Dr. Khiet Trinh, Chief Physician Advisor, Author at Ensemble Health Partners https://www.ensemblehp.com/blog/author/khiet-trinh/ Your modern revenue cycle solution Tue, 24 Jun 2025 14:51:16 +0000 en-US hourly 1 https://www.ensemblehp.com/wp-content/uploads/2023/10/Logo-Chevron-80x80.png Dr. Khiet Trinh, Chief Physician Advisor, Author at Ensemble Health Partners https://www.ensemblehp.com/blog/author/khiet-trinh/ 32 32 Clarification of the Two-Midnight Rule: A Win for Physician Advisory https://www.ensemblehp.com/blog/two-midnight-rule-qa/ Wed, 25 Oct 2023 16:13:39 +0000 https://www.ensemblehp.com/?p=12284 The 2024 Medicare Advantage Final Rule clarifies that Medicare Advantage (MA) plans must follow the Two-Midnight Rule set in 2013, and more. … Read More

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The CMS 2024 Medicare Advantage and Part D Final Rule (known as CMS-4201-F) clarifies, among other elements, that Medicare Advantage (MA) plans must follow the Two-Midnight Rule set in 2013. This original rule established standard time-based criteria for MA programs to help determine a patient’s inpatient or outpatient status.

CMS-4201-F also makes it so that shorter-stay, case-by-case exceptions to the Two-Midnight Rule (first implemented for other programs in 2016) as well as the Inpatient Only List (IPOL) also now apply to MA plans. In addition, if a patient would qualify for SNF coverage under fee-for-service Medicare, MA plans will now also have to qualify.

These changes make physicians’ lives easier, and could improve the patient experience, as well, in the sense that there may be fewer status changes with simpler rules.

History of the Two-Midnight Rule

Medicare Advantage programs have exploded in market share over the past decade or so. These programs implemented coverage criteria that were often different — more stringent — than traditional fee-for-service Medicare. A noticeable effect was the rise in the percentage of patients in a hospital that were hospitalized as observation. As this trend continued, operating margins of health systems started to dwindle.

In 2013, Medicare attempted to simplify for clinicians whether to hospitalize a patient as inpatient or outpatient (with observation services). This resulted from legal actions from beneficiaries who were concerned they were being kept for observation when they should have been inpatient. This is important because those who are inpatient have certain rights, such as appeal rights and Skilled Nursing Facility (SNF) coverage rights. There were also greater financial liabilities as an outpatient versus being inpatient. Therefore, CMS implemented the Two-Midnight Rule.

For the first time, a patient’s status was no longer just about intensity of service or severity of illness – it is actually based on time, and more specifically the number of midnights a patient was expected to spend in the hospital for hospital care.

Ostensibly, this was a welcome change because it made it much easier for physicians. They could look at their watch and say that a patient had stayed two midnights for hospital services, or that they were expected to stay two midnights, and therefore make them inpatient.

Clarification of the Two-Midnight Rule within the 2024 Final Rule

MA programs never fully adopted time-based criteria, however. They instead looked to their contracts with CMS, which allowed them to create their own criteria for inpatient versus observation (OBS).

Those in Physician Advisory roles have been urging CMS by writing commentaries or speaking to leaders about the unfairness of some of the criteria used by MA.

Finally, on April 5, 2023, after a comment period, CMS came out and clarified that MA plans must follow the Two-Midnight Rule in addition to other important changes:

  • Case-by-case exceptions: In 2016, a big rule came along that said a patient actually don’t have to stay two midnights — it’s called the “case-by-case exception” through which, if a doctor thinks a patient needs to be inpatient because they’re at such a high risk, but doesn’t expect them to stay two midnights, it’s still okay to admit that patient as an inpatient. That also now applies to MA plans.
  • Inpatient Only List (IPOL): IPOL also now applies to MA plans. This was one example where CMS actually made things easier and said that if the procedure you have is on this IPOL, then you will get inpatient payment regardless of how long the patient stays, provided there is an inpatient order. Again, previously MA plans had their own criteria for surgical statusing and none of them really followed the IPOL. But now, CMS is clarifying that MA plans also have to follow IPOL.
  • SNF coverage: If a patient would qualify for SNF coverage under fee-for-service Medicare, now MA plans would also have to qualify.

These are seismic changes, and it’s great to have this clarity. Whether from a hospital standpoint, a patient standpoint or as a physician, it’s not only clarifying, but it’s simplifying criteria, at least on the surface.

Real world changes for real-life impacts

The clarifications made within CMS-4201-F have wide-ranging impacts, from administration to patients to providers.

Impact: Hospitals and patients

An increase in inpatient status at discharge is likely. The average length of stay for a hospitalization in America is about 4.5 days. This naturally crosses two midnights. Before CMS-4201-F, OBS patients could be languishing many days in OBS because they didn’t “meet” MCG or they didn’t “meet” InterQual.

Now, if a patient is receiving medically necessary hospital services after two midnights, they should be upgraded to inpatient — an important distinction.

Impact: Financial

From a financial standpoint, there may be an opportunity to classify more patients as inpatients than before. To hospitals, this is a positive, as an inpatient designation generally pays more than observation.

There is also a financial impact to patients. For example, if you are hospitalized as observation, you must pay coinsurance each time. Additionally, certain medications that you take in the hospital may not be covered.

Essentially if a patient comes in for observation/outpatient, they are at more financial risk because their coinsurance applies each time they go to the hospital, and because their medications given during the stay may not be covered. Whereas if they are considered inpatient, Medicare will pay for the stay, including medications, for the first 60 days after the deductible has been met.

Importantly, if an inpatient disagrees with discharge, they’re able to appeal to the Quality Improvement Organization (QIO). Those are rights that are only afforded to inpatients. So, by ostensibly making inpatient easier, these rights are now restored to patients who previously would have been OBS.

Impact: Physicians

All of these changes better align with clinicians’ decision-making, enabling them to go with what they know is right for each patient versus fighting with insurance companies that don’t have clear criteria set for why or why not they are reimbursing in a certain way. CMS has always deferred — and they remind readers in this latest regulation — that the decision to admit is a complex medical judgment to be made by the physician.

This is really important because, before the Two-Midnight Rule, admittance decisions were based on commercial criteria. Criteria may say if a patient gets a certain rate of IVF, a certain number of packed Red Blood Cells, a certain liter of oxygen, etc., they can now be inpatient.

But for the doctor at the bedside, they should be able to look at the entirety of the patient, including the presenting symptoms, labs, x-rays, physical exam, risk of adverse events and say, “In my judgment this should be inpatient.” Not only that, but seeing somebody spend days and days in OBS just because they didn’t “meet criteria” can be very frustrating.

Now, a doctor can say, “I expect, in my clinical judgment, this patient to stay two midnights or two midnights have passed for hospital level services. I now can confidently make this patient inpatient.” So, it does bring simplicity, when the vast majority of bedside physicians have no idea how to work commercial criteria tools. The Two-Midnight Rule should make more sense to these same physicians.

Impact: Denials

MA plan denials are not an infrequent occurrence. The OIG looked at denials from 2014 to 2016 and found that only 11% of these denials were ever appealed. However, the MA plan themselves overturned 75% of these appeals. This seems to indicate there are too many inappropriately denied services to begin with. Once there was pushback, the vast majority got overturned.

It was never really intended that MA plans would wield this kind of latitude to deny, and in fact the language being used is that MA plans cannot be more restrictive in covering traditional Medicare benefits than Medicare FFS. The language was always there and CMS-4201-F clarifies, enforces and codifies this key point.

What’s the next big change?

After many Physician Advisors wrote letters during the comment period to CMS supporting the Two-Midnight Rule, many of those same experts then wrote a second letter about the need to reform the prior authorization process.

Different payers have different prior auth processes and algorithms, which causes tremendous administrative burdens for all involved. Even more alarming, there may be direct patient harm due to delays in starting treatment plans as physicians wait for approval. Simplifying prior authorizations is the right next goal.

Dr. Khiet Trinh is the Chief Physician Advisor for Ensemble Health Partners. He is clinically active as a board-certified Family Physician and is also board-certified in Physician Advisory.

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]]> Changes to the CMS Inpatient Only List https://www.ensemblehp.com/blog/changes-to-the-cms-inpatient-only-list/ Fri, 12 Mar 2021 05:00:00 +0000 https://www.ensemblehp.com/2021/03/12/changes-to-the-cms-inpatient-only-list/ Procedures added or deleted from the Inpatient-Only List directly impact the financial health of hospitals. … Read More

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Changes to the CMS Inpatient Only List

With each new year in addition to the celebrations, diet and exercise resolutions, something else quietly occurs. Something that can have profound impact on the bottom line for hospitals. Of course, I am talking about changes to the CMS’ Inpatient Only List (IPO). Procedures added or deleted from the list have direct financial impact to hospitals with magnitude depending on how much and what type of procedures each hospital relies on for its financial health.

The IPO list is updated annually as part of the bigger Outpatient Prospective Payment System (OPPS) updates. The changes are finalized around November of each year with implementation the following January. CMS may propose removing a procedure from the IPO list based on the procedure’s complexity, risk of complications and length of stay. But let’s step back and understand what the IPO list is and what it is not.

Understanding What the IPO List Is

The IPO list encompasses about 1,700 procedures. I like to refer to the IPO list as the “you only get paid if you bill as Inpatient” list. Not catchy I know, but it gets to the point. In other words, regardless of how complex or costly the procedure is, any status other than inpatient on the claim will result in ZERO reimbursement to the hospital. Therefore, it is crucial that the claim is not submitted with an Outpatient status for these CPT codes. Hospitals absolutely must have a hardwired manual, or my preference, an electronic process to scrub their posted cases against the IPO list to be very sure the claim is an inpatient claim, if the CPT is on the IPO list. I have seen systems lose millions, even tens of millions of dollars in not getting this right.

What the IPO List Is Not

Now what the IPO list is not. It is not an exhaustive, exclusive list of the only procedures that CAN be inpatient. While a procedure on the IPO list must be billed as inpatient to get paid, a procedure NOT on the IPO list can still get paid as inpatient (usually netting higher reimbursement) if there is medical necessity for the inpatient status. Perhaps there were complications during the procedure or postoperatively that caused the stay to pass the second midnight. Even preoperatively, if a patient is of such high risk that he or she must be cared for as an inpatient, and if the documentation is strong enough to justify the inpatient status, the patient can be brought in as an inpatient either under the two-midnight expectation or the case-by-case exception Medicare has given us. Some of these gray areas are where a physician Advisor can ensure compliance and at the same time ensure sound financial outcomes.

IPO List Changes Coming In 2021

Big changes are coming to the Inpatient Only List for 2021. First, CMS has confirmed it will phase out the IPO list over the next 3 years. For all its faults, there is a simplicity to the IPO list: if on the list, bill as inpatient. Now status will mirror medical hospitalizations and will rely on physician judgement based on the 2 Midnight rule and case-by-case exception.

I know you have heard me say it before, but I have to say it again, DOCUMENTATION to support inpatient status is paramount. We have always known this for medical cases, but even surgical cases must now have a chart that clearly supports inpatient status if indicated. Any auditor should be able to review the chart and note that it is clear based on the patient’s comorbidities and high risk that a patient could not have been cared for in any setting other than inpatient.

For 2021, the IPO list phase out will commence with the removal of about 300, mostly musculoskeletal, procedures. Simultaneously, CMS will add 11 procedures that can be performed and paid for in an Ambulatory Surgical Center (ASC), including total hip arthroplasties. Under new revised review criteria, CMS has also stated it will add an additional 267 procedures to the ASC list. Clearly, these actions are to continue the momentum of moving procedures out of expensive acute care hospitals to outpatient settings. CMS has stated there will be a memorandum on status reviews for procedures removed from the IPO list.

These big changes will be viewed with mixed emotions, I am sure. Are you a hospital CEO seeing your lucrative procedures transitioning to outpatient? Or even worse, moving down the street to the local ASC? Are you an orthopedic surgeon who can now do more procedures in her ASC? Are you a patient who now has more choices as to settings? One thing is for sure, the IPO list as we once knew is forever changed and soon will cease to exist.

opinsights_cmsinpatientonlylist_031221.pdf

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]]> Out of the Dark: Breaking Down the Two-Midnight Rule https://www.ensemblehp.com/blog/out-of-the-dark-breaking-down-the-two-midnight-rule-2/ Wed, 12 Aug 2020 07:00:00 +0000 https://www.ensemblehp.com/2020/08/12/out-of-the-dark-breaking-down-the-two-midnight-rule-2/ This guide explains the Two-Midnight Rule, one of the most impactful rules affecting hospital’s financial and compliance well-being. … Read More

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In one of its rarer moments, the government, specifically the Centers for Medicare & Medicaid Services (CMS), tried to simplify one of its regulations. The status of a hospitalized patient (inpatient versus outpatient) was confusing to patients and doctors alike. So, effective October 1, 2013, CMS put into effect the now famous “Two-Midnight Rule”. I mean, how much simpler could it be? Staying two midnights means inpatient, right? Unfortunately, to this day, hospitals and doctors still are confused by this “simple” rule. Ensemble’s Physician Advisors have put together this guide explaining one of the most impactful rules effecting hospital’s financial and compliance well-being.

The two-midnight rule applies only to traditional, fee-for-service Medicare. Commercial payers (including Medicare Advantage plans) do not follow the two-midnight rule.

Inpatient admission status is appropriate if, at the time of admission, the admitting physician expects the patient to require medically necessary hospital care that crosses two midnights.

(including the time spent in the ED receiving care after the initial triage)

The starting point for the Two Midnight timeframe is when the patient starts receiving services following arrival at the hospital, excluding the initial waiting room wait and routine triage time. The Centers for Medicare & Medicaid Services (CMS) simply define hospital care as “care that can only be delivered in the hospital” (and cannot be safely provided in an outpatient setting like home, clinic, or nursing facility).

The Centers for Medicare & Medicaid Services (CMS) simply define hospital care as “care that can only be delivered in the hospital” (and cannot be safely provided in an outpatient setting like home, clinic, or nursing facility).

When the expected hospital stay is less than two midnights or uncertain at presentation, starting with Outpatient Observation is appropriate, with upgrade to Inpatient status recommended as soon as the need for a second medically necessary midnight becomes clear. The first midnight spent in Observation does count toward meeting the two-midnight benchmark. The fact that the patient remains in the hospital past two midnights does not automatically justify Inpatient status; the time spent in the hospital must be medically necessary. Delays in care (e.g. due to social reasons, testing availability on the weekend) should not be counted toward the two midnights. 

Exceptions to the Two Midnight Rule – when Inpatient status is still appropriate even if the patient does not complete two midnights in the hospital:

    • Inpatient-only procedures should always be performed as Inpatient and have no length of stay requirements (may be short stays).
    • Intubation and mechanical ventilation initiated during present hospitalization (not just BiPAP/CPAP use; elective intubation for procedures is excluded).
    • Physician-identified case-by-case exception to the two- midnight rule (in rare and unusual cases, the physician may determine that the patient warrants Inpatient admission in the absence of a two-midnight presumption at the time of admission).

Unforeseen circumstances/events interrupting the otherwise reasonable initial two-midnight expectation. Such events (or “exceptions”) may include:

    • Unanticipated transfer to another hospital
    • Unexpected death
    • Unexpected departure against medical advice
    • Unexpectedly rapid clinical improvement
    • Decision to pursue hospice/comfort care instead of continued active treatment

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]]> COVID-19 and Sepsis: Demystifying Denials During the Pandemic https://www.ensemblehp.com/blog/covid-19-and-sepsis-demystifying-denials-during-the-pandemic/ Wed, 01 Jul 2020 19:00:00 +0000 https://www.ensemblehp.com/2020/07/01/covid-19-and-sepsis-demystifying-denials-during-the-pandemic/ Take a closer look at how hospitals should approach defining the septic patient and demystify why denials are occurring. … Read More

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Sepsis is a common condition found in many hospitalized patients. It’s also a known complication of COVID-19, causing death in many patients during the pandemic. Yet despite its prevalence and morbidity, hospitals are facing a surprising number of denials for sepsis care. How a hospital defines sepsis can have direct impact on patient care, quality scores, and financial ramifications. For a diagnosis with such far reaching implications, it may be surprising to learn that sepsis remains a clinical diagnosis without a true “gold standard” criteria. Let’s discuss how hospitals should approach defining the septic patient and demystify why denials are occurring.

Ask your local friendly clinician what sepsis is, and you will likely hear some variation of the Mayo Clinic’s definition: “Sepsis is a life-threatening complication of an infection that occurs when chemicals released in the bloodstream to fight an infection trigger inflammation throughout the body. This can cause a cascade of changes that damage multiple organ systems.” While this is the clinical definition, I want to discuss the issue of criteria used by payors versus that used by providers, and how that has resulted in the deluge of denials most hospitals are currently dealing with.

As I mentioned earlier, sepsis criteria has real patient care implications. Make the criteria too stringent, and one might delay diagnosis; make it too loose and many non-septic patients might mistakenly have septic care initiated. It is precisely this variability in criteria that has propelled sepsis to being one of the most denied or downgraded DRG’s in hospitals.

Let’s talk criteria. You may hear people talk about the “old” and the “new” sepsis criteria. Most of us are referring to Sepsis-2 when speaking of the “old” criteria. Yes, there  was a Sepsis-1 criteria that came out 1991. It was updated to Sepsis-2 in 2001. Both had the core concept that sepsis was when there was 1) a source of infection and 2) presence of SIRS (Systemic Inflammatory Response Syndrome). Sepsis-2 did expand the criteria defining SIRS and severe sepsis. In 2016, sepsis criteria had a revolutionary change. After 25 years of SIRS criteria, organ dysfunction due to the body’s response to an infection took center stage and SIRS was retired. It became clear that with this “new” criteria, there can be no sepsis without organ damage. 

The crux of many sepsis denials is that many hospitals continue to use Sepsis-2 criteria while most payors have moved to Sepsis-3. So why would a hospital not just adopt Sepsis-3 criteria? In my opinion, there may be several reasons. As a former Chief Medical Officer for hospitals and hospital systems, I know all too well the importance of core measures and quality ratings. CMS measures the care of septic patients and timing of bundled care in a way that aligns more with Sepsis-2 criteria. In this scenario, Sepsis-2 may allow more accurate diagnosis capture. As a CMO, I was in a dilemma. Do I cast a wider net with Sepsis-2, understanding I may catch some non-septic patients (i.e. over-diagnosing), which allows me earlier detection and thus starting sepsis bundles earlier. This could result in decreased mortality (some may disagree) and certainly help my core measures score, right? The downside of course is when payors, applying Sepsis-3, do not find clinical validation of some of my “septic” patients. This results in peer-to-peers, appeals letters, and other time-consuming denials prevention measures. If I moved the hospital to Sepsis-3, I would certainly get less denials and downgrades, but what if this more stringent criteria caused delays in sepsis care?

What is the right answer? I don’t know. What I do know is with sepsis, documentation is more important than ever. Specify is this sepsis or septic shock? Specify which organ has dysfunction specifically due to sepsis (by the way, you only need to document “dysfunction”, not frank failure). Specify the organism causing the infection. I hope you notice a trend here. Be specific, very specific and you will improve the patient story, which improves care, while simultaneously decreasing denials. Each hospital needs to decide for itself what criteria it will use and understand what the downstream effects of that decision may be, but ultimately it should always put patient care at the core of all its decisions. 

 

ensembleoperatorinsights_covid_sepsis_0720.pdf

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]]> Operator Insights: Negotiating Better Payer Contracts https://www.ensemblehp.com/blog/operator-insights-negotiating-better-payor-contracts-2/ Wed, 05 Feb 2020 19:00:00 +0000 https://www.ensemblehp.com/2020/02/05/operator-insights-negotiating-better-payor-contracts-2/ How to use your back-end denials to improve your front-end process, and other tips for negotiating better payer contracts. … Read More

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Must haves in your next payer contract

I often hear from CFOs “our denials are up, our observation rate is up, inpatient volume is dropping, what can I do?” I remind them of an old Ann Landers saying (yes, I’m dating myself), “No one can take advantage of you without your permission.” What I mean is hospitals agree to payer contracts that rarely are meant to benefit them. These same CFOs will share high-fives over a 1% increase in inpatient rates, not realizing that same contract just made it much harder to obtain inpatient authorization, so they net much less.

Prepare for your negotiation.

The first and most important tip is to have your Physician Advisor or denials person at the negotiating table. They are the folks fighting denied inpatient status, whether through peer-to-peers or appeals, and can either be empowered or hampered by rules the hospitals agreed to. It is common that the hospital’s contracting team are simply are not aware of the back-end shenanigans from the payors. Bottom line, use your back-end denials to improve your front-end process.

Additional Payer Contract Tips

Other tips you might want to consider as your contracts come up for renewals is to explicitly ask for:

1) The plan’s definition of inpatient:
Is it MCG, Interqual, or something else? This spells out the rules. Avoid the generic “medically necessary” criteria – it’s too vague.

2) Rules around peer-to-peers:
a. Who can do them – push back against only allowing the treating doctor do the peer-to-peer. In general, they are much too busy and less familiar with criteria compared to a Physician Advisor who do peer-to-peers day in and day out.
b. Turnaround time to complete the peer-to-peer – unrealistic timelines will cause many missed opportunities purely due to the impossibly tight time to expiration to do a peer-to-peer.

3) Authorization issues:
a. Time to submit clinicals
b. Time to determination of status by payer – push for 12 hours
c. Concurrent authorized inpatients cannot be denied later
d. Will surgical cases be authorized following the CMS’ Inpatient Only List?

4) DRG denials and downgrades:
Correct coding guidelines will be used (ICD-10, Coding Clinic, etc)

5) Readmissions:
a. How will payment be affected
b. Timeline (14 days? 30 days?)
c. All-cause or same-cause?

6) Appeals rights after discharge:
a. How many levels of appeals?
b. How to obtain independent review?
c. Is there an observation payment option if an inpatient appeal fails?

7) Create a payer grid:
This helps neatly, and in a transparent way, to share with the front end all these rules to decrease the back end re-work to get paid what you deserve.

So there you have it, contracts are the rules of engagement. Know them, review them, and amend them to your advantage. Remember “No one can take advantage of you without your permission,” so do not grant them permission!

ensembleoperatorinsights_negotiatingbetterpayorcontracts.pdf

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