The Centers for Medicare and Medicaid Services (CMS) last month extended the moratorium on Recovery Audit Contractor (RAC) reviews of Medicare claims filed under the so-called “two-midnight rule” to a full year.

RACs, which are permitted to search up to three years of previously approved Medicare claims for errors, will not be permitted to review claims from Oct. 1, 2013 to Sept. 30, 2014, for errors related to the two-midnight rule.

Those claims will be subject to review by Medicare Audit Contractors (MACs), and when errors are found, the MACs will be responsible for educating providers as to the correct application of the two-midnight rule.

Shortly before the new two-midnight rule went into effect last fall, CMS placed a moratorium on RACs from reviewing two-midnight rule related claims submitted from Oct. 1, 2013 to Dec. 31. A few weeks later it extended that moratorium through March 31, 2014.

On Jan. 31 CMS announced that it was further extending the moratorium, which it calls the “Probe and Educate Period,” to Sept. 30, giving healthcare providers an entire year of claims that for the most part cannot be reviewed by RACs, at least as far as the two-midnight rule is concerned.

A tactic to reduce ALJ appeals?

The decision to extend the deadline comes on the heels of the Office of Medicare Hearings and Appeals (OMHA) announcement that it is suspending hearings on new appeals of RAC decisions for two years to catch up on a 22-month backlog of unprocessed appeals.

By far the biggest source of those unheard and unresolved appeals concern RAC decisions that healthcare providers and beneficiaries improperly received reimbursement for patients admitted as inpatient when, in the opinion of the RACs, the claims should have been submitted under outpatient or observation status.

For several years healthcare providers have complained that the criteria for establishing if a patient should be considered an inpatient is imprecise. Providers further accuse the RACs, all of whom are private contractors who are compensated based on a percentage of the dollar amount of the improper claims they find, of erring with regard to many of the claims they review and declare improper.

While RACs have identified billions of dollars in allegedly improper claims, the providers in turn have been appealing those denied claims to the Administrative Law Judges in record numbers, mainly because the ALJs are consistently overturning RAC denials, in whole or in part, more than a third of the time.

CMS developed the two-midnight rule in the belief it would bring clarity as to whether a patient should considered inpatient or observation status. In a hearing last year conducted by CMS, Jon Blum, deputy administrator and director of CMS, explained that the rule was aimed at resolving three growing pressures:

  • “Pressure number one from our analysis was tremendous beneficiary concern regarding the growth and the duration of care being provided to the observation of state,” he said;
  • “Pressure number two, being a high error rate to our purposes here at CMS for states that were classified as the inpatient stay that should have–due to (auditor’s) concerns–be classified as outpatient;” and,
  • “Pressure number three was a rapid increase in the number of RAC reviews and concern from hospitals that they weren’t permitted to reveal those cases that were overturned by the RAC from the inpatient stays to an outpatient stays.”

Below is CMS’s official announcement on the extension of the moratorium of RAC reviews concerning the two-midnight rule:

Extension of the Probe and Educate Period

CMS has decided to extend the Inpatient Hospital Prepayment Review “Probe & Educate” review process (described below in “Reviews Impacted by CMS-1599-F”) for an additional 6 months (through September 30, 2014).  This means that:

  • Medicare Administrative Contractors (MACs) will continue to select claims for review with dates of admission between March 31, 2014 and September 30, 2014.  MACs will continue to review and deny claims found not in compliance with CMS-1599-F (commonly known as the “2-Midnight Rule”).
  • MACs will continue to hold educational sessions with hospitals as described below in “Selecting Hospitals for Review” through September 30, 2014.
  • Generally, Recovery Auditors and other Medicare review contractors will not conduct post-payment patient status reviews of inpatient hospital claims with dates of admission on or after October 1, 2013 through October 1, 2014.


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