Edward Hu, MD

Most hospitalists’ training likely included caring for patients in the ambulatory clinic, urgent care, and ED settings. One of the most important aspects of medical training is deciding which of the patients seen in these settings need to “be admitted” to a hospital because of risk, severity of illness, and/or need for certain medical services. In this context, “admit” is a synonym for “hospitalize.”

However, in today’s health care system, in which hospitalization costs are usually borne by a third-party payer, “admit” can have a very different meaning. For most payers, “admit” means “hospitalize as inpatient.” This is distinct from “hospitalize as an outpatient.” (“Observation” or “obs” is the most common example of a hospitalization as an outpatient.) In the medical payer world, inpatient and outpatient are often referred to as “statuses.” The distinction between inpatient versus outpatient status can affect payment and is based on rules that a hospital and payer have agreed upon. (Inpatient hospital care is generally paid at a higher rate than outpatient hospital care.) It is important for hospitalists to have a basic understanding of these rules because it can affect hospital billing, the hospitalist’s professional fees, beneficiary liability, and payer denials of inpatient care.

For years, Medicare’s definition of an inpatient hospitalization was primarily based on an expectation of a hospitalization of at least 24 hours and a physician’s judgment of the beneficiary’s need for inpatient hospital services. This judgment was to be based on the physician’s assessment of the patient’s severity of illness, the risk of an adverse outcome, and the hospital services required. (The exact definition by Centers for Medicare & Medicaid Services is much longer and can be found in the Medicare Benefits Policy Manual.¹) Under Medicare, defining a hospitalization as inpatient versus outpatient is especially important because they are billed to different Medicare programs (Part A for inpatient, Part B for outpatient), and both hospital reimbursement and the patient liability can vary significantly.

Not surprisingly, CMS found that how physicians were making status decisions for medically similar hospitalized patients varied greatly. CMS noted two major concerns: an overuse of inpatient for patients hospitalized overnight leading to increased charges to CMS and multiday observation hospitalizations for lower-acuity patients leading to excessive liability for Medicare beneficiaries. (Observation stays are billed under Part B, under which the beneficiary generally has a 20% copay.)

To address these concerns, in October 2013, CMS adjusted the definition of inpatient to include “the two-midnight rule.” Basically, CMS said that, in order to qualify for inpatient, the admitting physician should expect the beneficiary to require hospital care spanning at least two midnights, rather than the previous 24-hour benchmark, regardless of the severity of illness or risk of adverse outcome. (There are exceptions and exemptions to the two-midnight rule, which are discussed later in this article.)

The idea of the two-midnight rule was to address the two concerns noted above. Under this rule, most expected overnight hospitalizations should be outpatients, even if they are more than 24 hours in length, and any medically necessary outpatient hospitalization should be “converted” to inpatient if and when it is clear that a second midnight of hospitalization is medically necessary.

In January 2016, CMS amended the two-midnight rule to recognize, as it had done prior to October 2013, that some hospitalizations, based on physician judgment, would be appropriate for inpatient without an expectation of a hospitalization that spans at least two midnights. Unfortunately, CMS has not been forthcoming with guidance of examples of which hospitalizations would fall into this new category, other than to say they expect the use of this new provision would generally not be appropriate for a hospital stay of less than 24 hours.

As of today, physicians should order inpatient services under the following three situations:

• The physician expects the beneficiary to require hospital care spanning at least two midnights.
• The physician provides a service on Medicare’s inpatient-only list.
• The physician expects the beneficiary to require hospital care for less than two midnights but feels that inpatient services are nevertheless appropriate.

This most recently updated version of the two-midnight rule can be found in Section 42 CFR §412.3 of the Code of Federal Regulations.² Each of these three situations warrants additional discussion.
 

Care expected to span two midnights

The first situation is the one most applicable to hospitalists. In this circumstance there are three key points to remember.

The first point is that the two-midnight rule is based on a reasonable expectation of a need for hospitalization for at least two nights, not the actual length of hospitalization. Auditors, based on long-standing guidance from the CMS, should consider only the information known (or that should have been known) to the provider at the time the inpatient decision is made.

For example, if the expectation of the need for hospitalization of at least 2 midnights is well documented in the admission note, but the beneficiary improves more rapidly than expected and can be discharged before the second midnight, billing Medicare under Part A for inpatient admission remains appropriate. Auditors may look for provider documentation describing the unexpected improvement, and while such documentation is not an absolute requirement, its presence can be helpful in defending inpatient billing.

Other situations in which there can be an expectation of hospitalization of at least two midnights, but the actual length of stay does not meet this benchmark, are death, patients leaving against medical advice, or transfer to another hospital. For example, if a patient is hospitalized as an inpatient for bacterial endocarditis, and the documented plan of care includes at least 2 days of IV antibiotics and monitoring of cultures, inpatient remains appropriate even if the patient signs out against medical advice the following day.

The second key point to understand is that a night must be “medically necessary” to count toward the two-midnight benchmark. Hospital time spent receiving custodial care, because of excessive delays, or incurred because of the convenience of the beneficiary or provider does not count toward the two-midnight benchmark. For example, imagine a patient hospitalized with chest pain on Saturday evening and the attending physician determines that the patient requires serial cardiac isoenzymes and ECGs followed, most likely, by a noninvasive stress test. The attending physician, knowing that the hospital does not offer stress testing on Sunday, expects the patient to remain hospitalized at least until Monday, thus two midnights. However, in this situation, the second midnight (Sunday night) was not medically necessary and does not count toward the two midnight expectation.

The third key point to know is that the clock for calculating the two-midnight rule begins when the beneficiary starts receiving hospital care, not when the inpatient order is placed. Further, care that starts in the ED or at another hospital counts, too. In contrast, care at an outpatient clinic, an urgent care facility, or waiting-room time in an ED does not count.

When CMS implemented the two-midnight rule in 2013, they said that they would be open to exceptions. The first and only exception to date to the two-midnight rule is newly initiated and unanticipated mechanical ventilation. (This excludes anticipated intubations related to other care, such as procedures.) For example, inpatient is appropriate for a patient who requires hospitalization for an anaphylactic reaction or a drug overdose and needs intubation and mechanical ventilation, even if discharge is expected before a second midnight of hospital care.
 

CMS’s inpatient-only list

Each year, CMS publishes a list of procedures that CMS will pay only under Part A (that is, as inpatient). This list is updated quarterly (Addendum E) and can be found on the CMS website.³ Hospitalizations associated with the procedures on this list should always be inpatient, regardless of the expected length of stay.

It is important to note that the inpatient-only list is dynamic; it is revised annually, and procedures can come on or off the list. Notably, in January 2018, elective total knee replacements and laparoscopic radical prostatectomies came off the inpatient-only list. Most surgeons and proceduralists know whether the procedure they are performing is on this list, and they should advise hospitalists accordingly if the hospitalist is to be the attending of record and will be writing the admission order.
 

Inpatient services are nevertheless appropriate

The third situation, in which an inpatient admission is appropriate even when the admitting provider does not expect a two-midnight stay, was added to the two-midnight rule in January 2016. CMS states that the factors used in making this determination can be based on physician judgment and documented in the medical record.

At first reading, one might think that CMS is, in effect, returning to the definition of an inpatient prior to the two-midnight rule’s implementation in 2013. However, CMS has not offered clear guidance for its use, and they did not remove any of the previous two-midnight rule guidance. In the absence of clear guidance, hospitalists may be best served by not using this latest change to the two-midnight rule in determining which Medicare beneficiary hospitalizations are appropriate for inpatient designation.

A final, and critical, point about the two-midnight rule is that it only applies to traditional Medicare, and it does not apply to other payers, including commercial insurance and Medicaid. Medicare Advantage plans may or may not follow the two-midnight rule, depending on their contract with the hospital. Which patients are appropriate for inpatient designations are usually determined by the individual contract that the hospital has signed with that payer.

A better understanding of the two-midnight rule including to whom it applies, when it applies, and how to apply it will help you accurately determine which hospitalizations are appropriate for inpatient payment. With this understanding you will quickly become the hero of your hospital’s case managers and billing department.

Dr. Locke is senior physician advisor at the Johns Hopkins Hospital in Baltimore and president-elect of the American College of Physician Advisors. Dr. Hu is executive director of physician advisor services at the University of North Carolina Health Care System, Chapel Hill, and president of the American College of Physician Advisors.

References

1. Medicare Benefit Policy Manual. Chapter 1 - Inpatient Hospital Services Covered Under Part A. https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/downloads/bp102c01.pdf.

2. Code of Federal Regulations. https://www.ecfr.gov/cgi-bin/text-idx?SID=958ee67a826285698204a34e1e5d6406&node=42:2.0.1.2.12.1.47.3&rgn=div8.

3. Current Procedural Terminology, Fourth Edition. https://www.cms.gov/apps/ama/license.asp?file=/Medicare/Medicare-Fee-for-Service-Payment/HospitalOutpatientPPS/Downloads/CMS-1695-FC-2019-OPPS-FR-Addenda.zip.

Most hospitalists’ training likely included caring for patients in the ambulatory clinic, urgent care, and ED settings. One of the most important aspects of medical training is deciding which of the patients seen in these settings need to “be admitted” to a hospital because of risk, severity of illness, and/or need for certain medical services. In this context, “admit” is a synonym for “hospitalize.”

However, in today’s health care system, in which hospitalization costs are usually borne by a third-party payer, “admit” can have a very different meaning. For most payers, “admit” means “hospitalize as inpatient.” This is distinct from “hospitalize as an outpatient.” (“Observation” or “obs” is the most common example of a hospitalization as an outpatient.) In the medical payer world, inpatient and outpatient are often referred to as “statuses.” The distinction between inpatient versus outpatient status can affect payment and is based on rules that a hospital and payer have agreed upon. (Inpatient hospital care is generally paid at a higher rate than outpatient hospital care.) It is important for hospitalists to have a basic understanding of these rules because it can affect hospital billing, the hospitalist’s professional fees, beneficiary liability, and payer denials of inpatient care.

For years, Medicare’s definition of an inpatient hospitalization was primarily based on an expectation of a hospitalization of at least 24 hours and a physician’s judgment of the beneficiary’s need for inpatient hospital services. This judgment was to be based on the physician’s assessment of the patient’s severity of illness, the risk of an adverse outcome, and the hospital services required. (The exact definition by Centers for Medicare & Medicaid Services is much longer and can be found in the Medicare Benefits Policy Manual.¹) Under Medicare, defining a hospitalization as inpatient versus outpatient is especially important because they are billed to different Medicare programs (Part A for inpatient, Part B for outpatient), and both hospital reimbursement and the patient liability can vary significantly.

Not surprisingly, CMS found that how physicians were making status decisions for medically similar hospitalized patients varied greatly. CMS noted two major concerns: an overuse of inpatient for patients hospitalized overnight leading to increased charges to CMS and multiday observation hospitalizations for lower-acuity patients leading to excessive liability for Medicare beneficiaries. (Observation stays are billed under Part B, under which the beneficiary generally has a 20% copay.)

To address these concerns, in October 2013, CMS adjusted the definition of inpatient to include “the two-midnight rule.” Basically, CMS said that, in order to qualify for inpatient, the admitting physician should expect the beneficiary to require hospital care spanning at least two midnights, rather than the previous 24-hour benchmark, regardless of the severity of illness or risk of adverse outcome. (There are exceptions and exemptions to the two-midnight rule, which are discussed later in this article.)

The idea of the two-midnight rule was to address the two concerns noted above. Under this rule, most expected overnight hospitalizations should be outpatients, even if they are more than 24 hours in length, and any medically necessary outpatient hospitalization should be “converted” to inpatient if and when it is clear that a second midnight of hospitalization is medically necessary.

In January 2016, CMS amended the two-midnight rule to recognize, as it had done prior to October 2013, that some hospitalizations, based on physician judgment, would be appropriate for inpatient without an expectation of a hospitalization that spans at least two midnights. Unfortunately, CMS has not been forthcoming with guidance of examples of which hospitalizations would fall into this new category, other than to say they expect the use of this new provision would generally not be appropriate for a hospital stay of less than 24 hours.

As of today, physicians should order inpatient services under the following three situations:

• The physician expects the beneficiary to require hospital care spanning at least two midnights.
• The physician provides a service on Medicare’s inpatient-only list.
• The physician expects the beneficiary to require hospital care for less than two midnights but feels that inpatient services are nevertheless appropriate.

This most recently updated version of the two-midnight rule can be found in Section 42 CFR §412.3 of the Code of Federal Regulations.² Each of these three situations warrants additional discussion.
 

Care expected to span two midnights

The first situation is the one most applicable to hospitalists. In this circumstance there are three key points to remember.

The first point is that the two-midnight rule is based on a reasonable expectation of a need for hospitalization for at least two nights, not the actual length of hospitalization. Auditors, based on long-standing guidance from the CMS, should consider only the information known (or that should have been known) to the provider at the time the inpatient decision is made.

For example, if the expectation of the need for hospitalization of at least 2 midnights is well documented in the admission note, but the beneficiary improves more rapidly than expected and can be discharged before the second midnight, billing Medicare under Part A for inpatient admission remains appropriate. Auditors may look for provider documentation describing the unexpected improvement, and while such documentation is not an absolute requirement, its presence can be helpful in defending inpatient billing.

Other situations in which there can be an expectation of hospitalization of at least two midnights, but the actual length of stay does not meet this benchmark, are death, patients leaving against medical advice, or transfer to another hospital. For example, if a patient is hospitalized as an inpatient for bacterial endocarditis, and the documented plan of care includes at least 2 days of IV antibiotics and monitoring of cultures, inpatient remains appropriate even if the patient signs out against medical advice the following day.

The second key point to understand is that a night must be “medically necessary” to count toward the two-midnight benchmark. Hospital time spent receiving custodial care, because of excessive delays, or incurred because of the convenience of the beneficiary or provider does not count toward the two-midnight benchmark. For example, imagine a patient hospitalized with chest pain on Saturday evening and the attending physician determines that the patient requires serial cardiac isoenzymes and ECGs followed, most likely, by a noninvasive stress test. The attending physician, knowing that the hospital does not offer stress testing on Sunday, expects the patient to remain hospitalized at least until Monday, thus two midnights. However, in this situation, the second midnight (Sunday night) was not medically necessary and does not count toward the two midnight expectation.

The third key point to know is that the clock for calculating the two-midnight rule begins when the beneficiary starts receiving hospital care, not when the inpatient order is placed. Further, care that starts in the ED or at another hospital counts, too. In contrast, care at an outpatient clinic, an urgent care facility, or waiting-room time in an ED does not count.

When CMS implemented the two-midnight rule in 2013, they said that they would be open to exceptions. The first and only exception to date to the two-midnight rule is newly initiated and unanticipated mechanical ventilation. (This excludes anticipated intubations related to other care, such as procedures.) For example, inpatient is appropriate for a patient who requires hospitalization for an anaphylactic reaction or a drug overdose and needs intubation and mechanical ventilation, even if discharge is expected before a second midnight of hospital care.
 

CMS’s inpatient-only list

Each year, CMS publishes a list of procedures that CMS will pay only under Part A (that is, as inpatient). This list is updated quarterly (Addendum E) and can be found on the CMS website.³ Hospitalizations associated with the procedures on this list should always be inpatient, regardless of the expected length of stay.

It is important to note that the inpatient-only list is dynamic; it is revised annually, and procedures can come on or off the list. Notably, in January 2018, elective total knee replacements and laparoscopic radical prostatectomies came off the inpatient-only list. Most surgeons and proceduralists know whether the procedure they are performing is on this list, and they should advise hospitalists accordingly if the hospitalist is to be the attending of record and will be writing the admission order.
 

Inpatient services are nevertheless appropriate

The third situation, in which an inpatient admission is appropriate even when the admitting provider does not expect a two-midnight stay, was added to the two-midnight rule in January 2016. CMS states that the factors used in making this determination can be based on physician judgment and documented in the medical record.

At first reading, one might think that CMS is, in effect, returning to the definition of an inpatient prior to the two-midnight rule’s implementation in 2013. However, CMS has not offered clear guidance for its use, and they did not remove any of the previous two-midnight rule guidance. In the absence of clear guidance, hospitalists may be best served by not using this latest change to the two-midnight rule in determining which Medicare beneficiary hospitalizations are appropriate for inpatient designation.

A final, and critical, point about the two-midnight rule is that it only applies to traditional Medicare, and it does not apply to other payers, including commercial insurance and Medicaid. Medicare Advantage plans may or may not follow the two-midnight rule, depending on their contract with the hospital. Which patients are appropriate for inpatient designations are usually determined by the individual contract that the hospital has signed with that payer.

A better understanding of the two-midnight rule including to whom it applies, when it applies, and how to apply it will help you accurately determine which hospitalizations are appropriate for inpatient payment. With this understanding you will quickly become the hero of your hospital’s case managers and billing department.

Dr. Locke is senior physician advisor at the Johns Hopkins Hospital in Baltimore and president-elect of the American College of Physician Advisors. Dr. Hu is executive director of physician advisor services at the University of North Carolina Health Care System, Chapel Hill, and president of the American College of Physician Advisors.

References

1. Medicare Benefit Policy Manual. Chapter 1 - Inpatient Hospital Services Covered Under Part A. https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/downloads/bp102c01.pdf.

2. Code of Federal Regulations. https://www.ecfr.gov/cgi-bin/text-idx?SID=958ee67a826285698204a34e1e5d6406&node=42:2.0.1.2.12.1.47.3&rgn=div8.

3. Current Procedural Terminology, Fourth Edition. https://www.cms.gov/apps/ama/license.asp?file=/Medicare/Medicare-Fee-for-Service-Payment/HospitalOutpatientPPS/Downloads/CMS-1695-FC-2019-OPPS-FR-Addenda.zip.

Most hospitalists’ training likely included caring for patients in the ambulatory clinic, urgent care, and ED settings. One of the most important aspects of medical training is deciding which of the patients seen in these settings need to “be admitted” to a hospital because of risk, severity of illness, and/or need for certain medical services. In this context, “admit” is a synonym for “hospitalize.”

However, in today’s health care system, in which hospitalization costs are usually borne by a third-party payer, “admit” can have a very different meaning. For most payers, “admit” means “hospitalize as inpatient.” This is distinct from “hospitalize as an outpatient.” (“Observation” or “obs” is the most common example of a hospitalization as an outpatient.) In the medical payer world, inpatient and outpatient are often referred to as “statuses.” The distinction between inpatient versus outpatient status can affect payment and is based on rules that a hospital and payer have agreed upon. (Inpatient hospital care is generally paid at a higher rate than outpatient hospital care.) It is important for hospitalists to have a basic understanding of these rules because it can affect hospital billing, the hospitalist’s professional fees, beneficiary liability, and payer denials of inpatient care.

For years, Medicare’s definition of an inpatient hospitalization was primarily based on an expectation of a hospitalization of at least 24 hours and a physician’s judgment of the beneficiary’s need for inpatient hospital services. This judgment was to be based on the physician’s assessment of the patient’s severity of illness, the risk of an adverse outcome, and the hospital services required. (The exact definition by Centers for Medicare & Medicaid Services is much longer and can be found in the Medicare Benefits Policy Manual.¹) Under Medicare, defining a hospitalization as inpatient versus outpatient is especially important because they are billed to different Medicare programs (Part A for inpatient, Part B for outpatient), and both hospital reimbursement and the patient liability can vary significantly.

Not surprisingly, CMS found that how physicians were making status decisions for medically similar hospitalized patients varied greatly. CMS noted two major concerns: an overuse of inpatient for patients hospitalized overnight leading to increased charges to CMS and multiday observation hospitalizations for lower-acuity patients leading to excessive liability for Medicare beneficiaries. (Observation stays are billed under Part B, under which the beneficiary generally has a 20% copay.)

To address these concerns, in October 2013, CMS adjusted the definition of inpatient to include “the two-midnight rule.” Basically, CMS said that, in order to qualify for inpatient, the admitting physician should expect the beneficiary to require hospital care spanning at least two midnights, rather than the previous 24-hour benchmark, regardless of the severity of illness or risk of adverse outcome. (There are exceptions and exemptions to the two-midnight rule, which are discussed later in this article.)

The idea of the two-midnight rule was to address the two concerns noted above. Under this rule, most expected overnight hospitalizations should be outpatients, even if they are more than 24 hours in length, and any medically necessary outpatient hospitalization should be “converted” to inpatient if and when it is clear that a second midnight of hospitalization is medically necessary.

In January 2016, CMS amended the two-midnight rule to recognize, as it had done prior to October 2013, that some hospitalizations, based on physician judgment, would be appropriate for inpatient without an expectation of a hospitalization that spans at least two midnights. Unfortunately, CMS has not been forthcoming with guidance of examples of which hospitalizations would fall into this new category, other than to say they expect the use of this new provision would generally not be appropriate for a hospital stay of less than 24 hours.

As of today, physicians should order inpatient services under the following three situations:

• The physician expects the beneficiary to require hospital care spanning at least two midnights.
• The physician provides a service on Medicare’s inpatient-only list.
• The physician expects the beneficiary to require hospital care for less than two midnights but feels that inpatient services are nevertheless appropriate.

This most recently updated version of the two-midnight rule can be found in Section 42 CFR §412.3 of the Code of Federal Regulations.² Each of these three situations warrants additional discussion.
 

Care expected to span two midnights

The first situation is the one most applicable to hospitalists. In this circumstance there are three key points to remember.

The first point is that the two-midnight rule is based on a reasonable expectation of a need for hospitalization for at least two nights, not the actual length of hospitalization. Auditors, based on long-standing guidance from the CMS, should consider only the information known (or that should have been known) to the provider at the time the inpatient decision is made.

For example, if the expectation of the need for hospitalization of at least 2 midnights is well documented in the admission note, but the beneficiary improves more rapidly than expected and can be discharged before the second midnight, billing Medicare under Part A for inpatient admission remains appropriate. Auditors may look for provider documentation describing the unexpected improvement, and while such documentation is not an absolute requirement, its presence can be helpful in defending inpatient billing.

Other situations in which there can be an expectation of hospitalization of at least two midnights, but the actual length of stay does not meet this benchmark, are death, patients leaving against medical advice, or transfer to another hospital. For example, if a patient is hospitalized as an inpatient for bacterial endocarditis, and the documented plan of care includes at least 2 days of IV antibiotics and monitoring of cultures, inpatient remains appropriate even if the patient signs out against medical advice the following day.

The second key point to understand is that a night must be “medically necessary” to count toward the two-midnight benchmark. Hospital time spent receiving custodial care, because of excessive delays, or incurred because of the convenience of the beneficiary or provider does not count toward the two-midnight benchmark. For example, imagine a patient hospitalized with chest pain on Saturday evening and the attending physician determines that the patient requires serial cardiac isoenzymes and ECGs followed, most likely, by a noninvasive stress test. The attending physician, knowing that the hospital does not offer stress testing on Sunday, expects the patient to remain hospitalized at least until Monday, thus two midnights. However, in this situation, the second midnight (Sunday night) was not medically necessary and does not count toward the two midnight expectation.

The third key point to know is that the clock for calculating the two-midnight rule begins when the beneficiary starts receiving hospital care, not when the inpatient order is placed. Further, care that starts in the ED or at another hospital counts, too. In contrast, care at an outpatient clinic, an urgent care facility, or waiting-room time in an ED does not count.

When CMS implemented the two-midnight rule in 2013, they said that they would be open to exceptions. The first and only exception to date to the two-midnight rule is newly initiated and unanticipated mechanical ventilation. (This excludes anticipated intubations related to other care, such as procedures.) For example, inpatient is appropriate for a patient who requires hospitalization for an anaphylactic reaction or a drug overdose and needs intubation and mechanical ventilation, even if discharge is expected before a second midnight of hospital care.
 

CMS’s inpatient-only list

Each year, CMS publishes a list of procedures that CMS will pay only under Part A (that is, as inpatient). This list is updated quarterly (Addendum E) and can be found on the CMS website.³ Hospitalizations associated with the procedures on this list should always be inpatient, regardless of the expected length of stay.

It is important to note that the inpatient-only list is dynamic; it is revised annually, and procedures can come on or off the list. Notably, in January 2018, elective total knee replacements and laparoscopic radical prostatectomies came off the inpatient-only list. Most surgeons and proceduralists know whether the procedure they are performing is on this list, and they should advise hospitalists accordingly if the hospitalist is to be the attending of record and will be writing the admission order.
 

Inpatient services are nevertheless appropriate

The third situation, in which an inpatient admission is appropriate even when the admitting provider does not expect a two-midnight stay, was added to the two-midnight rule in January 2016. CMS states that the factors used in making this determination can be based on physician judgment and documented in the medical record.

At first reading, one might think that CMS is, in effect, returning to the definition of an inpatient prior to the two-midnight rule’s implementation in 2013. However, CMS has not offered clear guidance for its use, and they did not remove any of the previous two-midnight rule guidance. In the absence of clear guidance, hospitalists may be best served by not using this latest change to the two-midnight rule in determining which Medicare beneficiary hospitalizations are appropriate for inpatient designation.

A final, and critical, point about the two-midnight rule is that it only applies to traditional Medicare, and it does not apply to other payers, including commercial insurance and Medicaid. Medicare Advantage plans may or may not follow the two-midnight rule, depending on their contract with the hospital. Which patients are appropriate for inpatient designations are usually determined by the individual contract that the hospital has signed with that payer.

A better understanding of the two-midnight rule including to whom it applies, when it applies, and how to apply it will help you accurately determine which hospitalizations are appropriate for inpatient payment. With this understanding you will quickly become the hero of your hospital’s case managers and billing department.

Dr. Locke is senior physician advisor at the Johns Hopkins Hospital in Baltimore and president-elect of the American College of Physician Advisors. Dr. Hu is executive director of physician advisor services at the University of North Carolina Health Care System, Chapel Hill, and president of the American College of Physician Advisors.

References

1. Medicare Benefit Policy Manual. Chapter 1 - Inpatient Hospital Services Covered Under Part A. https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/downloads/bp102c01.pdf.

2. Code of Federal Regulations. https://www.ecfr.gov/cgi-bin/text-idx?SID=958ee67a826285698204a34e1e5d6406&node=42:2.0.1.2.12.1.47.3&rgn=div8.

3. Current Procedural Terminology, Fourth Edition. https://www.cms.gov/apps/ama/license.asp?file=/Medicare/Medicare-Fee-for-Service-Payment/HospitalOutpatientPPS/Downloads/CMS-1695-FC-2019-OPPS-FR-Addenda.zip.

When the Centers for Medicare & Medicaid Services make a significant change to the inpatient hospital rules, hospitalists are among the first to feel the effects.

You probably remember that, starting in October 2013, when a resident, nurse practitioner (NP), or physician assistant (PA) entered an inpatient admission order on your behalf, you were told to cosign that order before discharge or the hospital would forfeit payment for the entire stay. This policy was put in place by an annual piece of governmental policy known as the Inpatient Prospective Payment System (IPPS) Final Rule – the same one, in fact, that established the Two Midnight Rule.

The CMS felt that the decision to admit a Medicare beneficiary to inpatient care is such a significant event that it was appropriate to require the attending physician to complete a series of certification requirements to justify every inpatient stay. If not completed and finalized prior to discharge, the CMS would not pay for the stay. After 15 months of enforcing that policy, the CMS backed off on most of the certification requirements for most stays. However, the requirement for an authenticated inpatient order prior to discharge was kept in place for all stays. (“Authenticated” is CMS-speak for signed, or, in the case of inpatient orders initially placed by a resident/NP/PA without admitting privileges, cosigned, by a practitioner with admitting privileges.)

In the spring of 2018, the CMS proposed a change to “revise the admission order documentation requirements by removing the requirement that written inpatient admission orders are a specific requirement for Medicare Part A [inpatient hospital] payment.” The CMS also stated that it did not intend for Medicare auditors to deny hospital inpatient claims based solely on a deficiency in the inpatient order, such as a missing order or one signed after discharge, which the CMS found out was happening.

The description sounded great. In comments to the CMS, many providers assumed that they, too, would be provided similar discretion if they discovered the order defect. Are inpatient orders now optional? What rate of inpatient order technical deficiencies is acceptable to still submit inpatient claims for payment? Can 2-day observation stays where medical necessity for hospital care was present, but no inpatient order given, be billed as an inpatient now?

But these providers had not read the fine print. Consider that the annual IPPS Final Rule has a length of about 2,000 pages. Of those, only about 30 pages represent changes to a group of policies known as the Code of Federal Regulations (CFR). The CFR carries the weight of law (as long as it does not contradict law). When you appeal a Medicare denial to a judge, she will ask what portion of the CFR supports your viewpoint. The other 1,970 pages can be thought of as supporting analysis and reasoning to justify the 30 pages of changes. What changes were actually made to the CFR?

Consider the following two sentences.

• “For purposes of payment under Medicare Part A, an individual is considered an inpatient of a hospital, including a critical access hospital, if formally admitted as an inpatient pursuant to an order for inpatient admission by a physician or other qualified practitioner.”
• “This physician order must be present in the medical record and be supported by the physician admission and progress notes, in order for the hospital to be paid for hospital inpatient services under Medicare Part A.”

These are the first two sentences of 42 CFR 412.3(a), the regulation that defines the inpatient order requirement. On Oct. 1, 2018, the second sentence was removed, but the first sentence still remains. That’s the only change for this section. Does removal of the second sentence absolve providers of the requirement to document inpatient admission orders? Does it absolve providers of the requirement to cosign a resident’s admission order prior to discharge? The Medicare Benefit Policy Manual (MBPM) Chapter 1, Section 10(B) still reads “if the order is not properly documented in the medical record prior to discharge, the hospital should not submit a claim for Part A payment.”

Understanding what changed and what did not change in the CFR is key to understanding why, in this year’s IPPS Final Rule, the CMS repeatedly responded to providers that an inpatient order is still a requirement for a Part A stay and that none of the MBPM guidance regarding the inpatient order, such as the excerpt above, is changing.

At this point, we can only be reasonably certain that if a claim a hospital submits for Part A payment happens to get audited and found to have only one deficiency which is related to the inpatient order, per this guidance it probably won’t get denied. That is very different from saying the attending physician no longer has to provide a signed (or cosigned) inpatient admission order prior to discharge, or at all.

Providers actually did ask the CMS if a hospital could still submit a claim the hospital knows has a missing or incomplete inpatient admission order at the time of discharge. The CMS responded that Medicare contractors have the discretion in extremely rare circumstances to approve cases where an order to admit may be missing or defective, and yet the intent, decision, and recommendation of the ordering practitioner to admit as inpatient can be clearly derived from the medical record. However, note that the discretion belongs to the Medicare contractor, not the provider.

The American College of Physician Advisors (ACPA) asked the CMS the following question about the inpatient order policy change during the 2019 IPPS Final Rule Open Door Forum held on Sept. 11, 2018: “Can providers thus submit a claim, that the provider believes meets all other requirements for Part A payment, in the rare circumstance of an inpatient order deficiency, such as an inpatient order that was cosigned shortly after discharge?”

The CMS declined to answer the question on the call, asking us to submit the question to the Open Door Forum electronic mailbox. If the inpatient order was truly no longer being required for the CMS to pay for inpatient hospital stays, the answer would have been an easy “yes,” but it was not. Subsequently, the CMS responded in writing to the ACPA that “the responsibilities of providers regarding inpatient admission orders is unchanged.” In other words, Medicare auditors have been given discretion to overlook an inpatient order flaw, but providers have not.

At this time, our recommendation is to continue your processes to ensure that the inpatient admission order is completed and signed (or cosigned) prior to discharge by the attending physician for every Medicare patient. This will not only help make sure that the decision to make a hospitalized Medicare beneficiary an inpatient remains with the attending physician, but it will also reduce the risk of nonpayment.

Dr. Hu is executive director of physician advisor services of University of North Carolina Health Care System in Chapel Hill, N.C., and president of the ACPA. Dr. Locke is senior physician advisor at Johns Hopkins Hospital in Baltimore, and president-elect of the ACPA.

When the Centers for Medicare & Medicaid Services make a significant change to the inpatient hospital rules, hospitalists are among the first to feel the effects.

You probably remember that, starting in October 2013, when a resident, nurse practitioner (NP), or physician assistant (PA) entered an inpatient admission order on your behalf, you were told to cosign that order before discharge or the hospital would forfeit payment for the entire stay. This policy was put in place by an annual piece of governmental policy known as the Inpatient Prospective Payment System (IPPS) Final Rule – the same one, in fact, that established the Two Midnight Rule.

The CMS felt that the decision to admit a Medicare beneficiary to inpatient care is such a significant event that it was appropriate to require the attending physician to complete a series of certification requirements to justify every inpatient stay. If not completed and finalized prior to discharge, the CMS would not pay for the stay. After 15 months of enforcing that policy, the CMS backed off on most of the certification requirements for most stays. However, the requirement for an authenticated inpatient order prior to discharge was kept in place for all stays. (“Authenticated” is CMS-speak for signed, or, in the case of inpatient orders initially placed by a resident/NP/PA without admitting privileges, cosigned, by a practitioner with admitting privileges.)

In the spring of 2018, the CMS proposed a change to “revise the admission order documentation requirements by removing the requirement that written inpatient admission orders are a specific requirement for Medicare Part A [inpatient hospital] payment.” The CMS also stated that it did not intend for Medicare auditors to deny hospital inpatient claims based solely on a deficiency in the inpatient order, such as a missing order or one signed after discharge, which the CMS found out was happening.

The description sounded great. In comments to the CMS, many providers assumed that they, too, would be provided similar discretion if they discovered the order defect. Are inpatient orders now optional? What rate of inpatient order technical deficiencies is acceptable to still submit inpatient claims for payment? Can 2-day observation stays where medical necessity for hospital care was present, but no inpatient order given, be billed as an inpatient now?

But these providers had not read the fine print. Consider that the annual IPPS Final Rule has a length of about 2,000 pages. Of those, only about 30 pages represent changes to a group of policies known as the Code of Federal Regulations (CFR). The CFR carries the weight of law (as long as it does not contradict law). When you appeal a Medicare denial to a judge, she will ask what portion of the CFR supports your viewpoint. The other 1,970 pages can be thought of as supporting analysis and reasoning to justify the 30 pages of changes. What changes were actually made to the CFR?

Consider the following two sentences.

• “For purposes of payment under Medicare Part A, an individual is considered an inpatient of a hospital, including a critical access hospital, if formally admitted as an inpatient pursuant to an order for inpatient admission by a physician or other qualified practitioner.”
• “This physician order must be present in the medical record and be supported by the physician admission and progress notes, in order for the hospital to be paid for hospital inpatient services under Medicare Part A.”

These are the first two sentences of 42 CFR 412.3(a), the regulation that defines the inpatient order requirement. On Oct. 1, 2018, the second sentence was removed, but the first sentence still remains. That’s the only change for this section. Does removal of the second sentence absolve providers of the requirement to document inpatient admission orders? Does it absolve providers of the requirement to cosign a resident’s admission order prior to discharge? The Medicare Benefit Policy Manual (MBPM) Chapter 1, Section 10(B) still reads “if the order is not properly documented in the medical record prior to discharge, the hospital should not submit a claim for Part A payment.”

Understanding what changed and what did not change in the CFR is key to understanding why, in this year’s IPPS Final Rule, the CMS repeatedly responded to providers that an inpatient order is still a requirement for a Part A stay and that none of the MBPM guidance regarding the inpatient order, such as the excerpt above, is changing.

At this point, we can only be reasonably certain that if a claim a hospital submits for Part A payment happens to get audited and found to have only one deficiency which is related to the inpatient order, per this guidance it probably won’t get denied. That is very different from saying the attending physician no longer has to provide a signed (or cosigned) inpatient admission order prior to discharge, or at all.

Providers actually did ask the CMS if a hospital could still submit a claim the hospital knows has a missing or incomplete inpatient admission order at the time of discharge. The CMS responded that Medicare contractors have the discretion in extremely rare circumstances to approve cases where an order to admit may be missing or defective, and yet the intent, decision, and recommendation of the ordering practitioner to admit as inpatient can be clearly derived from the medical record. However, note that the discretion belongs to the Medicare contractor, not the provider.

The American College of Physician Advisors (ACPA) asked the CMS the following question about the inpatient order policy change during the 2019 IPPS Final Rule Open Door Forum held on Sept. 11, 2018: “Can providers thus submit a claim, that the provider believes meets all other requirements for Part A payment, in the rare circumstance of an inpatient order deficiency, such as an inpatient order that was cosigned shortly after discharge?”

The CMS declined to answer the question on the call, asking us to submit the question to the Open Door Forum electronic mailbox. If the inpatient order was truly no longer being required for the CMS to pay for inpatient hospital stays, the answer would have been an easy “yes,” but it was not. Subsequently, the CMS responded in writing to the ACPA that “the responsibilities of providers regarding inpatient admission orders is unchanged.” In other words, Medicare auditors have been given discretion to overlook an inpatient order flaw, but providers have not.

At this time, our recommendation is to continue your processes to ensure that the inpatient admission order is completed and signed (or cosigned) prior to discharge by the attending physician for every Medicare patient. This will not only help make sure that the decision to make a hospitalized Medicare beneficiary an inpatient remains with the attending physician, but it will also reduce the risk of nonpayment.

Dr. Hu is executive director of physician advisor services of University of North Carolina Health Care System in Chapel Hill, N.C., and president of the ACPA. Dr. Locke is senior physician advisor at Johns Hopkins Hospital in Baltimore, and president-elect of the ACPA.

When the Centers for Medicare & Medicaid Services make a significant change to the inpatient hospital rules, hospitalists are among the first to feel the effects.

You probably remember that, starting in October 2013, when a resident, nurse practitioner (NP), or physician assistant (PA) entered an inpatient admission order on your behalf, you were told to cosign that order before discharge or the hospital would forfeit payment for the entire stay. This policy was put in place by an annual piece of governmental policy known as the Inpatient Prospective Payment System (IPPS) Final Rule – the same one, in fact, that established the Two Midnight Rule.

The CMS felt that the decision to admit a Medicare beneficiary to inpatient care is such a significant event that it was appropriate to require the attending physician to complete a series of certification requirements to justify every inpatient stay. If not completed and finalized prior to discharge, the CMS would not pay for the stay. After 15 months of enforcing that policy, the CMS backed off on most of the certification requirements for most stays. However, the requirement for an authenticated inpatient order prior to discharge was kept in place for all stays. (“Authenticated” is CMS-speak for signed, or, in the case of inpatient orders initially placed by a resident/NP/PA without admitting privileges, cosigned, by a practitioner with admitting privileges.)

In the spring of 2018, the CMS proposed a change to “revise the admission order documentation requirements by removing the requirement that written inpatient admission orders are a specific requirement for Medicare Part A [inpatient hospital] payment.” The CMS also stated that it did not intend for Medicare auditors to deny hospital inpatient claims based solely on a deficiency in the inpatient order, such as a missing order or one signed after discharge, which the CMS found out was happening.

The description sounded great. In comments to the CMS, many providers assumed that they, too, would be provided similar discretion if they discovered the order defect. Are inpatient orders now optional? What rate of inpatient order technical deficiencies is acceptable to still submit inpatient claims for payment? Can 2-day observation stays where medical necessity for hospital care was present, but no inpatient order given, be billed as an inpatient now?

But these providers had not read the fine print. Consider that the annual IPPS Final Rule has a length of about 2,000 pages. Of those, only about 30 pages represent changes to a group of policies known as the Code of Federal Regulations (CFR). The CFR carries the weight of law (as long as it does not contradict law). When you appeal a Medicare denial to a judge, she will ask what portion of the CFR supports your viewpoint. The other 1,970 pages can be thought of as supporting analysis and reasoning to justify the 30 pages of changes. What changes were actually made to the CFR?

Consider the following two sentences.

• “For purposes of payment under Medicare Part A, an individual is considered an inpatient of a hospital, including a critical access hospital, if formally admitted as an inpatient pursuant to an order for inpatient admission by a physician or other qualified practitioner.”
• “This physician order must be present in the medical record and be supported by the physician admission and progress notes, in order for the hospital to be paid for hospital inpatient services under Medicare Part A.”

These are the first two sentences of 42 CFR 412.3(a), the regulation that defines the inpatient order requirement. On Oct. 1, 2018, the second sentence was removed, but the first sentence still remains. That’s the only change for this section. Does removal of the second sentence absolve providers of the requirement to document inpatient admission orders? Does it absolve providers of the requirement to cosign a resident’s admission order prior to discharge? The Medicare Benefit Policy Manual (MBPM) Chapter 1, Section 10(B) still reads “if the order is not properly documented in the medical record prior to discharge, the hospital should not submit a claim for Part A payment.”

Understanding what changed and what did not change in the CFR is key to understanding why, in this year’s IPPS Final Rule, the CMS repeatedly responded to providers that an inpatient order is still a requirement for a Part A stay and that none of the MBPM guidance regarding the inpatient order, such as the excerpt above, is changing.

At this point, we can only be reasonably certain that if a claim a hospital submits for Part A payment happens to get audited and found to have only one deficiency which is related to the inpatient order, per this guidance it probably won’t get denied. That is very different from saying the attending physician no longer has to provide a signed (or cosigned) inpatient admission order prior to discharge, or at all.

Providers actually did ask the CMS if a hospital could still submit a claim the hospital knows has a missing or incomplete inpatient admission order at the time of discharge. The CMS responded that Medicare contractors have the discretion in extremely rare circumstances to approve cases where an order to admit may be missing or defective, and yet the intent, decision, and recommendation of the ordering practitioner to admit as inpatient can be clearly derived from the medical record. However, note that the discretion belongs to the Medicare contractor, not the provider.

The American College of Physician Advisors (ACPA) asked the CMS the following question about the inpatient order policy change during the 2019 IPPS Final Rule Open Door Forum held on Sept. 11, 2018: “Can providers thus submit a claim, that the provider believes meets all other requirements for Part A payment, in the rare circumstance of an inpatient order deficiency, such as an inpatient order that was cosigned shortly after discharge?”

The CMS declined to answer the question on the call, asking us to submit the question to the Open Door Forum electronic mailbox. If the inpatient order was truly no longer being required for the CMS to pay for inpatient hospital stays, the answer would have been an easy “yes,” but it was not. Subsequently, the CMS responded in writing to the ACPA that “the responsibilities of providers regarding inpatient admission orders is unchanged.” In other words, Medicare auditors have been given discretion to overlook an inpatient order flaw, but providers have not.

At this time, our recommendation is to continue your processes to ensure that the inpatient admission order is completed and signed (or cosigned) prior to discharge by the attending physician for every Medicare patient. This will not only help make sure that the decision to make a hospitalized Medicare beneficiary an inpatient remains with the attending physician, but it will also reduce the risk of nonpayment.

Dr. Hu is executive director of physician advisor services of University of North Carolina Health Care System in Chapel Hill, N.C., and president of the ACPA. Dr. Locke is senior physician advisor at Johns Hopkins Hospital in Baltimore, and president-elect of the ACPA.