HA545 Unit 2 Medicare Advantage Coverage Rule Paper Example

From an Inspector General's Sample of Denials to a Hospital's Utilization Review Desk: A Policymaking Process Paper Tracing the Rule That Bound Medicare Advantage Plans to the Coverage Criteria of Traditional Medicare, Including the Two-Midnight Benchmark

[Student Name]

Purdue University Global

HA545: Health Policy

Unit 2 Policymaking Process Paper

[Instructor Name]

[Date]

The policy history is real and dated; the hospital in the final section is composite and its figures are bracketed for the writer's own data.

Introduction

Policy does not stop when a rule is published. Longest (2016) treats policymaking as a cycle of formulation, implementation and modification, so that what agencies and providers learn while running a policy becomes material for the next round of rules. This paper uses those phases, adding a dated account of how the problem reached the agenda. The case is narrow and practical: whether private Medicare plans must follow the same coverage criteria as traditional Medicare when they decide what a hospital stay is, and what happened when CMS said yes.

The Problem

Traditional Medicare adopted the two-midnight benchmark in its 2014 inpatient payment rule: inpatient payment is generally appropriate if, at the time of admission, the physician reasonably expects hospital care to last across two or more midnights (78 Fed. Reg. 50496, 2013). Medicare Advantage plans, which by the early 2020s enrolled close to half of Medicare beneficiaries, were not clearly bound by that benchmark. Many used proprietary screening criteria, and hospitals reported that plans paid stays as outpatient observation that traditional Medicare would have paid as inpatient admissions. For a hospital, the difference is large: an observation stay is paid at a lower rate, and for the patient it can affect cost sharing and later skilled nursing coverage.

Agenda: The Audit That Gave the Problem Numbers

Complaints by hospitals had circulated for years, but an April 2022 report by the Office of Inspector General gave them evidence. In its sample of plan decisions, the audit judged that 13 percent of denied prior authorization requests and 18 percent of denied payment requests by Medicare Advantage plans met Medicare coverage rules and likely would have been approved under traditional Medicare (Office of Inspector General, 2022). The report recommended that CMS issue guidance on the use of plans' own clinical criteria. A complaint becomes an agenda item when someone with authority puts a number on it.

Formulation: The Proposed Rule

CMS proposed changes in December 2022 as part of its annual rule for the 2024 contract year. The proposal would require plans to follow traditional Medicare's national and local coverage decisions and its general coverage criteria, allow plans to use their own criteria only when Medicare's were not fully established, and require those criteria to be public and based on evidence. Hospitals and physician groups supported the proposal; plans argued that internal criteria help manage costs and that the agency should leave room for clinical judgment.

Adoption: The Final Rule

The final rule appeared in April 2023 and took effect January 1, 2024 (88 Fed. Reg. 22120, 2023). It kept the core requirement and added that plans' utilization management committees review their policies each year, that an approved prior authorization remain valid for a whole course of treatment, and that new enrollees receive a 90-day transition period for ongoing treatment. Because the two-midnight benchmark is a general coverage criterion, it now applied to plans as well.

Who Acted at Each Stage

Each stage had different actors and institutions. In the problem and agenda stages, hospital associations, physician groups and journalists described denials, and the inspector general, an independent office inside the department, measured them. In formulation and adoption, CMS acted through notice-and-comment rulemaking, the process by which an agency publishes a proposal, receives public comments and issues a final rule that must respond to them. Plans and their trade association commented against the strictest provisions, while hospital groups pressed for firm enforcement. Congress did not pass a statute; members wrote letters urging action, which added pressure without changing the law. In implementation, the actors were CMS staff writing guidance, plan medical directors rewriting policies and hospital utilization review nurses applying the new standard case by case.

Implementation: Guidance and Questions

Rules rarely answer every question. In early 2024, CMS issued answers to frequently asked questions confirming that plans must apply the two-midnight benchmark and may not deny an inpatient admission that meets it on the basis of internal criteria. Questions about how plans would show compliance, and how CMS would audit them, remained. A separate 2024 rule set deadlines for prior authorization decisions starting in 2026 (89 Fed. Reg. 8758, 2024).

Modification: Feedback After 2024

The policy cycle continues. Hospitals reported mixed experience: some plans changed practice quickly, others continued to request reviews. Congressional investigators and news reports examined plans' denials of post-acute care. These signals may lead to new guidance, audits or rules, which is the modification phase Longest describes.

What One Hospital's Utilization Review Office Had to Change

At a composite [310]-bed hospital, [41] percent of Medicare admissions were covered by Medicare Advantage. In the year before the rule, plans changed [612] of those admissions to observation after the hospital requested inpatient status. The utilization review office made five changes for January 2024:

1. Updated its review tools to apply the two-midnight benchmark to plan patients the same way as traditional Medicare.

2. Trained physicians to document the expectation of a two-midnight stay at admission.

3. Began logging each plan denial with the plan's stated criteria, to identify use of internal criteria.

4. Revised its appeal letters to cite the rule's requirements directly.

5. Raised the issue in contract talks with its two largest plans.

In the first six months, observation conversions by plans fell to [214], about [35] percent of the prior rate for the same period.

Evaluation

Two years after adoption, the evidence is early. The rule clearly changed what plans may do; whether it changed what they do depends on oversight. The hospital's own data suggest a substantial effect, but one hospital's experience cannot show a national pattern, and some plans changed contracts in response.

Limits of the Stages Model

Real policy did not move in a straight line here. The problem stage relied on an audit that came years after hospitals' complaints, and implementation questions sent the agency back to issue guidance, a return toward formulation. Stages are a way to organize the story, not a description of how actors experienced it.

Conclusion

A long-running payment dispute became policy when an audit put numbers on it, a proposed rule gave stakeholders a target and a final rule set a date. For hospitals, the work moved from complaint to documentation and appeal.

References

78 Fed. Reg. 50496 (2013). Medicare program; hospital inpatient prospective payment systems for acute care hospitals and the long-term care hospital prospective payment system and fiscal year 2014 rates (final rule).

88 Fed. Reg. 22120 (2023). 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 (final rule).

89 Fed. Reg. 8758 (2024). Medicare and Medicaid programs; patient protection and Affordable Care Act; advancing interoperability and improving prior authorization processes (final rule).

Longest, B. B., Jr. (2016). Health policymaking in the United States (6th ed.). Health Administration Press.

Office of Inspector General. (2022). Some Medicare Advantage organization denials of prior authorization requests raise concerns about beneficiary access to medically necessary care (OEI-09-18-00260). U.S. Department of Health and Human Services. https://oig.hhs.gov/oei/reports/OEI-09-18-00260.asp