Quantifying Your Financial Risk Under the Two-Midnight Rule

With CMS’s implementation of the two-midnight rule in October 2013, health care organizations have begun taking a closer look at their short-stay inpatient (IP) admissions. Under the rule, hospital stays are generally appropriate for IP admission if the admitting physician expects required patient care to span at least two midnights. Inpatient stays of less than two days are under increased scrutiny from CMS and private payers alike.

Given this environment, one of our health system clients requested our help in identifying what portion of its contribution margin (CM) was based on short-stay visits. The results of our analysis surprised the client in both the amount of CM at risk and the variation among its hospitals and by disease or diagnosis. Working with the Sg2 Analytics team, the client pinpointed specific hospitals and drilled down into disease areas with the highest overall CM at risk. Starting with just a general question about overall contribution margin, this client uncovered specific areas to target and actionable steps to minimize its risk.

Client Discovered ~30% of CM due to Short-Stay IP Visits
For this health system, we first analyzed one- and two-day length of stay (LOS) visits by hospital. The bar chart shows overall CM by hospital, breaking out one- and two-day LOS cases. Approximately 30% of overall CM came from short stays, which was eye-opening for the client, who had believed it would be closer to 10%. Also, these profiles varied substantially by hospital, with CM due to short stays ranging from 25% to 32%. Hospital D, with 32% of CM or $33M due to short stays, had the largest CM at risk and became a prime focus for further analysis.

CARE Family Deep Dive Reveals Clinical Areas to Target
Using client data from the Sg2 Organization Performance app, we completed a deeper dive into Hospital D’s one- and two-day LOS CM data by Sg2 CARE Family or disease type, to better understand what conditions these patients were admitted for and if there was an opportunity to treat some of these patients in a more appropriate setting.

We discovered that osteoarthritis overwhelmingly contributed to the $33M CM at potential risk. We also added another layer to this analysis, flagging the disease types that are being evaluated by CMS and the Agency for Healthcare Research and Quality (AHRQ) as Prevention Quality Indicators or potentially avoidable admissions (PAAs). Appearing on this hospital’s top-10 list are noncardiac chest pain and chronic obstructive pulmonary disease (COPD), which are under increased scrutiny as PAAs.

Data Analysis Uncovers Opportunities to Redesign Care, Reduce PAAs
Although hip and knee replacements, which constitute the Osteoarthritis CARE Family, are not at risk due to the two-midnight rule, they are still a prime area in which to consider outpatient (OP) care given their short LOS. While CMS currently only pays for these joint replacements in the IP setting, some hospitals, physician groups and ambulatory surgery centers are offering joint replacement as an OP procedure. Depending on how progressive your market is, some of these IP volumes may be usurped by competitors offering these procedures in the OP setting.

Kristi Crowe, Sg2’s orthopedics expert, suggests that hospital providers start a dialogue with their surgeons about OP joint replacement. Are the surgeons interested in moving this way? Are the infrastructure, operations and physician alignment in place to support an OP joint replacement offering? Are partnerships with a surgeon group or ASC a possibility? These are important questions to consider based on these findings.

Because noncardiac chest pain and COPD admissions are under increased scrutiny as PAAs, this health system may also want to review protocols for IP admission vs use of observation care for these patients. In fact, a significant number of patients who present to US EDs with chest pain each year are inappropriately admitted to the hospital.

Client’s Key Takeaways
For this client, our analysis revealed a few key takeaways.

  • CM at risk was clinically diverse. A deeper drill down by hospital and CARE Family was needed to really understand the data on one- and two-day patient stays. The financial impact was not clustered in one service line. The two-midnight rule also had a diverse impact across the system’s hospitals. Rich data and a deep dive into this question revealed the full story.
  • Prioritization of results was essential. Gaining access to more data at a more granular level can become paralyzing unless you have a clear focus and are able to prioritize areas that need the most attention now. This health system focused first on the hospital with the largest CM at risk and then drilled down by CARE Family to hone in on osteoarthritis, chest pain and COPD.

Need help analyzing your CM possibly at risk due to short-stay LOS? Sg2 can help you drill down into your data to identify the individual hospitals and CARE Families at the most risk. Our service line experts and online resources can help your organization minimize that risk as you move appropriate patients out of inpatient care and into observation care, or ramp up your community services to improve the health of your population and minimize PAAs.

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As of February 11, 2016, Vizient, Inc. has completed its purchase of MedAssets Sg2 and spend and clinical resource management segments from Pamplona Capital Management, LLC. MedAssets revenue cycle business will continue to operate as a wholly-owned subsidiary of Pamplona Capital Management LLP.

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