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'Vulnerabilities' Found in Two-Midnight Rule

By John Commins  
   December 21, 2016

An Office of Inspector General report identifies improper payments for short inpatient stays and inconsistent use of inpatient and outpatient stays.

Inpatient hospital stays have decreased since the implementation of the two-midnight rule but Medicare still paid hospitals almost $2.9 billion in 2014 for potentially inappropriate short inpatient stays, federal auditors say.

Specifically, a review of hospital claims data shows that inpatient stays in fiscal 2014 decreased by 262,794 stays, and outpatient stays increased by 259,908. These changes represent a 2.8% decrease in inpatient stays and an 8.1% increase in outpatient stays, according to a review by the Department of Health and Human Service's Office of Inspector General.

Two-Midnight Rule: Initial Reviews to Resume

The Centers for Medicare & Medicaid Services implemented the two-midnight rule in fiscal year 2014 to address three vulnerabilities in hospitals' use of inpatient and outpatient stays:

  • Improper payments for short inpatient stays.
  • Adverse consequences for beneficiaries of long outpatient stays, including that they may not have the three inpatient nights needed to qualify for skilled nursing facility services.
  • Inconsistent use of inpatient and outpatient stays among hospitals.

The OIG review found, however, that "vulnerabilities still exist," including:

  • Hospitals are billing for many short inpatient stays that are potentially inappropriate under the policy; Medicare paid almost $2.9 billion for these stays in FY 2014.
  • Medicare pays more for some short inpatient stays than for short outpatient stays, although the stays are for similar reasons.
  • Hospitals continue to bill for a large number of long outpatient stays.
  • An increased number of beneficiaries in outpatient stays pay more and have limited access to SNF services than they would as inpatients.
  • The number of outpatient stays increased since the implementation of the two-midnight rule. Further, short inpatient stays decreased more than long outpatient stays.
  • Hospitals continue to vary in how they use inpatient and outpatient stays.


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John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.

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