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55 hospitals sue HHS over two-midnight rule, payment cuts

CMS had estimated 40,000 patients would be shifted from the outpatient to the inpatient setting, leading to an additional $220 million in payments.

Susan Morse, Senior Editor

Fifty-five hospitals have filed a lawsuit against the Secretary of Health and Human Services over Medicare's 0.2 percent cut in payment for inpatient stays that went into effect January 1 under the two-midnight rule, according to lawyers at Foley & Lardner in Washington, D.C., who filed the lawsuit on Friday.

The lawsuit contests the validity of payment cuts to all Medicare participating hospitals based on the two-midnight rule requirement that a patient be in the hospital for two midnights before Medicare will pay Part A reimbursement for an inpatient stay.

Without a patient stay crossing two midnights, Medicare deems the treatment as outpatient and payable at a different rate.

Because of the rule, the Centers for Medicare and Medicaid Services said it expected to see a decline in patient observation stays and an increase in the number of inpatient admissions. It estimated that 40,000 patients would be shifted from the outpatient to the inpatient setting, leading to an additional $220 million in payments to providers.

[Also: CMS cements 'physician judgment' exception in two-midnight policy]

To offset the increase in the number of patients CMS initiated a 0.2 percent reduction in provider payment on Oct. 1, 2014, and another 0.2 percent reduction in 2015, according to Attorney Don Romano of Foley & Lardner. CMS has also proposed another 0.2 percent decrease for 2016, he said.

In their lawsuit, the hospitals argued that CMS' estimate of additional inpatient admissions is speculative and based on faulty assumptions, according to Foley & Lardner.

The two midnight rule was enacted after CMS said hospital services were being rendered in a medically unnecessary inpatient setting.

CMS also observed a high frequency of patients who were in the hospital being treated as outpatients under observation. This was a concern, CMS said, because beneficiaries need a three-day inpatient stay before being eligible for Medicare coverage in a skilled nursing facility.

Friday's lawsuit is the latest to be filed by hospitals over the two midnight rule.

[Also: CMS unlawfully imposed 0.2% payment cut to cover two-midnight rule, federal court rules]

Last year, the American Hospital Association and several hospital organizations sued to overturn the rule. The lawsuits were consolidated as Shands Jacksonville Medical Center vs. Sylvia Burwell, secretary of the Department of Health and Human Services.

In the fall, a federal judge partly sided with providers in ordering CMS to provide further justification for the 0.2 percent payment reduction. It rejected CMS's argument that it met all legal requirements for rulemaking when it decided to cut hospitals' inpatient payments by 0.2 percent.

CMS violated the Administrative Procedure Act in not allowing hospitals the opportunity to comment on the agency's proposal, the court ruled.

The comment period is open through the first week of February, Romano said. CMS will then decide whether to modify or withdraw the rule, he said.

"If it's kept in place as is, then the plaintiffs will decide whether to press the issue," he said.

The court has rejected the argument that the Medicare Act does not authorize the HHS secretary to make an across-the-board 0.2 percent reduction in the payment of inpatient services.

Separate from this case is a determination of what constitutes inpatient or outpatient services, according to Romano

The 55 hospitals filing suit against HHS, according to Becker's Hospital CFO, include:


John C. Lincoln Hospital-Deer Valley (Phoenix)
John C. Lincoln Hospital-North Mountain (Phoenix)
Scottsdale (Ariz.) Healthcare Osborne Medical Center
Scottsdale (Ariz.) Healthcare Shea Medical Center
Scottsdale Healthcare Thompson Peak (Phoenix)


Denver Health
Longmont (Colo.) United Hospital


Lawrence and Memorial Hospital (New London)


Indian River Memorial Hospital (Vero Beach)


Hamilton Medical Center (Dalton)


Blessing Hospital (Quincy)


Covenant Medical Center (Waterloo)
Saritori Memorial Hospital (Cedar Falls)


Abbeville (La.) General Hospital
Avoyelles Hospital (Marksville)
Dauterive Hospital (New Iberia)
Iberia (La.) Medical Center
Heart Hospital of Lafayette (La.)
Lake Charles (La.) Memorial Hospital
Oakdale (La.) Community Hospital
Thibodaux (La.) Regional Medical Center
Winn Parish Medical Center (Winnfield)


Lakeland Hospital Medical Center-Saint Joseph (Mich.)
Oaklawn Hospital (Marshall)


Pemiscot Memorial Health Center (Hayti)


The Nebraska Medical Center (Omaha)

North Carolina

Brunswick Medical Center (Bolivia)
Charlotte (N.C.) Orthopedic Hospital
Forsyth Medical Center (Louisburg)
Franklin Medical Center (Louisburg)
Huntersville (N.C.) Medical Center
Matthews (N.C.) Medical Center
Medical Park Hospital (Winston-Salem)
Presbyterian Medical Center (Charlotte)
Rowan Medical Center (Salisbury)
Thomasville (N.C.) Medical Center


Asante Ashland (Ore.) Community Hospital
Asante Rouge Valley Medical Center (Medford)
Asante Three Rivers Medical Center (Grants Pass)
Salem (Ore.) Hospital
Rhode Island
The Westerly (R.I.) Hospital

South Carolina

Gaffney (S.C.) Medical Center

South Dakota

Avera McKennan Hospital (Sioux Falls)
Avera Heart Hospital of South Dakota (Sioux Falls)
Avera Queen of Peace Hospital (Mitchell)
Avera Sacred Heart Hospital (Yankton)
Avera St. Luke's Hospital (Aberdeen)
Avera St. Mary's Hospital (Pierre)


United Regional Health Care (Wichita Falls)


Midwest Orthopedic Specialty Hospital (Franklin)
St. Francis Hospital (Milwaukee)
Wheaton Franciscan (Milwaukee)
Wheaton Franciscan Health Care All Saints (Racine)
Wheaton Healthcare Franklin (Wis.)


Cheyenne (Wyo.) Regional Medical Center

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