CMS Rule Change Drives Surge in Inpatient Admissions and Revenue

The Centers for Medicare and Medicaid Services' (CMS) expansion of the two-midnight rule has led to a significant increase in inpatient admissions and revenue for leading for-profit health systems, including Community Health Systems, HCA Healthcare, Tenet Healthcare, and Universal Health Services, in the first quarter of 2024, with implications for the healthcare industry's operations and patient care decisions." This description focuses on the primary topic of the article (the two-midnight rule expansion), the main entities involved (CMS and the mentioned health systems), the context (the healthcare industry), and the significant consequences (increased inpatient admissions and revenue). The description also provides objective and relevant details that will help an AI generate an accurate visual representation of the article's content, such as the key players and the healthcare industry setting.

author-image
Aqsa Younas Rana
New Update
CMS Rule Change Drives Surge in Inpatient Admissions and Revenue

CMS Rule Change Drives Surge in Inpatient Admissions and Revenue

The Centers for Medicare and Medicaid Services (CMS) expansion of the two-midnight rule has led to a 3.9% increase in inpatient admissions and a 3.7% growth in inpatient revenue in the first quarter of 2024, according to a report by Strata Decision Technology. The rule, which affects over 20% of Medicare Advantage patients, requires patients to be admitted as an inpatient if their hospital care extends beyond two midnights.

Why this matters: This change in policy has significant implications for the healthcare industry, as it affects a large portion of Medicare Advantage patients and could lead to increased costs for healthcare providers. Furthermore, this shift could have a ripple effect on the entire healthcare system, influencing the way hospitals and healthcare providers operate and make decisions about patient care.

Leading for-profit health systems, including Community Health Systems (CHS), HCA Healthcare, Tenet Healthcare, and Universal Health Services (UHS), reported net gains in the first quarter, driven by stronger-than-expected inpatient volumes. CHS reported a 3.8% year-over-year increase in same-store admissions and a 1.9% increase in adjusted admissions. HCA saw a 6% year-over-year increase in inpatient admissions, while UHS experienced a 4.5% increase in adjusted admissions. Tenet reported a 4.2% increase in same-hospital admissions, although outpatient visits dropped by 0.8% year-over-year.

CHS President and CFO Kevin Hammons attributed the growth in inpatient volumes to capacity management efforts. "That's helped open up capacity, allowing more admissions to be brought in," Hammons said. HCA CEO Sam Hazen noted that the company increased inpatient beds by 2% during the quarter. UHS CFO Steve Filton believes there is still room for inpatient volume growth in the coming quarters, as elective procedures continue to return to pre-COVID-19 levels. "We still haven't necessarily returned to pre-pandemic levels. So we still think there is a decent amount of runway there for continued acute care volume growth as well as behavioral volume growth," Filton stated.

Health systems are employing various capital spending strategies in response to the shift. UHS remains bullish on building out inpatient capacity, while other operators are focusing on outpatient services. HCA has earmarked $5.1 billion to $5.3 billion for capital spending this year, with a focus on developing its freestanding emergency services business. CHS is focused on selling property to generate liquidity, with plans to divest smaller, more rural hospitals.

The two-midnight rule was first implemented in 2013 for Medicare, but since January 2024, Medicare Advantage plans must also follow the rule, its case-by-case exception, and the inpatient-only list. However, several Medicare Advantage plans continue to disregard this directive. An analysis of StrataSphere data found that 22.3% of Medicare Advantage encounters in 2023 were held in observation status for two days or more, compared to 8.7% of Medicare patients and 11.3% of patients covered by commercial plans.

The CMS expansion of the two-midnight rule has significantly impacted inpatient admissions and revenue in the first quarter of 2024. Leading for-profit health systems reported strong net gains driven by higher-than-expected inpatient volumes. As health systems adapt their strategies in response to this shift, inpatient revenues remain an area to watch closely in the coming quarters.

Key Takeaways

  • CMS' two-midnight rule expansion led to 3.9% increase in inpatient admissions and 3.7% growth in inpatient revenue in Q1 2024.
  • Leading for-profit health systems reported net gains driven by stronger-than-expected inpatient volumes.
  • Health systems are adapting strategies, with some focusing on inpatient capacity and others on outpatient services.
  • 22.3% of Medicare Advantage encounters in 2023 were held in observation status for two days or more, despite the rule.
  • Inpatient revenues remain an area to watch closely in the coming quarters as health systems adjust to the rule.