Problems Emerge with MA Plans and Two-Midnight Rule; ‘Circular Logic Got a Foothold’ 

By Nina Youngstrom, featuring Dr. Jerilyn Morrissey 

Report on Medicare Compliance Volume 33, Number 10. March 18, 2024

Originally published on compliancesocmos.org

For several months, it’s been irrefutable that Medicare Advantage (MA) plans are bound by the two-midnight rule, but their compliance may be spotty, some hospitals say. There are also questions about whether MA plans are living up to other requirements of CMS’s 2024 rule on policy and technical changes to MA (CMS-4201-F).[1] 

The rule, which took effect Jan. 1, requires MA plans to live by the same coverage and payment criteria as traditional Medicare, such as the two-midnight rule, inpatient-only list and case-by-case exception. MA plans also may only use internal coverage criteria in medical necessity determinations when Medicare coverage criteria isn’t “fully established.” CMS has made it abundantly clear that MA plan coverage is not allowed to be more restrictive than traditional Medicare policies found in national coverage determinations, local coverage determinations and Medicare laws. 

 It came as a big relief to hospitals that MA plans must be on the same two-midnight rule page as traditional Medicare, but things aren’t going as smoothly as they hoped. To push back, some hospitals are revisiting contract language, filing complaints with CMS, contemplating an exit from MA contracts and/or advocating through hospital associations. 

 One “point of friction” with MA plans is the concept of the two-midnight presumption, said Jerilyn Morrissey, M.D., chief medical officer for CorroHealth, at a March 13 town hall sponsored by the American College of Physician Advisors. “We hear them say they equate the two-midnight expectation with the presumption, but that’s false logic.” Some MA plans have taken the position they didn’t have to follow the two-midnight expectation because they didn’t have to follow the CMS presumption, Morrissey explained. 

 “Payers dance in the shadow of the regulations,” she contends. “They don’t quite break them, and they don’t quite follow them.” Since 4201-F came out, MA plans have “equated the expectation with the presumption, and that’s not how CMS defines the presumption,” Morrissey said. “The circular logic got a foothold in the industry.” 

 The confusion stems partly from the fact that 4201-F gives MA plans more auditing discretion than reviewers have under traditional Medicare. 

Under the two-midnight rule, Medicare Part A pays for medically necessary hospital stays that cross two midnights, even if patients start their stays in the emergency department (ED) or observation; however, CMS draws a distinction between the two-midnight benchmark and two-midnight presumption. Although both stays may begin with outpatient services before a physician admits the patient, the two-midnight benchmark is typically characterized by a medically necessary stay “but not all the midnights occur after the inpatient order is written,” Morrissey explained. The hallmark of the presumption is at least two midnights in the hospital after inpatient admission, even when patients began their hospital stay in the ED or observation. 

 What drives the wedge between the two are Medicare audits. While auditors have always been free to review traditional Medicare admissions under the two-midnight benchmark, two-midnight presumption stays have been off-limits. That’s not the case with MA plans, which have permission to audit inpatient admissions that have met either the benchmark or presumption. She thinks MA plans should focus on short stays and the two-midnight benchmark. 

 Another point of friction over the two-midnight rule relates to MA plans thinking that because 4201-F allows them to develop their own coverage criteria when Medicare doesn’t have “fully established” criteria, they have leeway with medical necessity, Morrisey said. “I have seen MA plans saying CMS never really defined medical necessity, and that’s not true,” she noted. It’s defined both in the Social Security Act and Medicare Program Integrity Manual. “I think that’s one area of pushback we have a strong area to rebut.” 

 Edward Hu, M.D., system executive director of physician advisor services at UNC Health in North Carolina, noted that MA plans “love criteria” and use them as a counterweight to hospitals that supposedly want to admit inpatients based only on time. But the two-midnight rule has always been about the medical necessity of hospital care generally—inpatient or outpatient—as well as time. “Medical necessity is for hospital care,” Hu explained. “CMS said it’s not necessary to meet inpatient to be appropriate for hospital care.” 

 CMS Is ‘Very Interested in This Topic’ 

He added that inpatient admission decisions with screening tools are not part of the two-midnight rule, and MA plans aren’t permitted to use InterQual or Milliman Clinical Guidelines criteria to change payment or coverage criteria already established under Medicare, such as the inpatient-only list, Hu noted. 

 But MA plans may use internal coverage criteria when Medicare coverage isn’t fully established in Medicare statutes, regulations, national coverage determinations (NCDs) or local coverage determinations (LCDs)—under certain conditions, according to 4201-F. For one thing, MA plans must be able to show that “the additional criteria provide clinical benefits that are highly likely to outweigh any clinical harms, including from delayed or decreased access to items or services.” For another, the criteria must be publicly accessible and MA plans must follow “evidence in widely used treatment guidelines or clinical literature.” CMS spelled this out in recent FAQs.[2] 

 “The demonstration of clinical benefits has to be narrowly tailored to the population,” Hu noted. If MA plans are unable to cite widely used treatment guidelines in their internal coverage criteria, they’re not allowed to adopt them. 

 The MA rule also requires plans to “make medical necessity determinations based on the enrollee’s medical history, physician recommendations, and clinical notes.” Claims must be reviewed by a physician or other health care professional with expertise in a relevant medical field and knowledge of Medicare coverage criteria. 

There are “significant questions” about whether MA plans have met 4201-F’s requirements for internal coverage criteria, Hu noted. “I’m not saying the criteria don’t have value, but are they developed consistent with CMS’s new standard? There are issues that need to be studied and addressed,” Hu said. People at CMS “are very interested in this topic and actively looking into it.” 

An ‘Action Plan’ for the Two-Midnight Rule and MA 

Hospitals may want to develop an “action plan” for addressing the two-midnight rule with MA plans now that they’re required to follow it. Andrew Maigur, M.D., system director of the physician advisor program at Premier Health in Ohio, said it started its plan of action with “letters of intent.” The letters to MA plans from Premier Health’s contracting and physician advisor teams stated, “We expected them to comply with the final rule,” Maigur said. “The responses were varied.” Some MA plans gave Premier Health their two-midnight policies, others sent unrelated policies and some began a conversation with regional medical directors. “Some medical directors didn’t have a complete understanding of the two-midnight rule,” according to Maigur. “We had to go line-by-line through the regulation and prompt them how we would interpret the regulation.” 

 Premier also drafted letters to MA plans expressing its concern about noncompliance with 4201-F, including the two-midnight rule and internal coverage criteria, Maigur said. That led to phone calls between the MA plans’ utilization management committee and Premier’s physician advisors, compliance and legal. “It was very collegial,” he noted, and over time improved the “thought process” about the rule. “We got some small wins thought conversations.” 

 For next steps, Premier Health is collecting examples of noncompliance and may report alleged 4201-F violations to CMS. Also, its vice president of managed care is weighing contractual language that would “align” with the rule, Maigur said. “A big concept is rethinking our contracting philosophy,” he explained. “Should we contract with so many MA plans or not contract with some of them? Our geographical area is very MA-plan heavy compared with other regions of our state so that’s something to think about.” 

He’s also monitoring metrics to compare 2024 data to 2023—before the 4201-F rule took effect—and MA to traditional Medicare. They include: 

• MA plan observation rate percentage,  
• MA plan observation percentage for two-midnights plus,
• MA plan denial rates for hospital stays greater than two midnights and peer-to-peer overturn rates, and
• Inpatient-only procedure denial rates. 

 Contact Hu at edward.hu@unchealth.unc.edu and Morrissey at jerilyn.morrissey@corrohealth.com. 

1 Medicare Program; Contract Year 2024 Policy and Technical Changes to the Medicare Advantage Program, Medicare Prescription Drug Benefit Program, Medicare Cost Plan Program, and Programs of All-Inclusive Care for the Elderly, 88 Fed. Reg. 22,120 (April 12, 2023), https://bit.ly/3CH7TmX. 

2 Nina Youngstrom, “FAQs Elaborate on MA Rule; CMS Audits Will Cover 88% of Enrollees,” Report on Medicare Compliance 33, no. 6 (February 19, 2024), https://bit.ly/43laAqt.