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Medicare Will Modify Two Midnight Rule

The Centers for Medicare and Medicaid Services announced earlier this month that it will modify but not eliminate the so-called “two midnight” rule that was first announced in 2013. The rule has been controversial among health care providers, and as a result it had never actually been implemented. However, with the new modifications, CMS expects the new rule to go into effect in November. Learn more about what the two midnight rule means for Medicare beneficiaries and health care providers in our blog.


What does the revision to the two midnight rule mean for Medicare beneficiaries?

Medicare Two Midnight Rule

What is the rule?

The two midnight rule gives hospitals guidance on classifying Medicare patients as an inpatient or outpatient case. In a nutshell, it says that if a patient is expected to stay for a period of time that lasts for less than two midnights, they should be treated and billed as an outpatient case. Patients who are expected to stay for longer than two midnights should be treated and billed as an inpatient case.

What’s the difference in the way patients are treated and billed?

Inpatient and outpatient cases have different cost structures for hospitals and beneficiaries. Two beneficiaries could receive the same treatment, but one under an outpatient case and the other under and inpatient case, and they would pay different amounts.

An outpatient stay can mean higher out-of-pocket costs for the patient. It also means lower reimbursement from Medicare through Part B for the hospital.

An inpatient stay means the hospital will be reimbursed through Medicare Part A, typically at higher rates. For the beneficiary, it means that if they need skilled nursing facility care after the stay, it will be covered (assuming the stay was 3+ days).

Why was the rule made?

Before the rule, hospitals were concerned that they wouldn’t be reimbursed if they admitted Medicare patients under inpatient status who should have first been placed under observation outpatient status. This is because Medicare could refuse to reimburse if they determined a patient had been admitted as an inpatient when they should have been outpatient. So hospitals started classifying more patients under observation outpatient status in order to ensure they would be reimbursed.

“As a result…the percentage of observation cases for beneficiaries lasting longer than 48 hours more than doubled – from 3% to 8% – raising concern among federal officials,” according to American Healthline. This also meant more beneficiaries were paying higher out-of-pocket costs, and were ineligible for skilled nursing after their stays.

What’s the controversy?

In short, hospitals argue that CMS is taking the power to make a complex decision out of their hands, thereby undermining the judgment of physicians. They also say the rule creates additional administrative and financial burdens, and discourages innovations that could reduce the length of time patients need to stay in the hospital.

What’s the revision?

The revision to the rule says that Medicare “would allow for case-by-case exceptions,” according to the AP. This means that “Based on a doctor’s judgment, certain short hospital stays could be covered under inpatient payment rules.”

The revision to the two midnight rule is not final and will be subject to a public comment period.

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