The document discusses Medicare's "Two Midnight Rule" for determining whether a hospital stay qualifies as an inpatient admission under Part A or observation status. It states that an inpatient admission is appropriate if the physician expects the patient will require hospital care spanning two or more midnights. The medical record must support this expectation of a medically necessary stay of at least two midnights. If the stay is less than two midnights due to unforeseen circumstances, this must be documented.

1. The 2 midnight Rule
An “appropriate” inpatient admission is when a
patient stays at your hospital for at least two
midnights.
Under this final rule, surgical procedures, diagnostic tests
and other treatments (in addition to services designated
as inpatient-only), are generally appropriate for inpatient
hospital admission and payment under Medicare Part A
when:
(1) The physician expects the beneficiary to require a stay
that crosses at least two midnights
and
(2) admits the beneficiary to the hospital based upon that
expectation.
The final rule clarifies that the timeframe used in
determining the expectation of a stay surpassing two
midnights begins when care in the hospital begins. This will
include outpatient observation services or services in an
emergency department, operating room or other treatment
area at the hospital.
While the final rule emphasizes that the time a beneficiary
spends as an outpatient before the formal inpatient
admission order is not inpatient time, the physician—and the
Medicare review contractor—may consider this period when
determining if it is reasonable to expect the patient to
require hospital care spanning two or more midnights as part
of an admission decision.
Documentation in the medical record must support a
reasonable expectation of the need for the beneficiary to
require a medically necessary stay lasting at least two
midnights. If the inpatient admission lasts fewer than two
midnights due to an unforeseen circumstance, this must also
be clearly documented in the medical record.
NOTE: CMS contractors will operate under the presumption
that stays of at least two midnights are medically necessary,
with the “clock” beginning when the patient starts receiving
hospital services (including observation services). During
the September 26 open-door forum, CMS clarified that if a
patient stays one midnight in observation and the physician
expects that the patient will require at least another
midnight in the hospital, the patient can be appropriately
admitted despite the fact that it is a one-day inpatient stay.
If a patient is admitted but ultimately doesn’t stay two
midnights, clear physician documentation supporting the
order and expectation of two midnights will be required.
References:
Observation status: making the right call
From the April ACP Hospitalist, copyright © 2012 by the American College
of Physicians, By Richard Pinson, MD, FACP
Final rule "FY2014 Hospital IPPS Final Rule CMS-1599-F"
This document was developed by BABs HIM Services and their clients,
All information provided is as accurate as possible, but is not guaranteed.
User accepts all liability of any actions taken based on the information
provided.
February 2014
BABS HIM Services
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CLINICAL DOCUMENTATION
Quick Reference Guide
The use of a bed and periodic monitoring by
hospitals nursing or other ancillary staff
which are reasonable and necessary to
evaluate an outpatient’s condition
or determine the need for possible inpatient
admission.
Betty A. Burton, RHIA, BSBA, AAS
AHIMA Approved ICD-10 CM/PCS Trainer
Entrepreneur/President BABs HIM Services
Correct assignment to inpatient versus observation
status applies principally to Medicare patients. Ordinarily,
other payers including Medicaid have specific
arrangements for paying an observation rate to hospitals
when inpatient criteria are not met. But Medicare leaves
OObservations

2. it up to the admitting physician and then holds the hospital
accountable if the wrong decision is made.
- So what are physicians supposed to do,
according to Medicare regulations? It's
actually pretty simple. If you believe the
patient's condition can probably be
stabilized and discharge (or a decision to
admit) may occur within about 24 hours,
the patient should be assigned to
observation status. Otherwise, inpatient
admission is usually appropriate.
- Documentation of this information can be
crucial in supporting your decision. By
including a note in the H&P that admission
for more than 24 hours is anticipated, you
may save the hospital a prolonged battle
with Medicare auditors trying to justify an
inpatient admission.
On the other hand, if you believe that discharge is likely
within 24 hours, say so and order observation status.
Should the patient require a longer stay, it is a very simple
matter to order an inpatient admission at that point. By
contrast, changing an inappropriate inpatient admission to
observation status is tedious and complicated.
In general, there are five circumstances to consider for
observation status:
 Diagnosis, treatment, stabilization and discharge
are expected within 24 hours.
 Treatment and/or procedures require no more than
24 hours to complete (weekends or other
scheduling delays are not sufficient reason for
inpatient admission).
 Clinical condition is changing or improving such
that a disposition decision can be made within 24
hours.
 It is unsafe for the patient to return home or to the
current care setting, and arrangements for a safe
discharge setting need to be made (unavailability
of lower level of care is not sufficient for inpatient
admission).
 The patient is having an uncomplicated outpatient
procedure requiring extended care or observation.
In summary, patients who are likely to require 24 hours
or less for a disposition decision should be assigned
observation status. When in doubt, admit to observation
since conversion to inpatient status is a simple process.
Clearly document severity of illness in the chart at the
time of admission and reasons for continued stay.
Document to show the admission was medically
necessary.