In 2011, 8 percent of beneficiaries received observation services for more than forty-eight hours, up from 3 percent in 2006
Historically, hospitals and physicians have had considerable discretion over whether a patient is admitted to the hospital or is treated as an outpatient. CMS instructed physicians to generally admit patients expected to be in the hospital twenty-four hours or more but noted that a patient’s admission would not be covered or not covered “solely on the basis of the length of time the patient actually spends in the hospital.”
CMS emphasizes the role played by physicians in making this determination and its complexity: “The decision to admit a patient is a complex medical judgment which can be made only after the physician has considered a number of factors, including the patient’s medical history and current medical needs, the types of facilities available to inpatients and to outpatients, the hospital’s by-laws and admissions policies, and the relative appropriateness of treatment in each setting.”
In response to concerns over these trends, CMS asked for comments on multiple policy options to clarify when patients should be treated on an inpatient basis or to reduce payment incentives favoring one site of service over another
Medicare Recovery Audit Contractors (RACs) have the ability to review claims for inpatient stays and determine if the admission to the hospital was medically reasonable and necessary. If a RAC determines that the inpatient admission was not necessary and the care should have been provided on an outpatient basis, then the inpatient claim would be denied. In some cases, hospitals may be able to bill for the services provided during the denied inpatient stay under the OPPS.
CMS indicates that the decision to admit or discharge a patient can usually be made in less than twenty-four hours and would only be expected to exceed forty-eight hours in rare and exceptional circumstances.
Recent observations and trends discussed below led CMS to conclude hospitals still did not have sufficient clarity to make consistent admission determinations. The percentage of claims later determined to be improper admissions by RACs was twice as high for one-day stays (36 percent) compared to two- or three-day stays (13 percent).
In addition, the number of observation stays has increased considerably in recent years, and observation stays of longer than forty-eight hours have become more common.
2013 guidance. Ultimately, CMS decided to create a time-based criterion based on the physician’s expectation of the length-of-stay at the time of admission for RACs to follow in determining whether an inpatient stay was appropriate. This new rule, called the “two-midnight benchmark” by CMS and commonly referred to as the “two-midnight rule,” specifically identifies the minimum stay length–a stay that spans two midnights–that CMS expects beneficiaries to be in the hospital during an inpatient stay.
Beneficiaries who are expected by their doctor to be in the hospital across two midnights would appropriately be admitted as inpatients, and their stays would be paid for under the IPPS. Beneficiaries who are not expected to remain in the hospital across two midnights should be treated as outpatients and their stays paid for under the OPPS. The two-midnight rule would not apply to services identified as inpatient-only, which are performed on an inpatient basis regardless of the length of the hospital stay.
Under what CMS calls the “two-midnight presumption,” RACs, aiming to determine the appropriateness of inpatients’ status, would not review inpatient claims that crossed two midnights following the inpatient admission order. Inpatient treatment during a stay that crosses two midnights is presumed to be medically necessary.