal challenge, this proposal will likely become finalized in some form – even if the details of the process change.

Let us help you navigate the complexities of financial processes, providing not only assurance but also ensuring that you stay ahead of regulatory shifts. Visit the Revenue Assurances Services page to learn more.

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