The Two-Midnight rule for hospital admissions for Medicare patients was enacted by the Centers for Medicare and Medicaid services (CMS) in 2013. This rule established Medicare payment policy regarding the benchmark criteria to use when determining whether inpatient admission is reasonable and necessary for purposes of payment under Medicare Part A.
Deeper Dive
Medicare reimburses hospitals very differently depending on whether the patient is admitted or not. Similar services could be covered under part “A” (hospitalization) or part “B” (general medical insurance). Once a patient is admitted, inpatient care is reimbursed under a single “prospective payment” system – one sum for all services provided to the beneficiary during the stay regardless of how long that stay is (with some exceptions). This includes costs such as X-rays, room charges, preoperative testing, nursing services, and drugs. This occurs only if the patient stays for at least two midnights.
According to CMS, “surgical procedures, diagnostic tests and other treatments (in addition to services designated as inpatient-only), are generally appropriate for inpatient hospital admission and payment under Medicare Part A when the physician expects the beneficiary to require a stay that crosses at least two midnights and admits the beneficiary to the hospital based upon that expectation.”
Medicare pays considerably more for short inpatient stays than for observation or outpatient services; patients pay only a single deductible for inpatient care. The two midnight rule also determines reimbursement for beneficiaries who may require additional care in a skilled nursing facility. The rule mandates that the person must have had a hospital stay of at least three days prior to skilled nursing admission.
One ongoing problem with this rule is that CMS auditors have the right to review inpatient admissions and determine whether that admission was medically reasonable and necessary. If the auditor decides that care could have been provided on an outpatient basis, then the claim is denied. This potentially leaves hospitals, and ultimately patients, on the hook for thousands (or tens of thousands) of dollars. In 2016, CMS revised the rule based on extensive physician and hospital feedback. It maintains the benchmark established by the original Two Midnight rule, but permits greater flexibility for determining when an admission that does not meet the benchmark should nonetheless be payable under Part A on a case-by-case basis.