Still Seeking Clarity on the Two-Midnight Rule – A Decade After its Introduction

The Two-Midnight Rule was first announced 10 years ago. So, how is it possible that as we approach the tenth anniversary of its implementation, it remains an ongoing source of confusion?

First, it’s a collision of several different areas of expertise, professionals of which don’t always fully understand the rules.

Second, for any given provider, there’s a continuous flow of new utilization management (UM) and revenue cycle team members.

Paraphrasing the original rule, there were three ways an inpatient admission would generally be payable under Part A. Those three situations are:

• A reasonable expectation of a two-midnight stay, based on the patient-specific required diagnostic and therapeutic modalities. This is referred to as the “expectation;”
• An actual stay of two midnights, based on the patient’s diagnostic or therapeutic needs. This is referred to as the “benchmark;” and
• Performance of a procedure on the Inpatient-Only List.

Subsequently, the Centers for Medicare & Medicaid Services (CMS) added two additional situations:

• New-onset mechanical ventilation; and
• A case-by-case exception.

But the Two-Midnight Rule must also mesh with a hospital’s use of observation services. This is confusing for two reasons:

• First, the estimation of the length of stay is a complex question. Most providers can’t or won’t answer the question “How long will this patient be in the hospital?”
• Second, observation is, as CMS tells us, “a well-defined set of specific, clinically appropriate services, which include ongoing short-term treatment, assessment, and reassessment before a decision can be made regarding whether patients will require further treatment as hospital inpatients…”

This means that a patient may be changed from outpatient with observation services relatively easily. But ordering observation services for an inpatient essentially amounts to gibberish, since observation services can only be delivered to outpatients. This also means that observation is an extremely context-sensitive service, and may become inappropriate, based on the outcome of a single lab test.

So, what is the best way to resolve this quandary?

• First, providers should ask the question “Will this patient require hospitalization at midnight tomorrow?” This deceptively simple question embodies the necessary elements of the presumption. It helps providers distinguish treatment timelines that start at 1 a.m. from those that start at 11 p.m.
• If the answer to the question is yes, then the record should reflect the medically necessary diagnostics or treatments and the anticipated stay of at least two midnights.
• If the answer to the first question is uncertain or no, then observation services may be appropriate, depending on context and documentation. This same context sensitivity also precludes retroactive observation services.

But, what if the patient has nothing that needs to be studied, precluding observation, and doesn’t need two midnights of hospital care? If medical necessity is absent, the question is financial, not medical. The next responsible party, usually the patient, must be notified in a manner consistent with CMS or payor requirements.

This is going to be more important as CMS enforces the Two-Midnight Rule for Medicare Advantage (MA) plans. Providers need a comprehensive revenue cycle plan that includes admission management. It’s going to be a new game, and payors are not going to give up their money just because a patient stays two midnights.