The Two-Midnight Rule: A Review

Abstract

Many years ago, The Center for Medicare and Medicaid Services (CMS) created a system where patients who did not meet specific criteria were determined to be ‘outpatients’ and placed under observation status in the hospital. This status was intended as enhanced outpatient treatment to rule out a diagnosis. The original definition of observation status has, however, transformed to a system where ‘outpatients’ are regularly placed in a hospital bed, taken care of by inpatient physicians and receive the same hospitalized care as ‘inpatients’. The financial impact to patients placed under observation status is burdensome compared to an inpatient admission. Furthermore, patients placed in observation status do not qualify for Skilled Nursing Facility Medicare coverage (Centers for Medicare and Medicaid Services https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/bp102c08.pdf). In an attempt to clarify the difference between observation status and inpatient status and to decrease the number of prolonged observation stays, CMS has enacted a new set of regulations, The Final Rule, CMS 1599-F (Centers for Medicare & Medicaid Services http://www.gpo.gov/fdsys/pkg/FR-2013-08-19/pdf/2013-18956.pdf). This set of regulations has made the differentiation between observation status and inpatient admission anything but straightforward: the regulations are quite complicated and nuanced and have required major changes in hospital systems as well as physician thinking, increased risk of reimbursement denial and increased administrative costs.