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What Is the Two-Midnight Rule, and Why Does It Matter?

Medicare coverage is complicated, even for those who work with it daily. About a decade ago, the Centers for Medicare and Medicaid Services (CMS) noted that hospitals appeared to misunderstand what kind of inpatient and outpatient care qualified for service under Medicare Parts A and B.

The solution: The two-midnight rule, rolled out in 2013 and offering hospitals better guidance to determine what should be billed under each part.

The rule is meant to reduce overcharges and clarify the claims process. Here’s how it works.

Defining the Two-Midnight Rule

CMS says part of the impetus for the two-midnight rule is to defer to medical expertise for decision-making about what type of care a patient needs. The agency produced a helpful fact sheet outlining what the two-midnight rule consists of. It notes that:

·        Hospital Inpatient Prospective Payment System (IPPS) is paid under Part A.

·        Hospital Outpatient Prospective Payment System (OPPS) is paid under Part B.

What gets confused is what falls under inpatient and what falls under outpatient. CMS found care that should be given as outpatient too often was billed as inpatient or outpatient care required extended observation. Hospitals wanted to know what part they should charge and when an outpatient became an inpatient.

With the adoption of the two-midnight rule, CMS decided to set things clear. Patients would be charged as inpatients under Part A if their care encompassed two or more midnights and the medical record backed up the need for that care.

By contrast, Part A should not be used for visits that last less than two midnights. So if someone arrives at 6 a.m. and spends the night for observation but leaves the next morning, they would not be billed under Part A.

The rule doesn’t put any limitations or expectations on medical treatment. A physician can still determine how long is needed and change their mind if necessary.

The High Cost of Errant Reporting

Why is the seemingly simple two-midnight rule so critical? In part because of the scope of the problem. According to the Office of the Inspector General for the Department of Health and Human Services, about $2.9 billion in wrongly designated payments were made under Part A in fiscal year 2014. Additionally, Medicare paid more for some short inpatient stays than for short outpatient stays. Misdesignating something under Part B could also stop patients from accessing necessary coverage.

Hospitals expressed frustration about having to prove if a patient was “sick enough” to be admitted as an inpatient. The rule takes away the subjectivity of that call. If you stay for more than two midnights, then you are an inpatient, no question.

Kaiser Family Foundation notes that since the two-midnight rule went into effect, the number of Medicare Advantage members has more than doubled, to 30 million.

Medicare rules can be tricky, and having someone who understands them can help you navigate them more smoothly. Contact Jay today to learn more about Medicare’s two-midnight rule.  


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