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Analysis in Brief

Analysis in Brief presents recent findings from the AAMC's data collection and research activities in a concise, easy-to-read report. Published several times a year, it addresses a wide range of topics and trends that affect medical schools and teaching hospitals.

September 2015 Evaluating Payment Accuracy of Medicare Inpatient Short Stays

In 2014, the Centers for Medicare and Medicaid Services implemented a controversial new policy referred to as the two-midnight rule. The center of the controversy is whether the inpatient payment rate for short stays is accurate. This Analysis in Brief seeks to understand the implications of using length of stay in deciding inpatient status and setting Medicare payment policy by 1) assessing whether the approximately 1 million short stays are all overpaid and the two-midnight rule will improve payment accuracy for short stays, 2) examining the distributions of underpaid and overpaid cases among long stays, and 3) examining the impact of short stay payment policies on teaching hospitals.  Results display a wide variation of hospital costs for $1 of Medicare payment among short stays, and show that it is not accurate to label all short stays as overpaid. Results also illustrate sizeable underpayment among long stays.Implications include that a payment reduction policy based on utilization of short stays without taking into consideration a hospital’s contribution to longer and underpaid stays may create financial instability for hospitals taking care of the most complex and vulnerable populations.

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