Category: Health and Human Services

Down With the Two-Midnight Rule

On April 14, 2014, the American Hospital Association, New Jersey Hospital Association, and other hospital associations and systems (“Plaintiffs”) filed a federal lawsuit in the United States District Court for the District of Columbia, case 1:14-cv-00609, against Kathleen Sebelius as Secretary of Health and Human Services (“HHS”) challenging three “unlawful” Medicare policies.[1] One of these policies is known as the two-midnight rule and involves Medicare Part A reimbursement.[2]  This involves reimbursement for “inpatient” hospital services.

Neither HHS nor its administrative agency, the Centers for Medicare and Medicaid Services (“CMS”), has ever formally defined “inpatient.” CMS has recognized that the decision to admit a patient is a “complex judgment” call involving various factors including medical history, current medical needs, severity of signs and symptoms, types of facilities available, hospital by-laws and admissions policies, the medical predictability of something adverse happening to the patient, and the relative appropriateness of the treatment.  Medicare Benefit Policy Manual  Ch. 1 §10.  Indeed, hospitals and physicians have been instructed by CMS that “generally, a patient is considered an inpatient if formally admitted as [such] with the expectation that he or she will remain at least overnight, and occupy a bed even though it later develops that the patient can be discharged or transferred to another hospital and not actually use a bed overnight.”  Id. According to CMS, a physician should “use a 24-hour period as a benchmark; i.e., [physicians] should order admission for patients who are expected to need hospital care for 24 hours or more.” Id.

Despite its own guidance, CMS published a final rule in August 2013 that a Medicare beneficiary is not an “inpatient” unless the admitting physician expects the patient to require care in the hospital spanning two midnights (admitted on Day 1 and discharged on Day 3).  Thus, CMS will not pay for an inpatient stay that spans less than two midnights (regardless of level of care, i.e., intensive care unit).  Instead, that patient stay will be converted to an outpatient stay and one reimbursed under Medicare Part B.

The Plaintiffs allege this CMS rule is “arbitrary and capricious” and undoes decades of Medicare Policy.  The Plaintiffs find it “unwise” to supplant physician judgment with a government rule.  It “defies common sense” for “inpatient” to mean “a person who stays in the hospital until Day 3.”

This, allege the Plaintiffs, is contrary to the Administrative Procedures Act (“APA”).  The policy deprives hospitals of reimbursement to which they are entitled and forces them to spend an exorbitant amount of money and time and change their medical records systems, admissions policies and procedures and documentation protocols to comply with the rule.  It further redirects resources that would otherwise be invested in patient care.  Thus, request the Plaintiffs, the policy must be set aside.

As of May 14, 2014 an Answer by the Government has not been filed.


[1] A second federal lawsuit was also filed contending that the 0.2 percent Medicare payment based on CMS’ expectation of more patients being admitted for a two-midnight stay is unlawful.

[2] The other two policies being challenged are (1) requiring rebilling of denied claims within one year of service when many claims are at least a year old when audited and (2) expecting that physicians certify at admission that a Medicare patient is expected to need treatment for a period spanning two midnights.

As Open Enrollment Closes, Secretary Sebelius Steps Down

On Friday April 11, 2014 President Obama announced the resignation of Health and Human Services Secretary Kathleen Sebelius.  The announcement comes after months of derision and calls for her resignation from Republican lawmakers following the troubled rollout of the website.

Despite the difficulties of the past several months, Secretary Sebelius’ resignation comes at what many supporters consider a high point, only days after the March 31, 2014 enrollment deadline under the Affordable Care Act during which more than 7 Million people enrolled for insurance coverage.

In connection with the resignation announcement, President Obama nominated Sylvia Mathews Burwell, the current Director the Office of Management and Budget, as Secretary Sebelius’ replacement.

The choice of Burwell as replacement may signal that the President wants to avoid a contentious election year fight to fill the HHS post as Burwell was unanimously confirmed by the Senate to her current post just last year.  However, given the current contentious atmosphere in Washington, particularly as it relates to the Affordable Care Act, it is hard to believe the confirmation process will be as easy this time around.

Nevertheless, Burwell’s confirmation is nearly assured. With the recent rule changes on most executive and judicial branch nominations, Democrats need only 51 votes to confirm her, and the party controls 55 votes in the chamber.

Proposed HIPAA Rule Change Potentially Threatens Second Amendment Rights Without Due Process of Law

On January 7, 2014 the U.S. Department of Health and Human Services (“HHS”) issued a notice of proposed rulemaking to modify the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) Privacy Rule to expressly permit certain HIPAA covered entities to disclose to the National Instant Background Check System (“NICS”) the identities of individuals who are subject to a Federal “mental health prohibitor” which disqualifies them from shipping, transporting, possessing, or receiving a firearm. The proposed rule would permit disclosure of only the fact that the individual is subject to the prohibitor, not the underlying diagnosis, treatment records or other protected health information (“PHI”).

Among the persons disqualified from receiving firearms under the “mental health prohibitor” are individuals who have been “adjudicated as a mental defective” or “committed to a mental institution.” 27 C.F.R. 478.32(a)(4). Included in those “adjudicated as a mental defective” are individuals found incompetent to stand trial or not guilty by reason of insanity as well as those determined by a court, board, commission, or other lawful authority to be a danger to themselves or others or lacking the capacity to contract or manage their own affairs. “Committed to a mental health institution” includes not only commitment for mental illness, but also commitment for other reasons, such as drug use. 27 C.F.R. 478.11.

HHS indicates that the rule is designed to address perceptions that HIPAA creates a barrier to entities reporting information to NCIS. In this regard, HHS notes that the vast majority of determinations of incompetence and involuntary commitments are originated in the justice system by entities which are not HIPAA covered entities. Thus, HHS believes the proposed rulemaking merely resolves any perceived ambiguity and clarifies the authority of these entities to report information to NCIS.

However, it has been suggested that the rule change may have a more significant impact. While HHS states the rule change is an attempt to balance individual privacy rights against the public safety, opponents suggest additional considerations should be weighed. Commitment procedures vary from state to state and some states permit mental health providers to commit individuals without prior adjudication. HHS responded to earlier comments on this subject by noting that those states still require the information to eventually be shared with the judicial system. Opponents of the rule argue that by permitting disclosure by the mental health provider directly, rather than limiting disclosure to non-covered entities such as the judicial system, the proposed rule change fails to ensure the individual has received appropriate judicial review prior to reporting. Thus, it is argued by some that reporting of a commitment will result in a deprivation of an individual’s Second Amendment rights and, therefore, it is essential that the individual be provided appropriate due process protections, if not prior to commitment, prior to reporting.

To address these issues, amendments would be required to the definition of “committed to a mental institution” to ensure an individual receives appropriate procedural protections prior to being committed and reported to NCIS. The U.S. Department of Justice (“DOJ”) issued a proposed rule change related to that definition on the same day HHS issued its proposed rule. However, the proposed DOJ rule addresses whether the term includes both inpatient and outpatient treatment, and whether it applies to commitments of individuals while under the age of majority. The DOJ’s proposed rule does not address what procedural protections would be provided to a patient prior to being “committed to a mental health institution” and subject to the mental health prohibitor.

It is fair to expect that these and other concerns will be addressed during the comment periods on the proposed rules; the comment periods for the proposed HHS and DOJ rules expire on March 10, 2014 and April 7, 2014 respectively.