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AAMC Expresses Concerns about the Two-Midnight Rule and the HAC Reductions Program

July 11, 2014—The AAMC submitted a June 30 comment letter on the Medicare fiscal year (FY) 2015 hospital inpatient proposed rule. The Association’s letter urges the Centers for Medicare and Medicaid Services (CMS) to reconsider policies related to the Two-Midnight Rule and Hospital-Acquired Condition (HAC) Reduction Program.

The FY 2015 Inpatient Prospective Payment Systems (IPPS) proposed rule includes a 1.3 percent hospital payment update. The overall impact on all hospitals is 0.8 percent, yet the impact on major teaching hospitals is negative 1.3 percent.

Much of this negative impact is driven by the implementation of two Affordable Care Act (ACA, P.L. 111-148 and P.L. 111-152) mandated provisions: the Medicare disproportionate share hospital (DSH) cuts and the Hospital-Acquired Condition (HAC) Reduction Program.

Given the disproportionate and negative impact of these and other proposals on teaching hospitals, the AAMC’s comment letter urges CMS to reconsider certain policies that are within the agency’s ability to reverse. In particular, the AAMC encourages changes to the Two-Midnight Rule and to the HAC Reduction Program methodology and payment application.

The Two-Midnight Rule finalized in the FY 2014 rulemaking cycle has resulted in inadequate reimbursement for hospitalizations and complete loss of policy add-on payments that support physician training, care for low income patients, and provide other community benefits.

The AAMC’s comment letter urges CMS to revise or replace the Two-Midnight Rule with a policy that does not sacrifice the critical role of medical judgment and adequate reimbursement for medically necessary short hospitalizations. This policy should also be easily understood by patients and should not unreasonably increase their financial responsibility for short inpatient stays.

The comment letter also encourages CMS to adopt an interim policy in the FY 2015 final rule. Under the interim policy, the part of the Two-Midnight Rule that applies to medically necessary stays longer than two midnights would be maintained to ensure that these stays are appropriately paid as inpatient stays. At the same time, for stays shorter than two midnights, the interim policy would return to the policy before the Two-Midnight Rule went into effect (i.e., before Oct. 1, 2013).

Regarding graduate medical education, the AAMC encourages CMS to reconsider the synchronization effective date for the FTE resident cap, three-year rolling average, and intern- and resident-to-bed ratio cap for new programs. CMS proposes that all three would go into effect at the start of the hospital cost reporting period that precedes the start of the sixth program year after the start of the first program.

To avoid denying hospitals the ability to reimbursed for the actual number of residents training during the five-year cap building window, the AAMC urges CMS to set the effective date as the start of the hospital cost reporting period that follows the start of the sixth program year after the start of the first program instead.

AAMC also urges CMS to publish in the final rule a clear statement that neither a hospital’s PRA nor its cap-building window is triggered by the presence of a small number of residents performing brief rotations at the hospital.

Additionally, the AAMC opposes eliminating the cap relief option from the ACA Section 5506 application process for GME positions from closed hospitals but supports CMS’ proposal to eliminate the “seamless requirement”  that has proved extremely complicated and burdensome for hospitals that legitimately intend to continue training residents in that program, even after the displaced residents have graduated.

The AAMC also expresses support for CMS’ proposal to begin making Medicare Advantage (MA) IME payments to sole community hospitals paid based on the hospital-specific rate. However, the AAMC does not support CMS’ proposal to discontinue considering MA IME payments for purposes of determining which rate is higher.

Regarding the quality provisions in the proposed rule, the AAMC expressed concern about the disproportionate impact of the HAC reduction program.

The AAMC recommended that CMS use its administrative authority to limit the HAC program penalty to only base DRG payments, as is the case for the Value Based Purchasing (VBP) program and Hospital Readmissions Reduction program, at least for a transitional period. Currently, hospitals penalized under the HAC Program could also receive cuts to policy payments, such as IME and DSH, as well as their base DRG payments.

The AAMC also noted that over fifty percent of  large teaching hospitals are identified by the penalty and that may be due to limitations in data collection and risk-adjustment of the selected measures, rather than to true differences in the quality of care. The AAMC suggested CMS consider measuring HAC Reduction Program performance by hospital peer cohorts.

The Association also expressed concern with overlapping quality measures in both the HAC and VBP programs, believing that hospitals should not be punished twice for the same measure in two different programs.

The AAMC also urged CMS to be proactive in preparing for the transition from ICD-9 to ICD-10, which could affect how improvement and achievement points are calculated in the VBP Program.

Finally, in response to Agency plans to consider mandating future electronic reporting of quality information, the AAMC urged CMS to address the current barriers limiting hospitals and EHR venders from reporting this data.


Scott Wetzel, M.P.P.
Lead, Quality Reporting
Telephone: 202-828-0495

Mary Patton Wheatley, M.S.
Director, Health Care Affairs
Telephone: 202-862-6297


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Washington Highlights, a weekly electronic newsletter, features brief updates on the latest legislative and regulatory activities affecting medical schools and teaching hospitals.

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Telephone: 202-903-0806