CMS' expansion of the two-midnight rule led to increased inpatient volumes and revenue growth for some health systems this year, but the jury is still out on its long-term impact on hospital operations and financial performance.
"The two-midnight rule is actually dilutive when it comes to our case mix on the inpatient side," Sam Hazen, CEO of Nashville Tenn.-based HCA Healthcare, said during the company's second-quarter earnings call. "We jumped over the implications of the two-midnight rule because those are lower acute patients who deserve to be on an inpatient status, but none the less than average equity by comparison."
HCA's former CFO Bill Rutherford, who retired May 1, said in the first quarter that the system's inpatient volume was beginning to see "encouraging signs" related to the rule, which requires Medicare Advantage plans to provide coverage for an inpatient admission — rather than observation — when the admitting physician expects the patient to require hospital care for at least two midnights.
However, Mr. Rutherford admitted it was too early to predict the long-term effect of the rule.
After reviewing second-quarter results, Mr. Hazen said the "acuity and complexity of the services that we offer is even more than what it reports out simply because of the dilutive effect of the two-midnight rule."
Franklin, Tenn,-based Community Health Systems said it has seen a decrease in observations and an increase in short-stay admissions because of the rule.
"We attribute a significant portion of that to the work we've done internally with our physician adviser group that's helping us qualify those short stays for admissions," CHS CFO Kevin Hammons said during the company's second-quarter earnings call. "In terms of [payer] behavior, we're still seeing a pretty significant amount of denials and downgrades. But all that said, we have made progress in reducing the number of observations and increasing short stays that we believe is beneficial."
King of Prussia, Pa.-based Universal Health Services, which comprises 333 behavioral health inpatient facilities and 27 acute-care hospitals, is still waiting to see a definitive impact from the two-midnight rule.
"We've been unable to validate or precisely identify any real benefit we're getting from the two-midnight rule change," UHS CFO Steve Filton said during the company's second-quarter earnings call. "We don't see any dramatic change in metrics like amount of denials or patient status changes, etc. Nor anecdotally do we hear from our personnel who deal with this issue on a daily basis that they've seen real behavior changes on the part of payers. I know some of our peers have suggested otherwise, but we're unable to parse out any significant impact from the change of the two-midnight rule."