Two-midnight Rule: What It Means for Coders


Stand up to scrutiny by ensuring key components are included in patient documentation.

By Heather Greene, MBA, RHIA, CPC, CPMA

Certified Inpatient Coder CIC

The Centers for Medicare & Medicaid Services (CMS) will conduct prepayment patient status probe reviews for dates of admission between October 1, 2013 and March 31, 2015 using a “probe and educate” format. In these reviews, 10-25 claims will be checked to see if documentation supports the “two-midnight” rule criteria. Compliance with the two-midnight rule is considered case by case. Education will be provided to hospitals that are noncompliant.

Several key components will help your facility prepare for the two-midnight rule and pass any probe reviews to which your facility may be subjected.

Expect Inpatient Status to Span Two Midnights 

Surgical procedures, diagnostic tests, and other treatments generally are appropriate for inpatient hospital payment under Medicare Part A when the qualified physician expects the patient to require a stay that crosses at least two midnights, and admits the patient to the hospital based on that expectation. Inpatient hospital payment generally is inappropriate if the practitioner expects the patient to remain an inpatient for fewer than two nights. For example, observation services should not be performed in an inpatient status.

When an inpatient-only procedure is performed, or if the care falls under “other circumstances,” the two-midnight rule does not apply. To date, the only “other circumstance” is new onset of mechanical ventilation. Anticipated intubations, such as those related to minor surgical procedures, do not meet the exception.

Note: CMS is seeking input on those clinical situations that would warrant an inpatient stay. Email your professional opinion to (subject line “Suggested Exception”).

Unforeseen circumstances may shorten the length of stay. In situations such as death, transfer, unforeseen recovery, or a patient leaving against medical advice or electing for hospice care, the provider should document a clear, concise explanation to substantiate the medical necessity of the inpatient stay, even with the unexpectedly shortened stay.

Supportive Documentation for the Certification

The physician must certify his or her expectation that the patient stay will span at least two midnights. The certification should include the reason, estimated length of stay (ELOS), and the care plan. Either the authenticating physician, or another physician who has knowledge of the case and who is authorized to do so by the authenticating physician, must be responsible for the case.

Critical access hospitals (CAHs) should document whether the patient is reasonably expected to be discharged or transferred to a hospital within 96 hours after admission.

Certification timing begins with the order for inpatient admission. The certification must be completed, signed, dated, and documented prior to discharge. This information may be documented in the practitioner daily documentation, routine discharge planning, or within the practitioner’s orders. Medicare has not given specific guidance on how this certification should be documented because each facility and case may be different.

Supportive Documentation for the Admission Order

The admission order must clearly state “admission to inpatient” at or before the time of admission, and must be furnished by a physician or other practitioner who is: (a) licensed by the state to admit inpatients to the hospital; (b) granted privileges by the hospital to admit inpatient to that specific facility; and (c) knowledgeable about the patient’s hospital course, medical plan of care, and current condition at the time of admission (42 CFR §482.11).

The admit order may be written under direction of the ordering practitioner who has knowledge of the case, such as a covering physician, an emergency room (ER) physician, or an attending surgeon. The admit order may be a verbal order, as long as the documentation meets verbal order regulations. Regardless of whether the admission order is written or verbal, the certifying physician must co-sign/authenticate the admission order before discharge.

If the patient will be admitted to inpatient status, medical necessity should be clearly documented in the history and physical or admit note. The documentation should also indicate that the patient is expected to need inpatient services for more than two midnights, and should include a short description of the reason(s) why. If a patient is placed in observation services, the documentation should give a short description of why the patient needs observation services.

Physicians must document important information such as the risks to the patient’s health and well being. Even clinically obvious medical co-morbidities, and why the patient left medical care, should be included.

Set the Clock for Treatment Time

The two-midnight rule is based on treatment time. The clock starts when the patient begins receiving care. Examples of acceptable treatment time are observation and ER services. Excessive wait times or triage are not allowed in the calculation of two midnights.

For example, a patient may be placed in observation services for one night, formally admitted as an inpatient for the second night, and discharged the following day. This encounter would qualify for inpatient stay under the two-midnight rule. In this scenario, Medicare encourages facilities to use Occurrence Span Code 72 Contiguous outpatient hospital services that preceded the inpatient admission. Use of this code is voluntary by hospitals to report the number of midnights spent in the hospital, from the start of care until the formal inpatient admission.

Documentation: Elements to Consider

All orders (including verbal orders) must be dated, timed, and authenticated promptly by the ordering practitioner or by another practitioner who is responsible for the care of the patient, only if such a practitioner is acting in accordance with state law, including scope-of-practice laws, hospital policies, and medical staff bylaws, rules, and regulations (42 CFR §482.24(c)(2)).

The three-day rule still applies to skilled nursing homes. The calculation of the three days has not changed, and does not include the same treatment time as the two-midnight rule; these three days must be inpatient days. Also note, the physician should document the medical necessity of the three-day stay. For further information concerning the three-day rule, please review the Medicare Benefit Policy Manual, Chapter 8 – Coverage of Extended Care (SNF) Services Under Hospital Insurance (Rev. 183 04-04-14), Section 20.1 – Three-Day Prior Hospitalization.

Inpatient vs. Observation

It’s extremely important to review the definition of observation services. Medicare describes these services as follows:

Observation care is a well‐defined set of specific, clinically appropriate services, which include ongoing short term treatment, assessment, and reassessment, that are furnished while a decision is being made regarding whether patients will require further treatment as hospital inpatients or if they are able to be discharged from the hospital. Observation status is commonly assigned to patients who present to the emergency department and who then require a significant period of treatment or monitoring before a decision is made concerning their admission or discharge. Observation services are covered only when provided by the order of a physician or another individual authorized by state licensure law and hospital staff bylaws to admit patients to the hospital or to order outpatient services.

Source: Medicare Benefit Policy Manual, Chapter 6, §20.6.

The Benefit Policy Manual (Chapter 6, §20.6) further states, “Observation services must also be reasonable and necessary to be covered by Medicare. In only rare and exceptional cases do reasonable and necessary outpatient observation services span more than 48 hours. In the majority of cases, the decision whether to discharge a patient from the hospital following resolution of the reason for the observation care or to admit the patient as an inpatient can be made in less than 48 hours, usually in less than 24 hours.”

There also seems to be confusion concerning the word “admission.” According to CMS, admission defines observation not as a place of service, but rather as a set of services rendered in an outpatient setting. When documenting the order for observation services, the provider should consider using terms such as, “place patient for observation services” or “refer patient for observation services.” Observation time ends when clinical or medical interventions (including follow-up care after a release order) have been documented as complete—not necessarily when the order for discharge is written.

According to CMS, the beneficiary must be in the care of a physician during the period of observation, as documented in the medical record by admission, discharge, and other appropriate progress notes that are timed, written, and signed by the physician. The medical record must include documentation that the physician explicitly assessed patient risk to determine the beneficiary would benefit from observation care (MLN Matters® Number: MM6057).

When reporting observation, services must span a minimum of eight hours, or more than one calendar day, and hospitals should round to the nearest hour. The facility must include one of the following services in addition to the observation service:

  • An ER visit (99281‐99285)
  • A clinic visit (99201‐99215)
  • Critical care (99291 Critical care, evaluation and management of the critically ill or critically injured patient; first 30-74 minutes)
  • Billed as a direct admission to observation reported with HCPCS Level II code G0379 Direct admission of patient for hospital observation care.

Do not double dip when reporting observation services. In other words, observation services should not be billed concurrently with diagnostic or therapeutic services for which active monitoring is a part of the procedure (Medicare Claims Processing Manual, Chapter 2, §290.2.2). Hospitals must delineate between monitoring services and observation services.

CMS gives this example:

A complex drug infusion titration to achieve a specified therapeutic response that is reported with HCPCS codes for a therapeutic infusion may require constant active monitoring by hospital staff. On the other hand, the routine infusion of an antibiotic, which may be reported with the same HCPCS codes for a therapeutic infusion, may not require significant active monitoring.

Source: Medicare FAQ #2725

MACs and RACs

CMS instructs Medicare administration contractors (MACs) to assess the hospital’s compliance with three things:

1. The admission order

2. The certification requirements

3. The two-midnight benchmarks

The admission order and certification requirements can be found by reviewing the federal regulations:

  • 42 CFR 412.3 – Admission
  • 42 CFR 424.13 – Hospitals Other than Inpatient Psychiatric Facilities
  • 42 CFR 424.14 – Inpatient Psychiatric Facilities
  • 42 CFR 424.15 – Critical Access Hospitals

The two-midnight benchmark simply states:

  • 0-1 Midnight: Review contractor will review to see if the beneficiary was admitted for an inpatient-only procedure or if other circumstances justify inpatient admission per CMS guidance (new onset ventilation).
  • 2 or More Midnights: Review contractor will generally find Part A payment to be appropriate.

The two-midnight presumption is the second part of the two-midnight benchmark statement. These benchmarks are used to select claims. Claims generally will not be selected if they show two or more midnights after formal inpatient admission begins (The contractor will presume for claim selection purposes that inpatient admission is appropriate under the two-midnight rule.). These claims could be selected if a pattern is detected for evidence of systematic gaming or abuse. Claims that show evidence of unnecessary delays in the provision of care, or lack documentation to support medical necessity for the length of stay, could be reviewed regardless of the number of midnights the patient was formally an inpatient.

Take advantage of CMS resources: The Medicare Learning Network (MLN) gave a helpful presentation for the two-midnight rule on January 14, 2014. In this presentation, MLN offered several scenarios in which the two-midnight rule would apply. These scenarios were for educational purposes only; however, it’s strongly recommended that facilities review these scenarios. The scenarios can be here.

2015 Medicare Hospital Inpatient Prospective Payment Systems (IPPS) proposed rule and Senate bill 2082: Note that the requirements of the two-midnight rule are not settled. The proposed IPPS rule for 2015 and the introduction of Senate bill 2082 (Two-Midnight Rule Coordination and Improvement Act of 2014) indicate there may be more changes made to this highly controversial rule. It will be critical for facilities and physician practices to stay abreast of any changes to the two-midnight rule.


Heather Greene, MBA, RHIA, CPC, CPMA, is vice president of compliance services for Kraft Healthcare Consulting, LLC. She is a frequent speaker and author on healthcare information topics for organizations including HFMA, MGMA, and AAPC. Greene has a bachelor’s degree in Health Information Management and an MBA. She is an ICD-10-CM/PCS trainer and a member of the Florence, Ky., local chapter.


Renee Dustman

Renee Dustman

Renee Dustman is executive editor at AAPC. She has a Bachelor of Science degree in Journalism and a long history of writing just about anything for just about every kind of publication there is or ever has been. She’s also worked in production management for print media, and continues to dabble in graphic design.
Renee Dustman

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Renee Dustman is executive editor at AAPC. She has a Bachelor of Science degree in Journalism and a long history of writing just about anything for just about every kind of publication there is or ever has been. She’s also worked in production management for print media, and continues to dabble in graphic design.

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