HHS-OIG reports on impact and vulnerabilities of Medicare's Two-Midnight Rule



On December 19, 2016, the US Department of Health and Human Services, Office of Inspector General (HHS-OIG) issued a report, "Vulnerabilities Remain Under Medicare 2-Midnight Hospital Policy" (OEI-02-15-00020). The report is available on HHS-OIG's website.


The Centers for Medicare & Medicaid Services (CMS) implemented the Two-Midnight Rule effective October 1, 2013, with the objective of clarifying when a hospital inpatient admission is appropriate under Medicare. To assess the impact of the Two-Midnight Rule, HHS-OIG compared hospital admission data from federal fiscal years 2013 and 2014 (i.e., the year before and the year after the rule's implementation). This comparison enabled HHS-OIG to identify certain ongoing vulnerabilities associated with the Two-Midnight Rule and to make recommendations with respect to those vulnerabilities.


The report's findings were based on an examination of paid Medicare Part A and Part B hospital claims (without undertaking a review of the underlying medical records) from federal fiscal years 2013 and 2014. For purposes of the report, HHS-OIG defined a "short stay" as one that lasted less than two midnights. A "long stay" was defined as a stay of two midnights or more. The report's principal findings are set forth below:

  1. The manner in which hospitals use hospital inpatient stays versus hospital outpatient stays continues to vary widely throughout the United States.
  2. The number of hospital inpatient claims received by CMS has decreased, with the decrease manifesting more with respect to short inpatient stays than long inpatient stays. However, since the implementation of the Two-Midnight Rule, hospitals continue to bill for many short hospital inpatient stays that are potentially inappropriate (i.e., false).
  3. Claims for hospital outpatient stays, including long outpatient stays, have increased.
  4. Although Medicare generally pays less for hospital outpatient stays than for inpatient stays, beneficiaries are paying more for their care and, by virtue of their outpatient status, have limited access to skilled nursing facility (SNF) services.


Based on its findings, HHS-OIG makes the following recommendations:

  1. CMS should conduct routine reviews of hospitals' compliance with the Two-Midnight Rule with an emphasis on (a) those providers that have high or increasing numbers of short hospital inpatient stays, and (b) short inpatient stay cases. 
  2. CMS should study the potential impact of allowing beneficiaries to count time spent in a hospital as an outpatient toward the three-night requirement for Medicare coverage of SNF services.
  3. CMS should consider how it might better protect beneficiaries who receive hospital care on an outpatient basis from facing greater out-of-pocket expenditures than they would have as inpatients.

CMS concurred with all of HHS-OIG's recommendations.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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