Medicare’s “Two-Midnight Rule” Enforcement Relaxed

The Centers for Medicare and Medicaid Services (CMS) announced that it will ease enforcement of the “two-midnight rule” through December 31 of this year.  Under the final rule released in August, CMS instructed physicians on when inpatient hospital admissions are appropriate for Medicare facility (Part A) payment.  The rule is intended to address concerns that some Medicare beneficiaries have received unnecessarily lengthy stays as an inpatient, and clarifies when a patient should be admitted as opposed to remaining in outpatient or “observation” status.   This revision of the Hospital Inpatient Prospective Payment System was designed to reduce operating and capital costs in an attempt to decrease overall expenditures.

Under the rule, if a physician reasonably expects that a patient’s procedure or treatment will require a hospital stay of at least “two midnights,” and accordingly admits the patient to the hospital, then the facility will generally receive Medicare payments for this stay.  A formal order of inpatient admission is required, but the physician is allowed to consider time that a patient may have already spent in the hospital.  In instances where the two midnights cannot be supported, the patient will be determined to be in an outpatient setting.  This will generally reduce the facility’s reimbursement and may increase the patient’s share of the cost.  Even when determined to be an outpatient, the patient may not be aware of his status, because he may physically be in any area of the hospital—including an inpatient bed. 

Initially, the rule provided for financial penalties if this criterion was not met.  However, under the October 1 revision, CMS instructed the Medicare Administrative Contractors (MACs) and the Recovery Audit Contractors (RACs) that they are not to review, or audit, claims spanning more than two midnights after admission in determining the appropriateness of the inpatient stay.  Further, from October 1 through December 31, RACs are not allowed to review inpatient admissions of one midnight or less.

However, MACs have been instructed to review a sample of claims spanning less than two midnights after admission to determine the medical necessity of the patient status in accordance with the two midnight benchmark.  This review will determine if the facility requires further education on the inpatient rule, and also assist CMS in guiding future regulation.

The complete rule can be found here.

Nancy Clark is a Manager in the Health Care Services Group. Her expertise focuses on coding and documentation audits, which includes chart review and report compilation.

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