Don’t be fooled by the “Two Midnight Rule” for single-day inpatient stays
A single-day inpatient stay typically refers to an admission lasting one night, often for procedures or conditions such as childbirth, heart attack, stroke, bone fractures, or other acute medical needs. Outpatient visits are typically done for same day surgeries, emergency care, exams, consults, lab work or imaging.
Payment varies greatly for inpatient care vs. outpatient care. Medicare created Inpatient Prospective Payment System (IPPS) back in 2007. IPPS pays a standard flat rate based on the average charges across all hospitals for a specific diagnosis. The payment is based on different reimbursement methodologies such as MS-DRG or APR-DRGs to categorize the average cost of care and resources for each patient.
Medicare uses the Medicare Severity Diagnosis Related Groups (MS-DRG) and is focused mainly on the elderly. Medicaid plans use the All Patient Refined-Diagnosis Related Groups (APR-DRG) to expand and consider all age groups and populations.
MS-DRG looks at the principal diagnosis or main reason for the inpatient stay, the surgical procedures performed, major complications or comorbidities (MCC) and complication and comorbidities (CC) and discharge status. Each DRG is then assigned a relative weight (RW), which is based on the resources it takes to treat a large group of patients with similar diagnoses compared to the care of everyone in the hospital. The length of stay (LOS) is also factored in as a resource and is assigned as a reference to all the DRGs. The higher the RW and LOS, the higher the reimbursement.
APR-DRG and MS-DRG both group similar diagnoses and procedures together; however, APR-DRG adds levels of severity and risk of mortality. The Severity of illness and risk of mortality are based on the principal diagnosis, MCC, CC, other secondary diagnoses and discharge status.
How does the DRG come into play when looking at single day inpatient stays?
Typically, claims with DRGs that have no MCC or CC take a smaller number of resources and a shorter length of stay. Those DRGs should be investigated further to determine if the procedures could be performed in an outpatient setting.
Medicare uses the “Two-Midnight Rule” when the admitting provider expects the patient to require a hospital stay that crosses two midnights. Cases that do not fit that guideline or that are not on the “inpatient only” list are not appropriate for inpatient admission. CMS does have some exceptions, which are reviewed on a case-by-case basis. All treatment decisions are still based on the judgement of the admitting provider.
Novitas also noted the Two-Midnight Rule and stated, “Inpatient care, rather than outpatient care, is required only if the beneficiary’s medical condition, safety, or health would be significantly and directly threatened if care was provided in a less intensive setting.”
Novitas also stated, observation is appropriate for short term treatment while a decision for further treatment is being considered. An example is ED patients that need further monitoring to make a further decision. Observation doesn’t typically go beyond 48 hours and decisions are usually made in the first 24 hours.
Recent audits and observations by the Office of Inspector General [OIG]
The OIG performed an audit on short Inpatient stays in 2024. Three main weaknesses were found with the current rules:
- Lack of adequate information to identify short stay inpatient stays
- Lack of prepayment edits for claims at risk
- Lack of adequate policies and procedure for how to review for noncompliance
OIG stated the weakness were primarily due to CMS relying on mainly post payment reviews conducted by Beneficiary and Family Centered Care-Quality Improvement Organizations [BCC-QIO’s] to ensure compliance of the two-midnight rule.
Although BFCC-QIOs reviewed thousands of claims for short inpatient stays and denied $49.2 million in improper payments during OIG’s audit period, these reviews denied only 0.6 percent of the $7.8 billion in improper payments estimated by CMS’s Comprehensive Error Rate Testing reviews.
OIG recommended CMS work with contractors to add information to the inpatient claim indicating any stay that did not span two or more midnights because of an unforeseen circumstance (e.g. condition code). Develop a list of ICD-10 procedure codes that corresponded with the inpatient only list and work on implementing prepayment edits for claims short inpatient stays at risk for noncompliance with the two-midnight rule, such as inpatient stays with canceled procedures or certain MS-DRGs.
How can Fraud Scope assist health plans with identifying improper facility billing?
Health plans should review these claim scenarios closely to see if what is being billed really required an inpatient stay or would it have been more appropriate to have the patient be seen on an outpatient basis. It is important to note that each partner may have policies that look beyond the “two-midnight rule” or 48-hour threshold. Be sure to review your plans’ policies and contracts.
Fraud Scope offers users a way to find claims that are hitting the lower threshold of 48 hours, as well as additional analysis tools that enables the user to identify other areas of interest such as paid exposure, volume of claims, and comparison to peer groups.
To assist our partners with identifying these scenarios, Fraud Scope offers a facility scheme specifically for “Single Day Inpatient Stays” that is based on the attached DRG reported. Our AI technology looks for claims with matching DRGs that have the same start and end dates, room and board charges where there is one unit billed and a discharge status of 01. When this criterion is met there is a higher chance that this service could have been performed on an outpatient basis.
For example, if a patient is seen for revision of hip or knee replacement without any MCC or CC then the visit would fall to MS-DRG 468. According to the CMS, the length of stay for MS-DRG 468 is about 1.5 days. If the claims data shows that the visit had the same start and end date, there weren’t any complications that kept the patient in the hospital longer and the patient discharged to home, then this would indicate that we need to dig deeper and see how often this is happening and at what volume. The health plan may want to consider that this procedure be performed on an outpatient basis instead of an inpatient setting.
Sources
Fact sheet: Two-Midnight Rule. Centers for Medicare and Medicaid Services. October 30, 2015. Accessed September 11, 2023. Fact Sheet: Two-Midnight Rule | CMS
Novitas Solutions Medicare Part A. Understanding and selecting inpatient vs observation-How to decide
Understanding Inpatient vs. Observation
Office of the Inspector General. CMS oversight of the Two-Midnight Rule for inpatient admissions. US Department of Health and Human Services. Accessed January 28, 2023. CMS Oversight of the Two-Midnight Rule for Inpatient Admissions
ICD-10-CM /PCS MS-DRG v42.0 Definitions Manual