What to know about the Medicare 2-midnight rule
Medicare uses the 2-midnight rule to determine whether to bill a hospital stay under Part A or Part B. This rule has implications for both costs and coverage.
Original Medicare consists of Part A (hospital insurance) and Part B (medical insurance). For many medical services, it is clear and obvious which part of Medicare would be most appropriate for billing.
However, for hospital services, this distinction can be slightly more ambiguous.
More than a decade ago, the Centers for Medicare & Medicaid Services (CMS) identified a need to articulate clearer guidance on how to determine whether a hospital stay should be classified as inpatient and outpatient — and thus whether its coverage will fall under Part A or Part B.
This guidance, which first went into effect in October 2013, is the 2-midnight rule. The 2-midnight rule is an effort by the CMS to use physician judgment to bill hospital services more accurately.
When a person first arrives at a hospital, healthcare professionals must determine whether to admit them as an inpatient or keep them for observation as an outpatient.
The 2-midnight rule
If the physician believes the condition will not require a stay that lasts 2 midnights, they will consider the person as outpatient, and Part B coverage will apply.
At the heart of the 2-midnight rule is the judgment of healthcare professionals in determining medical necessity based on the available clinical information.
Despite what the name might suggest, the rule does not require that a person actually be in the hospital for 2 midnights to receive Part A coverage. If a person’s condition improves quickly or they leave the hospital against the advice of their doctor, they would still receive Part A coverage if they were initially admitted as inpatients.
An important part of the 2-midnight rule is the difference between inpatient and outpatient hospital stays.
An inpatient hospital stay requires a doctor to formally admit a person to the hospital.
Observation is another type of outpatient hospital service. Observation involves a person waiting while healthcare professionals monitor their condition to determine whether it warrants inpatient admission or discharge.
Crucially, a person can spend a night in the hospital without being considered an inpatient.
CMS instituted the 2-midnight rule after an audit found a high rate of error in how hospital stays were classified and billed.
On the one hand, hospitals were classifying people as inpatients and billing their care under Part A, even though the people were only receiving observation.
On the other hand, there were situations where patients were experiencing extended observation stays in the hospital when inpatient classification would have been more appropriate. This is particularly important because the length of a person’s inpatient stay determines their eligibility for skilled nursing facility care afterward.
Recognizing the need for more defined guidance about the assessment of medical necessity related to patient setting, the CMS developed the 2-midnight rule.
The 2-midnight rule should not be confused with the 3-midnight rule. The latter is used to determine whether a Medicare beneficiary is eligible for skilled nursing facility care.
The 3-midnight rule states that a person must have had an inpatient hospital stay of at least 3 consecutive midnights in order to receive Part A coverage for skilled nursing facility care.
The 2-midnight rule helps determine whether to bill a hospital stay under Part A or Part B.
When a person first arrives at a hospital, a healthcare professional evaluates them.
If, based on the medical record, a physician believes a person’s condition requires a minimum 2-night hospital stay, the services they receive will be billed under Part A.
If the physician determines that the condition requires a stay of fewer than 2 midnights, they classify the person as under outpatient observation and bill the care under Part B.
The 2-midnight rule is an effort by the CMS to prevent improper billing and ensure medical necessity.