• Improve Compliance and Revenue by Understanding the Two-Midnight Rule

    Edward Hu, MD Aug 29, 2017

    Edward HuAs a physician caring for Medicare patients, you probably know that Medicare's two-midnight rule went into effect in late 2013. You also likely know that it pertains to inpatient status versus observation or outpatient status. However, the rule has been changed and clarified since its inception, leading to compliance opportunities that are not widely known.

    The most recently updated version of the rule is contained in Section 42 CFR §412.3of the Code of Federal Regulations. It stipulates that a physician should order inpatient services under the following three circumstances:

    • The physician expects the beneficiary to require hospital care spanning at least two midnights
    • The physician provides a service on Medicare’s inpatient-only list
    • The physician expects the beneficiary to require hospital care for less than two midnights but feels that inpatient services are nevertheless appropriate

    Each circumstance merits further discussion.

    Care Expected to Span Two Midnights

    For the first criterion, one key point is that the standard is based on reasonable expectation, not on how long the beneficiary actually needed the care.

    Long-standing guidance from the Centers for Medicare & Medicaid Services (CMS) has been that auditors should consider only the information known (or that should have been known) to the provider at the time the inpatient decision is made. If a beneficiary improves more rapidly than expected and can be discharged before the second midnight, that does not change the appropriateness of an inpatient admission. Some auditors look for provider documentation describing the unexpected improvement, but such documentation is not an absolute requirement.

    The next point to understand is that the yardstick is necessity of hospital care, not severity of illness or intensity of service. CMS has instructed its auditors to be agnostic to the intensity of services provided. Simply put, hospital care is care that can be delivered only in a hospital. CMS has, however, indicated a few circumstances in which time in the hospital should not count toward the two-midnight benchmark: custodial care, excessive delays, and time incurred due to convenience of the beneficiary or provider.

    The clock for the two-midnight standard starts ticking when the care for the beneficiary starts, even if that care started at another hospital or an offsite emergency department (ED). The clock cannot start at an outpatient clinic or urgent care facility.

    However, what constitutes the actual start of care? CMS has explicitly stated that triage and waiting-room time do not start the clock.

    On a national provider call in January 2014, CMS gave an example of a beneficiary who presented to the ED with fever, dysuria, and gassiness. A urinalysis and blood glucose sample were collected and the patient was sent back to the waiting room. Later, the beneficiary was evaluated by the ED provider and subsequently admitted by the admitting provider. Which event counts as the "start of care"?

    CMS’s answer: the collection of the urinalysis and glucose measurement. That was the first portion of care directed toward the evaluation or treatment of the patient, and it occurred before a physician even laid eyes on the patient! Follow CMS’s rules and keep from shortchanging yourself on the start of the two-midnight clock.

    Possible Exceptions to the Two-Midnight Requirement

    The first exception added to the two-midnight rule was newly initiated mechanical ventilation (excluding anticipated intubations related to other care). Inpatient payment is appropriate for an anaphylactic reaction requiring intubation and mechanical ventilation even if you expect discharge before two midnights have elapsed.

    What about unexpected events such as transfer to another facility or to hospice, death, or instances when patients leave against medical advice—aren't those exceptions as well? Not really, because if you didn't anticipate them when you admitted the beneficiary as an inpatient, your expectation based on your knowledge at the time of admission is still valid.

    What if the patient is so sick that you don't expect survival for two midnights even with treatment, or the family has elected to pursue comfort measures? Should the status of these patients be observation? CMS advised providers in an open-door forum not to be too predictive of the beneficiary’s time of demise, stating that auditors likely would not take issue with a provider's use of the inpatient benchmark in these situations. To date, in fact, CMS has excluded from auditor review cases when beneficiaries die during the stay.

    Other Circumstances Meriting Admission

    Regarding the second circumstance under which an inpatient admission is pertinent, the inpatient-only list is published each year and represents procedures that CMS will pay only for inpatients. In April 2015, CMS started allowing "inpatient only" surgeries to be paid for beneficiaries who had not been formally admitted if the admission occurred within three calendar days of the surgery and prior to release.

    If there is any question as to whether an inpatient-only procedure was performed, have your coders code the procedure from the operative report as soon as possible, and get the inpatient order ready if the procedure is inpatient-only.

    The third circumstance, inpatient admission even when a provider does not expect a two-midnight stay, was instituted in January 2016. CMS states that the factors used in making this determination must be documented in the medical record and that the decision is subject to medical review.

    Hospitals and providers should use caution with respect to this provision due to the lack of clear guidance from CMS. Some CMS contractors have issued guidance suggesting that significant life-threatening illnesses may be appropriate for this provision. However, in the absence of clear and consistent guidance, providers will need to make their own decisions regarding compliant use of this newest circumstance.

    A full understanding of the two-midnight rule will help you recognize additional opportunities for inpatient payment that might otherwise be missed. Hospital CFOs will thank you.


    Edward Hu, MD, CHCQM-PHYADV, is president, American College of Physician Advisors.

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