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Through the “two-midnight rule,” the Centers for Medicare & Medicaid Services (CMS) made a bold attempt to clarify its medical review criteria for medical necessity and payment – although it would appear that hospitals are left with more questions than answers on how to interpret the regulation.

During the week prior to the  Oct. 1 deadline, after which the 2014 Inpatient Prospective Payment System (IPPS) rule was to take effect, CMS issued guidance on the new policy, indicating that the auditors would delay scrutiny of short inpatient stays through the end of 2013. These three months would allow CMS to provide further clarity regarding the two-midnight rule, and they would allow hospitals sufficient time to properly implement procedures into their compliance programs. It is important to remember, however, that the new IPPS requirements went into effect on Oct. 1; CMS merely is allowing for a transition period, and thus limiting (not eliminating) the types of audits being performed.

Although these regulations are extensive and subject to ongoing clarification, physicians and other admitting practitioners were expected to follow these requirements for the inpatient admission of Medicare patients, starting on Oct 1. The following information examines the three most important areas physicians will need to pay particular attention to when addressing the two-midnight rule.


This refers to the time a patient is expected to stay in the hospital. If the patient requires hospital inpatient services, and the physician believes that the patient will need to stay in the hospital at least two midnights, then the physician should order inpatient admission. If the patient does not require inpatient hospital services, or the physician does not expect the patient to stay past two midnights, the physician should order observation or outpatient services.

CMS subdivides the two‐midnight rule into the concepts of the two‐midnight benchmark and the two‐midnight presumption.

The clock for the two‐midnight benchmarkstarts when the beneficiary begins receiving hospital services, whether on an inpatient or outpatient basis.

Furthermore, CMS has indicated that “the starting point for the two‐midnight benchmark will be when the beneficiary begins receiving hospital care on either an inpatient basis or outpatient basis.” CMS further stated that “the physician ordering the admission should account for time the beneficiary spent receiving outpatient services, such as observation services, treatments in the emergency department, and procedures provided in the operating room or other treatment area.”

Under the presumption, the clock for the two‐midnight provisionstarts when the inpatient admission order is issued. Regarding the presumption, CMS has indicated that “inpatient hospital claims with lengths of stay greater than two midnights after formal admission following the orderwill be presumed generally appropriate for Part A payment.” For this reason, CMS has indicated that the treating physician should issue the inpatient admission order as soon as it can be reasonably predicted that the beneficiary’s hospital stay will cross a second midnight.

In addition, the starting point for determining whether the two‐midnight presumptionis met is the time at which the inpatient admission order is issued. An inpatient admission will be presumed reasonable and necessary (and, therefore, reimbursable by Medicare) if the presumptionis met. If the presumption is not met, the Medicare review contractor then will apply the two‐midnight benchmark and will take time spent by the beneficiary as a hospital outpatient into consideration. CMS has indicated that it will issue sub‐regulatory guidance to further clarify these concepts.

So, as a guideline: If you believe that a patient will be discharged the same day or the day following hospitalization, consider ordering outpatient or observation services. If you believe that the patient will not be ready for discharge on the day after hospitalization, consider ordering inpatient services.

Please note that order changes (inpatient to observation or observation to inpatient) can be made after the initial order is written, as the hospitalization evolves.


An “order” refers to the order to “admit to inpatient” or “refer for observation/outpatient.” CMS continues to require that the attending physician write or cosign the order for level of care. In addition, CMS has clarified a few areas related to the order.

In a departure from previous CMS policy, which allowed for the inference of an inpatient admission order in certain circumstances, the 2014 IPPS final rule mandates that an inpatient admission order be present in every inpatient medical record. Furthermore, while in the past an order that stated “admit” or “admit to” generally would be presumed to indicate an inpatient admission, the final rule states that the admission order “must specify admission ‘to or as an inpatient.’ ” Furthermore, “admit to case management” or “admit to utilization review” no longer is considered sufficient.

The 2014 IPPS rule also states that the order should be signed by the attending or supervising physician. The practitioner signing the order must be knowledgeable about the patient’s course, the plan of care, and the current condition of the patient, in addition to having admitting privileges.

Regarding the acceptance of verbal orders, CMS has indicated that “a verbal order is a temporary administrative convenience for the physician and hospital staff, but it is not a substitute for a properly documented and authenticated order for inpatient admission. A verbal order must be properly countersigned.”

It is important to recognize that the determination regarding whether a particular practitioner is permitted to write an order is dictated by a multitude of factors. Federal rules, state rules, medical staff bylaws, and medical staff policies and procedures all play a role in addressing which practitioners are approved to write orders.

So, as a guideline: Orders for inpatient cases should include the words “admit” and “inpatient” if they are to be considered valid. (“Admit to Tower 7” or “Admit to Dr. Smith” are not recommended). Observation or outpatient cases should include the phrase “refer for observation Services” or “place in outpatient status.” (Avoid using “admit” and “observation or outpatient” in the same order. CMS considers this to be contradictory.)

Documentation & Certification

Documentation and certification refers to the evidence of medical necessary to support a patient’s inpatient admission. CMS requires physician certification of the patient’s admission in the medical record, which consists of statements establishing that services provided were reasonable and necessary and signed off on by the responsible physician prior to the patient’s discharge. 

The physician certification requirements for inpatient hospital services are found at 42 CFR § 424.13. The final rule amends some of the language contained in this section to clarify that the certification is required for all inpatient hospital stays. Specifically, the certification must contain:

  1. The order for inpatient admission, which must be supported by admission and progress notes;
  2. The reasons for “[h]ospitalization of the patient for inpatient medical treatment or medically required inpatient diagnostic study” (or, for cost outlier cases, the reasons for “special or unusual services.”) This should include the primary diagnosis;
  3. The estimated time the patient will need to remain in the hospital;
  4. The plans for post‐hospital care, if appropriate;
  5. Evidence that services were provided in accordance with 42 CFR §412.3 (admission requirements); and
  6. Certification, which must be signed and documented in the medical record prior to the hospital discharge (if delayed, the reason must be documented).

Under 42 CFR 412.13(c)(1), “certifications and recertifications must be signed by the physician responsible for the case, or by another physician who has knowledge of the case and who is authorized to do so by the responsible physician or by the hospital’s medical staff.” Certification must be completed before the patient is discharged from the hospital. The final rule creates a new paragraph to this provision at 42 CFR 412.13(b), which will state, “for all hospital inpatient admissions, the certification must be completed, signed, and documented in the medical record prior to discharge.”

CMS does not require that the physician certification take any particular form in order to be valid. The final rule indicates that “the certification and recertification statements may be entered on forms, notes, or records that the appropriate individual signs, or on a special separate form.” While a separate document does not need to be used, if information is in different places (i.e., progress notes, H+P, etc.) the certification statement should indicate where it may be found within the record.

So, as a guideline: Excellent patient care should continue to be the top priority. Document the diagnosis, medical rationale, plan of care, and anticipated discharge. Sign the admission order and certification (if appropriate) prior to discharge.

As previously noted, CMS plans to release further sub-regulatory guidance on this rule.

About the Author

Dr. Ralph Wuebker serves as Chief Medical Officer of Executive Health Resources (EHR). In this role, Dr. Wuebker provides clinical leadership within EHR and works closely with hospital leaders to ensure strong utilization review and compliance programs. Additionally, Dr. Wuebker oversees EHR’s Audit, Compliance and Education (ACE) physician team, which is focused on providing on-site education for physicians, case managers, and hospital administrative personnel and on helping hospitals identify potential compliance vulnerabilities through ongoing internal audit.

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To comment on this article please go to editor@racmonitor.com


Ralph Wuebker, MD, MBA

Dr. Ralph Wuebker serves as Chief Medical Officer of Executive Health Resources. In this role, Dr. Wuebker provides clinical leadership within the company and works closely with hospital leaders to ensure strong utilization review and compliance programs. Additionally, Dr. Wuebker oversees Executive Health Resources’ Client Services teams, who provide onsite education for physicians, case managers, and hospital administrative personnel and help hospitals identify potential compliance vulnerabilities through ongoing internal audit. An expert in CMS regulations, medical necessity compliance, utilization review, denials management, and program integrity efforts, Dr. Wuebker also serves as an industry thought leader and editorial advisor to the media, as well as a highly respected and distinguished industry speaker.

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