Medicare Advantage Plans and the Two-Midnight Rule

Controversy continues to swirl around this subject.

A recent article of mine focused on the argument that Medicare Advantage (MA) plans have to follow the two-midnight rule. It certainly generated buzz; I received a number of emails with comments and questions. First, I want to note that I love getting comments and questions. I can’t promise that I can answer every question for free, but I can promise to review everything I get.

One commenter noted something that I should have included in the initial article. The Centers for Medicare & Medicaid Services (CMS) agrees that when providing coverage outside of the network, plans must follow the two-midnight rule.

Yet there is a huge “but” that accompanies that statement. CMS believes that while it may have expectations about what a plan should include in its contracts with healthcare organizations if a healthcare organization opts to enter into a contract that surrenders rights to which it would be entitled, that is between the healthcare organization and the plan, and CMS won’t get involved.

That is a very important point, and it can affect a number of different issues. For example, before CMS revised its position a year or so ago, there was considerable controversy about the obligation of hospitals and clinics to offer government-designed anti-fraud, waste, and abuse training to staff.

But the requirement applied only to the plan itself, not to healthcare organizations. Many plans sought to impose draconian training obligations, in some cases demanding that all healthcare professionals watch a long, dull slide deck. The law didn’t require healthcare organizations to do this, but most agreements with MA plans imposed the obligation via contract. This highlights a very important point. Whoever does your contracting with health plans needs to understand that if you want to avoid a particular obligation, you must word your contract accordingly. 

If you don’t use your contract to solve this problem, can a plan ignore the two-midnight rule? The answer isn’t crystal clear. My initial article mentioned the possibility that the patient could pay more if they are treated as an outpatient rather than an inpatient.

One wise physician disputed that with the following example: say a patient is paying for 20 percent of the observation APC, but the total bill is $4,000, leaving a copayment of under $1,000. The Part A deductible is around $1,300, higher than the copayment. Her point is fair, but I would counter that a deductible can be met. If this is the patient’s second hospitalization of the year, the patient is worse off if he or she is categorized as an outpatient. The fact that we can come up with scenarios under which the patient is not worse off doesn’t mean that there aren’t many others wherein the patient is harmed. The plans are statutorily required to provide patients with benefits that are as generous as traditional Medicare, and the fact that there are situations that would violate that requirement should be sufficient to lead to the conclusion that the plans may not impose the policy. 

Another listener recounted his exchanges with CMS and offered a detailed analysis of the statute. He noted that SSA 1852, Section 2 describes how MA plans can meet the test for providing the same benefits that traditional Medicare offers. The listener correctly pointed out that this section has language suggesting that it does not apply to plans that contract with hospitals; it only applies to patients seen out of network. But the way the statute is written, situations in which the plan and healthcare organization have a contract are carved out of the language, making for one option for satisfying the requirement for having benefits as generous as traditional Medicare. Nothing in the statute indicates that plans with a contract are somehow totally exempted from the requirement.

This language is all extremely difficult to interpret. But one thing is clear: tell your contracting professionals that you want your contracts to make it clear that the MA plan will follow the two-midnight rule.

A well-designed contract can render the ambiguities in the statute irrelevant.     

Program Note:

Listen to David Glaser every Monday on Monitor Mondays, 10-10:30 a.m. EDT.


David M. Glaser, Esq.

David M. Glaser is a shareholder in Fredrikson & Byron's Health Law Group. David assists clinics, hospitals, and other health care entities negotiate the maze of healthcare regulations, providing advice about risk management, reimbursement, and business planning issues. He has considerable experience in healthcare regulation and litigation, including compliance, criminal and civil fraud investigations, and reimbursement disputes. David's goal is to explain the government's enforcement position, and to analyze whether this position is supported by the law or represents government overreaching. David is a member of the RACmonitor editorial board and is a popular guest on Monitor Mondays.

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