Moody's: Two-midnight rule will hit hospital revenue

Could lose as much as $4,000 per case
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The upcoming two-midnight rule for inpatient admissions will put considerable financial pressure on the nation's hospitals in the coming months, according to a new report by Moody's Investors Service.

The Centers for Medicare & Medicaid Services has been trying to formulate a concrete rule for hospitals, which are far more likely to be subject to medical necessity-based reimbursement clawbacks by revenue audit contractors (RACs) if patients are admitted and discharged within a day or two. Under the current proposal by CMS, any patient held for two consecutive midnights would not be subject to short-stay audits. The rule is scheduled for implementation this October, but the CMS has been prompted to issue regular clarifications due to ongoing concerns from hospitals.

According to Moody's, the rule could cost hospitals as much as $3,000 to $4,000 revenue per case, as well as prompt more patients to be held for observation care, where reimbursements are a fraction of what they are for a full admission. Meanwhile, the cost of caring for such patients is similar to that of full admission to the hospital.

Smaller community hospitals, which tend to have shorter average stays and less acute cases, are at particular risk. But tertiary and teaching hospitals would also be hit hard. "Although they have fewer low-acuity cases as a share of overall patient volume, they are predominantly focused on inpatient care," the report noted. "Because their cost base is typically higher than community hospitals, the conversion of patients to outpatient will result in greater losses on a per case basis."

However, Moody's also believes that many hospitals will adjust to the new realities of the rule. "Over the last few years, some hospitals have opened lower-cost, separate observation units to care for patients that don't meet the qualifications for inpatient admission but require treatment. This has the potential to lower costs for certain groups of patients," the report said.

Becker's Hospital Review also noted that hospitals would likely have to devote fewer resources to battling RAC clawbacks on short-stay cases.

To learn more:
- read the Becker's Hospital Review article
- read the Moody's report (purchase required)

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