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Enforcement of the Two-Midnight Rule Delayed Again

Lynsey Mitchel
Ken Yood
Sheppard, Mullin, Richter & Hampton LLP - Los Angeles Office

April 11, 2014

Previously published on April 7, 2014

Last week President Obama signed into law a measure to extend Medicare physician pay rates for one year and to extend the enforcement delay of the “Two-Midnight” rule through March 2015. Medicare Recovery Audit Contractors (RACs) are prohibited from auditing inpatient hospital claims for compliance with the rule from October 1, 2013, through March 31, 2015.

CMS promulgated the “Two-Midnight” rule because of concerns that hospitals were overusing observation status. Under the “Two-Midnight” rule, if the ordering practitioner expects a beneficiary’s surgical procedure, diagnostic test or other treatment to require a stay in the hospital lasting at least two midnights, and admits the beneficiary as an inpatient based on that expectation, it is generally appropriate that the hospital receive Medicare Part A payment. The final rule emphasizes the need for a formal order of inpatient admission to begin inpatient status, but permits the ordering practitioner to consider all time a patient has already spent in the hospital as an outpatient receiving observation services, or receiving care in the emergency department, operating room, or other treatment area in guiding their two-midnight expectation.

Physician documentation will be key. Certifications must clearly justify the admission and must include the reason for the inpatient treatment or diagnostic study, special or unusual services the patient will receive, the estimated time the patient will stay in the hospital, and plans for post-hospital care. We recommend that hospitals take a proactive compliance approach that includes a focus on physician education and internal chart auditing.


The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.

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