This guidance from the Centers for Medicare and Medicaid helps determine how a hospital is paid — and what costs the patient bears — when a Medicare beneficiary arrives at a hospital seeking care. A physician or other qualified professional must decide whether to admit the person or treat them as an outpatient. Not all care qualifies for inpatient treatment.
Deeper Dive
Medicare has different payment rates for inpatient and outpatient hospital services. Under Medicare Part A, hospitals are paid prospectively for inpatient stays based on diagnosis, procedures and severity of illness. Under Part B, costs vary depending on services or procedures provided, and their cost. A patient may be too sick or injured to be discharged but were not being admitted because of cost and payment issues.
Instead, they were held “under observation,” a kind of outpatient limbo. Days spent as a hospital outpatient do not count towards the three-day inpatient hospital stay that is required before a beneficiary is eligible for Medicare coverage of skilled nursing facility services. Patients were frequently unaware of their status and experienced sticker shock when they received a large bill from a hospital or step-down facility.
In 2013, CMS instituted what’s known as “the Two-Midnight” rule, subsequently updated in 2015, to help clarify:
- Inpatient admissions are generally payable under Part A “if the admitting practitioner expects the patient to require a hospital stay that crossed two midnights and the medical record supported that reasonable expectation.”
- In 2016, CMS finalized the rule to permit greater flexibility for determining when an admission does not meet the benchmark, but should still be payable under Part A on a case-by-case basis. Inpatient services are also appropriate if the physician is providing a service listed as “inpatient only” by Medicare (i.e., certain types of surgeries).
- “Medicare Part A payment is generally not appropriate for hospital stays expected to last less than two midnights. Cases involving a procedure identified on the inpatient-only list or that were identified as a “rare and unusual exception” to the Two-Midnight benchmark by CMS were exceptions to this general rule and were deemed to be appropriate for Medicare Part A payment.”