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In 2013, the Centers for Medicare & Medicaid Services (CMS) promulgated the Two-Midnight Rule, which, for the first time in the Medicare program’s 50-year history, determined patient status in a hospital by reference to time.[1]  Specifically, CMS’s new rule provided that a patient would be considered an inpatient, and the hospital stay would be covered by Part A, only if the patient was formally admitted as an inpatient by a physician, with the expectation that the hospital stay would cross at least two midnights.  The controversial rule has not been implemented.

In July 2015, CMS proposed a minor revision to the Two-Midnight Rule.  CMS proposed to allow a physician to order inpatient status for a patient for whom the expectation was a hospital stay of less than two midnights.[2]  Short in-patient stays would be allowed, but only on a case-by-case basis.  Short in-patient stays would also be prioritized for medical review, which would consider all treatment during the course of a patient’s hospitalization, not the patient’s presentation at the beginning of the hospital stay.

The Center for Medicare Advocacy (Center) saw little relief for Medicare patients in the proposed rule and anticipated continued problems for Medicare beneficiaries who remain in an acute care hospital for multiple days, all called outpatient.[3]  The key problem for patients is financial.  Outpatients, including observation status patients, are denied Part A coverage for their subsequent stay in a skilled nursing facility (SNF) and must pay the SNF out-of-pocket.  Outpatient status for hospitalized patients, including observation status, is an issue that the Center has frequently addressed in weekly Alerts.[4]

CMS has now published, without modification, final rules that incorporate the minor revision proposed in July.[5]  42 C.F.R. §412.3(d).  Effective January 1, 2016, CMS will allow for Medicare Part A payment on a case-by-case basis for inpatient admissions that do not satisfy the 2-midnight benchmark, if the documentation in the medical record supports the admitting physician’s determination that the patient requires inpatient hospital care despite an expected length of stay that is less than 2 midnights.[6]

CMS insists that the two-midnight rule and its revision do not interfere with the practice of medicine or the clinical judgment of physicians, confirming that physicians continue to determine “the need to keep the beneficiary at the hospital, to order specific services, or to determine appropriate levels of nursing care or physical locations within the hospital.”[7]  The rule addresses solely “Medicare payment,” specifically, whether Medicare Part A will pay for the hospital stay.[8]

CMS rejected all public comments that opposed its approach and recommended alternatives.  It reports that its solicitation of comments on short-stay payment policies “has not produced any consensus on a recommended payment policy.”[9]

An ad hoc coalition of national organizations (including health care professionals, health care providers, and beneficiary advocates) has reached consensus.  For several years, the coalition has supported federal legislation to count all time spent by a patient in the hospital, for purposes of satisfying the “three-midnight” requirement for Part A coverage of post-hospital care in a SNF.[10]  This legislation does not address whether observation status or long outpatient stays are appropriate; it simply calls for all time spent in the hospital to be counted.  The identical bipartisan bills are H.R. 1571 and S. 843, the Improving Access to Medicare Coverage Act of 2015.[11]

Observation status and outpatient status remain significant problems for hospitalized patients.  The Center continues to hear from the families of patients who are hospitalized for many nights, are called outpatients, and are then required to pay for their SNF stay out-of-pocket.  On November 20, the daughter of a patient who had been hospitalized for six midnights called the Center.  On the seventh day of hospitalization, November 20, her mother was being discharged to the SNF, which required her to pay $10,600 on admission.  Paying out-of-pocket, the daughter wrote a personal check for $10,600.

CMS needs to fix the problem of observation status and long outpatient stays for Medicare patients. 

December 3, 2015 – T. Edelman

[1] 78 Fed. Reg. 50495, 50906-50954 (Aug. 19, 2013).  The regulations are discussed in the Center for Medicare Advocacy, “Observation Status: New Final Rules from CMS Do Not Help Medicare Beneficiaries” (Alert, Aug. 29, 2013),
[2] 80 Fed. Reg. 39199 (July 8, 2015). 
[3] Center for Medicare Advocacy, “Proposed Revisions to ‘Two-Midnight’ Rule Provide Little, If Any, Relief for Medicare Beneficiaries Stuck in the Hospital in Observation Status” (Alert, July 9, 2015),
[4] See Center for Medicare Advocacy, Observation Status,
[5] 80 Fed. Reg. 70297, 70538-70549 (Nov. 13, 2015). 
[6] 80 Fed. Reg. 70297, 70545.
[7] 80 Fed. Reg. 70297, 70543.
[8] 80 Fed. Reg. 70297, 70543.
[9] 80 Fed. Reg. 70297, 70549.
[10] 42 C.F.R. §1395x(i).
[11] The coalition’s Fact Sheet is available at




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