CMS Clarifies Payments with “Two Midnight Rule” for Hospital Admissions

Earlier in August, CMS published a final rule on hospital inpatient admissions (among other items), providing clarity on how payments will be provided for inpatient status.  It has been brought to light that may Medicare beneficiaries had been spending time under “observation stay” status as opposed to “inpatient” status, which prevented them from reaching the three-day threshold required to have skilled nursing services covered. These changes will be applicable to hospital discharges that occur on or after October 1, 2013.

The CMS Fact Sheet regarding the two midnight rule states:

Admission and Medical Review Criteria for Inpatient Services.  The final rule modifies and clarifies CMS’s longstanding policy on how Medicare contractors review inpatient hospital admissions for payment purposes.  Under this final rule, in addition to services designated as inpatient-only, surgical procedures, diagnostic tests and other treatments are generally appropriate for inpatient hospital admission and payment under Medicare Part A when the physician (1) expects the beneficiary to require a stay that crosses at least two midnights and (2) admits the beneficiary to the hospital based upon that expectation. This policy responds to both hospital calls for more guidance about when a beneficiary is appropriately treated—and paid by Medicare—as an inpatient, and beneficiaries’ concerns about increasingly long stays as outpatients due to hospitals’ uncertainties about payment.

The final rule specifies that the timeframe used in determining the expectation of a stay surpassing two midnights begins when the beneficiary starts receiving services in the hospital. This includes outpatient observation services or services in an emergency department, operating room or other treatment area. While the final rule emphasizes that the time a beneficiary spends as an outpatient before the formal inpatient admission order is not inpatient time, the physician—and the Medicare review contractor—may consider this period when determining if it is reasonable and generally appropriate to expect the patient to stay in the hospital at least two midnights as part of an admission decision.  Documentation in the medical record must support a reasonable expectation of the need for the beneficiary to require a medically necessary stay lasting at least two midnights.  If the inpatient admission lasts fewer than two midnights due to an unforeseen circumstance this also must be clearly documented in the medical record. 

This clarification will help determine when hospital inpatient status should be extended to a patient. The expectation with this final rule is that Medicare beneficiaries who are able to receive inpatient Medicare Part A coverage status should increase. This will hopefully translate over to subsequent care provided in post-acute care facilities since the required status of a beneficiary is 72 hours to qualify for skilled nursing care coverage, and more beneficiaries may be granted inpatient status with this new rule.