The Centers for Medicare and Medicaid Services (CMS) announced a significant change that will reshape how Medicare reviews short-stay inpatient hospital claims. Beginning Sept. 1, 2025, Medicare Administrative Contractors (MACs) will perform short-stay inpatient hospital medical reviews previously conducted by the Beneficiary and Family Centered Care Quality Improvement Organizations (BFCC-QIOs). This transition represents a fundamental reorganization of Medicare’s oversight structure for hospital payments and provider education, not a change in CMS policy.
Current Landscape and Transition Timeline
The foundation of inpatient short-stay determinations rests on the Two-Midnight rule (hospitalizations of less than two midnights), which was implemented by CMS in 2014 to reduce inpatient admission errors and inappropriate payment under the inpatient prospective payment system (IPPS) for stays not expected to span at least two midnights.
In June 2024, the Office of Inspector General (OIG) published a nationwide audit of Medicare Part A claims for hospital inpatient short stays for calendar years 2016 through 2020. The audit sample covered $19.7 billion of Medicare payments for 2.5 million inpatient short stays across 3,340 acute-care hospitals nationwide. The findings included program vulnerabilities for non-compliance with the Two-Midnight rule and limited improper payments recoveries. OIG noted $49.2 million in improper payments were denied representing only 0.6 percent of the $7.8 billion estimated by CMS’s Comprehensive Rate Testing reviews. The OIG recommended updating policies and procedures for post payments reviews to focus on claims identified as at risk for non-compliance with the Two-Midnight rule and overpayment recoveries.
BFCC-QIOs have historically conducted inpatient short-stay status reviews as part of their quality improvement mandate for acute care hospitals, long-term care hospitals and inpatient psychiatry facilities. BFCC-QIOs were established to work directly with healthcare providers to enhance care quality and ensure appropriate utilization of Medicare services. Per the announcement from CMS, BFCC-QIOs will continue to conduct medical review activities until the end of August 2025.
Considerations Beginning Sept. 1, 2025
The announcement from CMS addresses a core function of Medicare oversight, which is to determine the appropriateness of Part-A payment for short-stay inpatient hospital claims and, when warranted, offer provider education. The purpose is to foster proper payment integrity while providing targeted education to prevent future errors.
In accordance with CMS established policy, Medicare Administrative Contractors (MACs) will conduct status reviews on a sample of Medicare pre-payment Part-A claims from acute care hospitals, long-term care hospitals and inpatient psychiatry facilities as a part of the existing Targeted Probe and Educate (TPE) program structure.
The TPE program launched in 2017 was designed to implement a more collaborative approach with healthcare providers and suppliers to reduce denials and appeals. Under TPE, hospitals receive individualized-targeted guidance to address specific compliance issues identified through claims analysis and increase accuracy, rather than facing immediate penalties for billing errors. Some common claim errors addressed by TPE are missing physician’s signature, missing or incomplete initial certification or recertification or encounter’s notes that do not support all elements of eligibility.
The integration will consolidate Medicare review functions under MACs that already manage extensive claims processing infrastructure that could potentially improve operational efficiency and reduce administrative costs. CMS has stated that no policy changes accompany the administrative transition; however, MACs data-driven approach may change patterns for claims selection and review methodologies of clinical documentation away from the BFCC-QIOs approach.
What Providers Can Do Before Sept. 1, 2025
Healthcare providers can take the following steps to prepare for the transition effective Sept. 1, 2025:
- Remain vigilant to CMS updates on the implementation of the hospital short-stay reviews by the MACs.
- Communicate to administrative and clinical personnel the shift in Medicare inpatient short-stay reviews and emphasize the need for adhering to regulatory compliance and robust documentation practices.
- Implement education sessions for administrative and clinical staff regarding the Targeted and Probe Education (TPE) program and to reinforce the Two-Midnight rule.
- Be proactive by assembling an interdisciplinary team to focus on inpatient short stays encounters to identify admission patterns, verify appropriateness of Part-A payment, and build readiness between July and August 2025.
While CMS inpatient short-stay policy remains unchanged, providers should be prepared by defining an action plan that includes staff training, internal retrospective audits and identification of documentation and coding risks to minimize common errors defined by the TPE program and the framework for upcoming MACs reviews beginning in September.
At Windham Brannon, we offer a comprehensive range of integrated services that include coding and billing compliance audits for hospitals and physician groups. Our role is not only offering advisory services, but also aiding your healthcare organization in implementing workplans and metrics designed to achieve your operational and financial goals amid financial constraints. For questions or more information, contact your Windham Brannon advisor today, or contact Denise Gaulin.
Interested in more information on CMS updates? Read this article on the 60 Day Overpayment Rule update.
