What you need to know about the two-midnight rule

December 1, 2013

Implementation of the new rule will likely reduce plans’ costs.

Lisa G. Han, Esq. is a partner with Squire Sanders LLP.

In August, CMS issued the FY 2014 Inpatient Prospective Payment Systems (IPPS) final rules, including one that requires an inpatient admission to extend more than two midnights for Medicare Part A reimbursement. The rule took effect on October 1.

Under the rule, inpatient admissions spanning two midnights will be presumed to be appropriate and will not be reviewed for Part A reimbursement unless there is evidence of systemic gaming, abuse or delay to qualify for the presumption. Short-stay admissions, or inpatient admissions that do not span two midnights, are “generally inappropriate” for Part A reimbursement. 

Recovery Audit Contractors (RACs) must review submitted Part A reimbursement claims for short-stay admissions and may include time spent as an outpatient prior to inpatient admission toward the two-midnight benchmark. All claims may be reviewed for medical necessity and validation of provider coding and documentation.

To be compliant, hospitals must ensure that their medical records include:

  • A certification signed by the physician prior to discharge stating reasons for inpatient admission; 

  • That the care provided was in accordance with all applicable laws; 

  • The physician’s inpatient order at the time of the admission; 

  • Admission and progress notes that support the inpatient admission order; 

  • The physician’s expectation that the patient requires a medically necessary stay lasting at least two midnights (calculation may include outpatient time before formal inpatient admission); and 

  • Notes about the circumstances of any unanticipated short-stay admission because of an unforeseen circumstance.

Opposition and criticism

Rachel D. Ludwig is a healthcare fellow at Squire Sanders LLP.

The rule incited a barrage of public opposition and criticism from hospitals concerned about decreasing reimbursement and the limited implementation period. In response, CMS delayed the RACs reviews of short-stay admissions claims until April 1, 2014. From October 1 to April 1, contractors will review 10 to 25 claims for short-stay admissions per hospital on a prepayment basis to provide guidance and education and to ensure compliance with the instructions.

Upon implementation, there will be no payment for inpatient claims under Medicare Part A unless the physicians’ order is documented in the medical record. Although a hospital may include outpatient time prior to admission to reach the two-midnight benchmark, it can only be billed as outpatient services under Medicare Part B. If a claim for inpatient admission is denied, the hospital can rebill the claim as an outpatient visit under Medicare Part B. Prior to implementation, hospitals had no recourse except to appeal denied Part A claims.

The new rule may increase fraud allegations against physicians and hospitals based upon billing Medicare in reliance upon certifications. It could also shift more services to be provided on an outpatient basis, resulting in beneficiaries paying more for cost sharing and for items not covered under Part B. 

This rule does not apply to Medicare Advantage (MA) plans. However, MA plans generally follow the Medicare payment policy for the fee-for-service program. Given that most MA plans have little or nominal cost sharing for outpatient services, the rule will likely reduce costs.