On August 2, 2013, the Centers for Medicare and Medicaid Services (CMS) issued an advance copy of its final rulemaking that adopts a new approach to evaluating the medical necessity of inpatient hospital admissions. Because inpatient admission typically results in higher levels of Medicare reimbursement than outpatient services, fraud enforcement agencies have critically scrutinized inpatient admissions involving short stays - usually one day or less - to determine whether the services actually required an inpatient level of care.  The new rule takes effect October 1, 2013. 

New Guidance on 2-Midnights Hospital Stays

Under the new guidance, inpatient hospital stays spanning more than “2 midnights” following the physician’s order will be presumed generally appropriate for Medicare Part A payment and will not be the focus of medial review efforts unless there is evidence of systemic gaming, abuse, or delays in providing care in order to qualify for the 2-midnight presumption.  Conversely, hospital stays in which the physician expects the patient to require care less than 2 midnights are “generally inappropriate” for inpatient admission, as CMS presumes that such services should have been provided on an outpatient basis. 

CMS is instructing Medicare contractors to review inpatient stays that span less than 2 midnights after admission.  In reviewing these short-stay admissions, Medicare contractors will consider time spent as an outpatient before being admitted as an inpatient and will count that time towards meeting the 2-midnights benchmark.  In addition, Medicare contractors will expect the medical record to document a physician’s inpatient order and expectation that the patient requires care spanning at least 2 midnights, even if the patient ultimately does not stay for that long due to, for example, unusually rapid recovery, transfer to another facility or death.  

CMS suggests that its final rule is consistent with prior guidance that used a 24-hour period as a benchmark for inpatient admission because 2 successive midnights span 24 hours and CMS defines utilization days by the number of midnights that pass. 

The final rule also requires that a physician’s inpatient admission order be present in the medical record and the corresponding admission and progress notes must support that services are required to be performed on an inpatient basis.  Physicians must also certify that their services were provided in accordance with applicable law throughout the patient’s stay.

Impact of New Rules for Hospitals

These new rules and policy clarifications have important implications for hospitals:

• Inpatient orders.  CMS explicitly states that if the physician’s order is not in the medical record, the hospital should not submit a claim for Medicare Part A payment.  Hospitals can expect further guidance from CMS on verbal orders.  At a minimum, hospitals should ensure that all inpatient admissions are supported by documented physician orders.


• Elimination of 1-day inpatient stays?  While hospitals may be relieved that inpatient stays that span at least 2 midnights will be considered presumptively reasonable for medical review purposes, significant vulnerability exists with admissions that last 24 hours or more, but less than 2 midnights.  Under previous guidance, physicians were instructed to use a 24-hour benchmark for ordering inpatient admission.  CMS’s new presumption effectively eliminates inpatient Medicare payment for stays physicians determine should extend 24-hours or longer but do not cover 2 nights.  For example, a Medicare patient admitted early in the morning who is estimated to stay in the hospital 40 hours may be categorically excluded from inpatient reimbursement.


• Documentation is critical.  Although physician documentation of medical necessity has always been important in medical reviews, CMS’s rulemaking makes such documentation critical for short-stay hospital admissions.  For example, if a patient is admitted as an inpatient but ultimately stays less than 2 midnights, the admission is likely to be targeted for review, and hospital payment at the inpatient level will depend on whether the physician adequately documented the expectation that care would span at least 2 midnights.  Hospitals should ensure that their medical staffs are aware of the new admission guidelines and receive training on documentation requirements.  Hospital case management staff should also be charged with more rigorous short-stay reviews and ensuring that appropriate documentation exists for any patient treated as on an inpatient basis.


• Be wary of 2-day stays.  Although CMS states that the new presumption will enable it to focus on reviewing inpatients stays of one day or less, its focus may eventually expand to reviewing inpatient stays spanning exactly 2 midnights to determine whether care has been delayed or unnecessarily prolonged to qualify for the 2-midnights benchmark.


• Increased fraud exposure.  Additional certification of compliance obligations may make it easier for the government and whistleblowers to accuse physicians and hospitals of fraud if inpatient status is later determined to be inappropriate.


• Physician judgment is supreme.  Despite its adoption of an arbitrary time-based presumption for medical review purposes, CMS reiterated its “longstanding policy” that it does not “define or pay under Medicare Part A for inpatient admissions solely on the basis of the length of time the beneficiary actually spends in the hospital.”  CMS recognizes that “the inpatient admission decision is a complex medical judgment that should take into account many factors,” such as the patient’s medical history and medical needs, the risk of an adverse event, and the relative appropriateness of treatment in the inpatient and outpatient settings.  Thus, while time-based thresholds might be used by auditors to disallow payment for short stays, a physician’s informed decision to admit a patient remains a potent defense to allegations of fraudulent or abusive admitting practices that often follow adverse audit results.

Prior to the new rule taking effect on October 1, 2013, hospitals should review their approach to evaluating the medical necessity of inpatient hospital admissions and consult counsel with any questions related to changes in Medicare policy.