Mar. 18—Slowly unfolding enforcement of a new Medicare admissions policy is expected to increase hospital costs and drive the outcomes that are opposite of its intended goal, according to a leading rating agency.

Moody’s Investor Services concluded that the so-called two-midnight rule, which requires physician certification that a patient’s conditions requires care that spans at least two midnights, will cost hospitals as much as $4,000 in lost revenue per case. Additionally, Moody’s said the new policy, which was launched to reduce the use of observation status, could instead spur an increased use in the Medicare status. Observation status provides much lower payments to hospitals for similar services to inpatient care, and leaves Medicare patients to cover a higher share of out-of-pocket costs while disqualifying them for follow-up nursing home coverage.

The Centers for Medicare & Medicaid Services (CMS) has delayed full enforcement of the two-midnight rule from October 2013 to October 2014. But confusion that has arisen during even the limited enforcement of the new admissions policy has led CMS to order a re-review of Part A claims rejected under the so-called probe and educate audits.

The rating agency concluded that the potential loss of revenue could hit smaller community hospitals particularly hard because they have shorter average inpatient stays and fewer acute care cases. Teaching and tertiary hospitals face risks from a more expensive cost base that will result in greater losses per case among inpatient cases converted to outpatient cases.

The report followed estimates that some large hospital chains recently released to investors that concluded the admissions policy could carry a large price tag.

Publication Date: Tuesday, March 18, 2014