News & Insights


June 17, 2024

Health Headlines – June 17, 2024

OIG Report Details Weaknesses in Enforcement of Two-Midnight Rule – CMS estimates that between 2017 and 2021, Medicare Part A improperly paid $23.9 billion for inpatient hospital stays, with $7.8 billion attributable to short stays that did not qualify for Medicare Part A. On June 13, 2024, OIG published a report identifying weaknesses in Medicare billing practices that contribute to these overpayments. The report identified three primary factors contributing to overpayments: (1) CMS lacks enough information to identify when exceptions to the two-midnight rule apply; (2) CMS does not have an effective prepayment edits process; and (3) CMS lacks adequate policies for reviewing claims and collecting overpayments.  

The Two-Midnight Rule

The two-midnight rule is CMS’s method for distinguishing inpatient hospital stays from outpatient hospital stays. Under the two-midnight rule, if an admitting physician reasonably expects that a particular patient’s stay will last for at least the next two midnights, Medicare Part A will reimburse that hospital for providing inpatient hospital services. However, if a particular patient’s admitting physician reasonably expects a shorter stay, instead Medicare Part B will reimburse that hospital for outpatient hospital services.

Because Medicare pays rates for services that are set prospectively, and because inpatient visits tend to be longer and costlier than outpatient visits, CMS’s method for enforcing the two-midnight rule has substantial implications for hospital reimbursement. 

Finding 1 – Improving Information Gathering

OIG’s first explanation for why Medicare is overpaying for inpatient hospital services is that there is ineffective information gathering.

Some inpatient hospital stays lasting less than two-midnights might still qualify for Medicare Part A reimbursement when patients received services that are on the inpatient only (IPO) procedures list. When hospitals treat patients, hospitals report each procedure using procedure codes from the International Classification of Diseases, 10th revision (ICD-10). However, the IPO list uses HCPCS codes, not ICD-10 codes, so short inpatient hospital stays that are eligible for reimbursement under Medicare Part A are not easily distinguishable from inpatient hospital stays that are ineligible for Medicare Part A reimbursement.

Additionally, even if a patient is discharged in less than two-midnights, that visit may still be eligible for Medicare Part A inpatient reimbursement so long as the admitting doctor’s original assessment was reasonable, and the shorter-than-expected visit was due to some unforeseen circumstance. Without an unforeseen circumstance occurring that resulted in a shorter stay, it is not straightforward to distinguish whether the admitting doctor’s original assessment was reasonable.

Finding 2 – Implementing a Prepayment Edits Process

OIG’s second explanation for why Medicare is overpaying for inpatient hospital services is the lack of an effective prepayment edits process.

CMS contracts with Beneficiary and Family Centered Care–Quality Improvement Organizations (BFCC-QIOs) to help enforce compliance with the two-midnight rule and maintain the Medicare program’s economy. The report identified four different “risk factors” for when inpatient hospital stays might not comply with the two-midnight rule: (1) stays spanning one week or more, (2) stays with canceled procedures, (3) stays billed with diagnosis codes that CMS flags as being “high risk” for noncompliance, and (4) stays billed with diagnosis codes that BFCC-QIOs identify as high risk for noncompliance.

Rather than wait to review and correct suspect entries during the post-payment process, OIG posits that reviewing such claims before CMS makes payments could have saved as much as $11 billion.

Finding 3 – Strengthening Claims Review

OIG’s third explanation for why Medicare is overpaying for inpatient hospital services is the lack of a sufficient claims review process.

The report found that, despite identifying providers with compliance concerns, and despite assisting providers with compliance concerns, BFCC-QIOs did not refer any of these providers to Recovery Audit Contractors (RACs) for additional reviews and recovery of overpayments, resulting in what the OIG estimates is billions in unrecovered overpayments.

OIG’s Recommendations

To address OIG’s three primary concerns with the current payment system, OIG made four recommendations to strengthen enforcement of the two midnight rule: (1) add information to inpatient claims indicating when unforeseen circumstances occur, (2) develop a list of inpatient procedure codes associated with the inpatient-only procedures list, (3) implement prepayment edits for claims for short inpatient stays, and (4) update policies and procedures for post-payment reviews to focus on claims for short inpatient stays.

Though it is unclear whether HHS will implement OIG’s recommendations, strengthening or loosening enforcement of the two-midnight rule would be expected to have a significant impact on Medicare reimbursement.

OIG’s complete report can be found here.

Reporter, Gregory Fantin, Washington DC, +1 202-626-9271,

CMS Updates Hospital Price Transparency FAQs After CY 2024 OPPS/ASC Final Rule – CMS’s Hospital Price Transparency regulations require hospitals to make public the standard charges of the items and services that they provide. In the CY 2024 Hospital Outpatient Prospective Payment System Final Rule (CY 2024 OPPS Final Rule), CMS finalized modifications to standard charge display requirements for hospitals and updates to the enforcement provisions to improve the transparency of the enforcement process. The effective date by which hospitals would be required to comply with some of these new requirements was delayed to either July 1, 2024, or January 1, 2025, due to comments submitted in response to the proposed rule. With the July 1, 2024, compliance date approaching, CMS has posted updated frequently asked questions (FAQs) on the Hospital Price Transparency website to help hospitals, consumers, and other stakeholders understand the new compliance requirements effective at the beginning of July.

Background on Hospital Price Transparency Requirement Updated Contained in CY 2024 OPPS Final Rule

Under CMS’s Hospital Price Transparency regulations set forth at 45 CFR part 180 et seq., hospitals are required to display standard charge information through both a machine-readable file and a consumer-friendly format. 

In the CY 2024 OPPS Final Rule, CMS dictated the form and format that hospitals must use for the machine-readable file to increase standardization of the machine-readable file, such that hospitals must now conform to a CMS template layout, data specifications, and data dictionary. Further, per that same rule, hospitals must now place a footer at the bottom of the hospital’s homepage that links to the webpage that include the machine-readable file and also affirm in the machine-readable file that the hospital has included all applicable standard charge information in accordance with the requirements of 45 CFR part 180, and that such information is true, accurate, and complete as of the date of the file. Lastly, CMS also updated modifications to the enforcement provisions at 45 CFR 180.70 to improve CMS’s enforcement capabilities and increase transparency.

The CMS fact sheet regarding the hospital price transparency changes contained in the CY2024 OPPS Final Rule is available here.

Updates to the FAQ

Per the FAQ, the following requirements must be implemented by July 1, 2024, except where the compliance date is delayed to January 1, 2025 and noted below:

Machine-Readable File Information:

  • Machine Readable File Date
  • CMS Template Version
  • Affirmation in the Machine-Readable File

Hospital Information

  • Hospital Name
  • Hospital Location(s)
  • Hospital Address(es)
  • Hospital Licensure Information

Standard Charges

  • Gross Charge
  • Discounted Cash
  • Payer Name
  • Plan Name
  • Standard Charge Method
  • Payer-Specific Negotiated Charge –Dollar Amount
  • Payer-Specific Negotiated Charge –Percentage [of gross charge]
  • Payer-Specific Negotiated Charge –Algorithm
  • Estimated Allowed Amount (July 1, 2025)
  • De-identified Minimum Negotiated Charge
  • De-Identified Maximum Negotiated Charge

Item and Service Information

  • General Description
  • Setting
  • Drug Unit of Measurement (January 1, 2025)
  • Drug Type of Measurement (January 1, 2025)

Coding Information

  • Billing/Accounting Code
  • Code Type
  • Modifiers (January 1, 2025)
  • Setting

Coding Information

  • Billing/Accounting Code
  • Code Type
  • Modifiers (January 1, 2025)
  • Setting

The updated FAQ contains thirty updated frequently asked questions related to the implementation of the requirements effective July 1, 2024.

The updated Hospital Price Transparency FAQs can be accessed here.

Reporter, Christopher C. Jew, Los Angeles, + 1 213 443 4336,


FTC Appeals District Court Loss Against Health System

FTC’s efforts to block a health system from buying two North Carolina hospitals in a $320 million deal will continue to the Federal Court of Appeals for the Fourth Circuit. The FTC sued to block the deal in January. However, on June 5, 2024, District Court Judge Bell rejected its bid for a preliminary injunction, ruling that the health system's purchase of the hospitals may actually boost competition as the target hospitals are likely to close without new ownership. A discussion of the District Court’s ruling is here. Following the District Court loss, the FTC filed a notice of appeal and sought a preliminary injunction to prohibit the health system from completing the deal before it appeal is resolved, arguing it would be extraordinarily difficult to “unscramble the egg” and reverse the effects of consolidation after it is completed. Judge Bell denied the request for injunction pending appeal but extended an existing temporary restraining order barring the transaction from closing until noon on June 21, 2024, to give the Court of Appeals more time to consider the motion.