Two-Midnight Rule: An Update

In an effort to “simplify” the process for deciding on the appropriate admission status of hospitalized patients, CMS created the Two Midnight Rule. This rule stated that medically necessary admissions that would span a time crossing two midnights would generally be an inpatient, and those not crossing two midnights would generally be observation. This rule was part of the 2014 Inpatient Prospective Payment Final Rule. I went into effect on January 1st of 2014 and was promptly ushered out on January 30th, 2014 amid substantial backlash from providers.

This rule was errant in its concept and brought about more confusion than clarity. Hospitals and physicians had struggled through years of adaptation to the fairly vague definitions of “inpatient” and “observation” provided by CMS and muddied further by Recovery Auditors that denied previously paid claims with very little oversight. The Two Midnight Rule turned the focus of “medical necessity” and resource utilization on its head.

CMS obviously likes the idea of the Two Midnight Rule. Congress, on the other hand, does not appear to like it. The industry pushback pressured Congress, which, in turn, pressured CMS to pull the Two Midnight Rule at the end of January. Congress essentially told CMS to go back to the drawing board and come up with a better plan. CMS was instructed to get input from the people on the ground and find an alternative. A number of ideas were submitted from various sources. Still, the postponement period for the Two Midnight Rule was nearing the end and hospitals have braced for impact…again.

Much like the flawed Sustainable Growth Rate and ICD-10, the actual rollout of the Two Midnight Rule has sputtered. On the eve of the second attempt, the launch has been scrubbed. Legislation attached to the SGR fix will likely push the rule back another six months. In the wake of that announcement, members of MedPAC, the Medicare Payment Advisory Committee, have indicated they will be backing a package of proposals that include scuttling the Two Midnight Rule all together.

As of today, the rule itself is in limbo. There is a strong possibility that it will never resurface again. While the government works this issue glacially through the process, CMS will continue to “probe” into hospital processes for justifying admissions and level of care, and to “educate” those who are not adequately applying the embattled Two Midnight Rule properly. Recovery Auditors will still avoid denials based solely on this criteria.

Of course, this leaves providers in a quandary. The rule is in effect, but not really. CMS will “probe and educate,” but Recovery Auditors won’t make post-payment denials. There does not appear to be any real clarity here. The best advice is to continue to make decisions for admission based on medical necessity and the level of care decision based on the severity of the patient’s illness and the amount of resources required to care for the patient. If these considerations don’t yield an obvious decision, then consider the anticipated length of stay.