CMS, SHM, and the Two-Midnight Rule

By  |  February 6, 2014 | 

We ended the chat and we all felt lost.

I am referring to SHM’s recent CMS conference call concerning the two-midnight rule.  We wanted to clarify the vague nature in how CMS defines medical necessity—the linchpin of how the rule operates.  Estimating a greater than two-midnight stay may be challenging enough in a minority of cases, but defining medical necessity defies explanation when patients have a weak support system to return to at home; or they have inadequate insight into their discharge instructions; or they have tenuous access to medications; or they resist the shelter because of safety and want to hit the streets.

In the old days, docs shot from the hip.  If folks needed more than 24-hours in house, you made them an inpatient.  If they stayed less, you classified them under observation status and billed as such.  No one questioned your judgment.

However, we now have a more complicated universe: readmissions, an ambulatory world with the capacity to manage what we once called “quickie admits,” legitimate claims of inpatient service over and misuse, and financial penalties.  We also have RACs.  The sticking point for much of our conversation and where we believe the rule has the most pernicious effects.

The tension between our decision making—and CMS seems content to leave control in our court—and the marching orders of RACs, makes us all nervous.  Simply, we don’t trust the process.

Again, vague definitions leave too much open for us to interpret.  We have seen this play before and don’t want a rerun.  For a smart take on the RAC situation, read Ann Sheehy (SHM and Public Policy member) in a terrific JAMA Internal Medicine post.

Thankfully, CMS heard our message on the call (along with the AHA and others), and delayed the rule until October 1, 2014.  Stay tuned.

Additionally, I also want to illustrate how the machinations of observation status impacts us, hospitals, CMS, and beneficiaries.  If you wish to read national coverage on the provision, and it has gotten a lot, pick your venue: WaPo, WSJ, NYT, Kaiser Health News, NEJM, or the ACP.  You will want to bone up on how the directive influences your practice.  Otherwise, below you will find a shortlist of intangibles and untoward effects stemming from the rule.  Not exclusive by any means, just my quick take:

CMS view:

–Beneficiary protection.  Despite a flawed rule, they don’t want patients lingering without decisions beyond 2- midnights.

–They wish to provide time boundaries to providers.

–They worry about 24-48 hour, inappropriately billed stays, i.e., waste.

–Hospitals will bill more, not less, short inpatient stays.  Pay reductions and penalties will level the field.

Hospital view:

–Wasted manpower to oversee OBS, audit, and documentation enterprise

–Prospective and retrospective changes in designation (obs vs inpt) with no clear blueprint

–Angering patients and HCAHPS scores

–Readmissions—how to utilize rule to best assist patients and hospitals (under readmit scrutiny)

–Revenue loss—some justified, some not.  Note: CMS feels rule will increase hospital revenue. Hospitals see things differently.

Physicians view:

–Mental burden: expected stay–need vs. appropriate–and status on admission orders.  CLEAR documentation!

–Advocate for hospital or patient, i.e., pressure at MN or “48-hr” mark?

–Coding and fraud—mindful of inpatient and observation billing

–Intrusion of work flow

Beneficiary view:

–Confusion and perceptions of care

–Quality: care on the clock and does service suffer (lower value care)?

–Advanced beneficiary notice (ABN): patients need to know their status.

–If OBS, the sooner patient out, less cost to them (Part B FFS)…

–Bills for longer OBS stays however.  More costly than short inpatient stay (Part A FFS).

–72-hour SNF rule.  No bridge to post-acute care if inpatient status not declared.

SHM will continue to work with CMS and congress to assist in contouring an effective rule for our members.  The public policy committee has made the fix a top advocacy item.


  1. Avatar
    Joseph dawood February 6, 2014 at 12:35 pm - Reply

    I don’t know why anyone would say the rule is delayed. It is actually not. What is occurring instead is an extension of the “probe & educate” period, while hospitals can have to better understand the rule and put systems and process in place to help them with compliance. Thanks

  2. […] Posted at The Hospital Leader on […]

  3. Health Wonk Review for February 13, 2014 February 13, 2014 at 12:01 pm - Reply

    […] at The Hospitalist Leader says we should be concerned about the “two-midnight rule: In  CMS, SHM and the Two-Midnight Rule, he reports that difficulty in adapting the rule rages on. And the implications far reaching: […]

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About the Author: Bradley Flansbaum

Bradley Flansbaum
Bradley Flansbaum, DO, MPH, MHM works for Geisinger Health System in Danville, PA in both the divisions of hospital medicine and population health. He began working as a hospitalist in 1996, at the inception of the hospital medicine movement. He is a founding member of the Society of Hospital Medicine and served as a board member and officer. He speaks nationally in promoting hospital medicine and has presented at many statewide meetings and conferences. He is also actively involved in house staff education. Currently, he serves on the SHM Public Policy Committee and has an interest in payment policy, healthcare market competition, health disparities, cost-effectiveness analysis, and pain and palliative care. He is SHM’s delegate for the AMA House of Delegates. Dr. Flansbaum received his undergraduate degree from Union College in Schenectady, NY and attended medical school at the New York College of Osteopathic Medicine. He completed his residency and chief residency in Internal Medicine at Long Island Jewish Medical Center in New York. He received his M.P.H. in Health Policy and Management at Columbia University. He is a political junky, and loves to cook, stay fit, read non-fiction, listen to many genres of music, and is a resident of Danville, PA.


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