HCQM Two-Midnight Rule

Issues of Concern

Patients receiving care in a hospital typically fall into one of two status-related categories, inpatient or observation. The decision regarding the level of care a patient receives in the hospital affects hospital payment and beneficiary cost-sharing.

The Centers for Medicare and Medicaid Services (CMS) finalized the "two-midnight rule" in 2016 to guide healthcare providers.[1][2][3] This rule serves as a guideline for determining the appropriate level of care. According to the rule:

• Inpatient services are considered appropriate if the physician expects the patient to require medically necessary hospital care spanning at least 2 midnights.
• Inpatient services are also appropriate if the physician is providing a service listed as "inpatient only" by Medicare.
• Even if the physician expects the care to be less than 2 midnights, inpatient services may still be warranted based on their professional judgment.

The two-midnight rule does not strictly require the patient to spend 2 midnights in the hospital. Instead, it relies on the physician's expectation that the patient would likely stay in the hospital for 2 midnights based on the natural course of disease management.[4] However, there are exceptions to the rule. For instance, patients who rapidly improve, leave against medical advice (AMA), or pass away, may still be classified as an inpatient even if their care did not span 2 midnights.

Any care received in a hospital that does not meet the above criteria should fall under the observation level of care. This means that the patient requires medically necessary care, but the physician expects that the stay will be less than 2 midnights.

It is also important for physicians and utilization teams to keep themselves up-to-date about the ever-evolving "inpatient only list" of procedures. Updates to this list are made regularly, with some procedures being moved from inpatient status to outpatient or removed altogether.[5][6] Also, once patients in observation status are close to crossing the second medically necessary midnight in the hospital, the level of care can be promptly changed to inpatient based on the two-midnight rule. 

Condition Code 44

In April 2004, CMS introduced a new condition code, Condition Code 44, from the National Uniform Billing Committee. In cases where a hospital utilization review committee determines that an inpatient admission does not meet the hospital's inpatient criteria, the hospital may change the beneficiary's status from inpatient to outpatient, provided the following conditions are met:

1. The change in patient status from inpatient to outpatient occurs before discharge or release while the beneficiary is still a patient in the hospital;
2. The hospital has not already submitted a claim to Medicare for the inpatient admission;
3. The treating physician agrees with the utilization review committee's decision; and
4. The physician's agreement with the utilization review committee's decision is appropriately documented in the patient's medical record.

Once these criteria are met, Condition Code 44 is initiated, and the claim for these services is submitted to Medicare Part B.[7]

Outpatient in a Bed

The Outpatient in a Bed status applies to patients who do not have acute medical needs necessitating hospital care but, at the same time, end up occupying a hospital bed due to custodial care issues, such as abandonment or not having a safe disposition. This status challenges hospital systems and requires a coordinated effort by social workers, utilization management, and hospital administration to get these patients to a safe disposition.

Clinical Significance

Healthcare organizations can optimize resource allocation and avoid unnecessary healthcare costs by implementing utilization management strategies. These strategies involve closely monitoring the utilization patterns of medical services and identifying potential overutilization or underutilization. Through applying evidence-based guidelines and best practices, the HCQM team aims to strike a balance between efficient resource utilization and the provision of high-quality care.[8]

Implementing utilization strategies also plays a crucial role in promoting patient safety. By assessing the appropriateness of medical services, potential risks and complications can be identified and addressed proactively. This proactive approach helps prevent adverse events and ensures patients receive the right care in the right setting at the right time.

Utilization strategies also promote data analysis, identifying trends, and implementing quality improvement initiatives to enhance patient outcomes and satisfaction. This ongoing monitoring and evaluation process allows for adjustments in healthcare practices, ensuring patients receive evidence-based and effective treatments.

Nursing, Allied Health, and Interprofessional Team Interventions

Within the domain of utilization management, the combined efforts of collaborating physicians and case management and physician advisory teams play a crucial role in ensuring that patients receive medically necessary care delivered at the appropriate level of service.[9] It is essential to avoid placing patients under an incorrect level of care; this risks reduced reimbursement for healthcare institutions and potential claim denials.

Case management professionals are responsible for coordinating and advocating for the patient's healthcare needs throughout their hospital journey. These professionals work closely with the healthcare team to assess the patient's condition, develop a comprehensive care plan, and ensure that the provided care aligns with the patient's medical requirements.[10]

Physician advisors collaborate with treating physicians to determine the most appropriate level of care for each patient. Physician advisors review medical records, assess illness severity, evaluate the intensity of services required, and consider various factors, including the expected course of treatment. By working with the clinical team, physician advisors ensure the patient receives care at the right level, avoiding underutilization or overutilization of healthcare resources. Utilization management professionals work closely with healthcare practitioners to understand each patient's unique needs and ensure that the care delivered aligns with these needs.[11][12]

Correctly determining the appropriate level of care is of paramount importance. If a patient is placed in a level of care that does not accurately reflect their medical needs, the financial implications can be significant. Healthcare institutions may face reduced reimbursement from insurance payors, leading to financial strain. Additionally, there is a risk of claim denials, affecting the revenue stream and creating barriers to obtaining necessary care for the patient.[13][14]