Observation Stays and the Two-Midnight Rule

The Two-Midnight Rule states that inpatient admission and payment are appropriate when the treating physician expects the patient to require a stay that crosses two midnights and admits the patient based on that expectation. This decision is left to the physician’s discretion and ultimately centers on the question of how long medically necessary services will be required given the patient’s condition at the onset of evaluation. Although the decision that a patient should be admitted may be denied, hospitals may still bill under Part B. However, classifying a patient under outpatient status or “observational” status brings implications that may be detrimental to a patient who will eventually, or soon after a stay at the hospital, require treatment in a Part A facility. These implications directly affect how the beneficiary, who wasn’t classified as inpatient, will be billed and it comes at a much higher cost.

October 1, 2015, marked the beginning of the Beneficiary and Family Centered Care (BFCC) Quality Improvement Organizations’ (QIOs’) role in conducting initial medical reviews of providers who submit claims for short stay inpatient admissions. As part of the patient status review, QIOs will review the medical record to assess the hospital’s compliance with the admission order requirements and the Two-Midnight benchmark. Most recently, and effective as of January 1st of 2016, BFCC-QIOs may refer providers to the Recovery Auditors, who may subsequently conduct patient status reviews based on patterns of practice that may indicate high rates of denial or failure to improve after QIO educational intervention has been rendered.

The rule for expected stays lasting 0-1 midnight stays falls under two general categories. For services on Medicare’s Inpatient Only list as authorized by 42 C.F.R. Section 419.22(n), “services that support an inpatient admission and Part A payment as appropriate, regardless of the expected length of stay” will be approved by the QIOs so long as other requirements are met. Providers should be cognizant of the fact that Part A payment is appropriate only in rare and unusual circumstances when instances exceed authorization and fall outside of this specific list.

• CMS Guidance on Reviewing Short Stay Hospital Claims for Patient Status: Admissions on or After January 1, 2016
• CMS Hospital Center Homepage