Health Care Homework Paper on Memorandum


Re: Medicare’s Two-Midnight Rule

Over the years, companies and organizations have always aimed at minimizing cost and maximizing benefits. This trend seems to have been followed by health insurers, hospitals and Centers for Medicare and Medicaid Services in the United States. In this effort, the companies have developed policies, guidelines, rules and regulations which will ensure that they save some money by reducing the operations cost. This essay discusses Medicare’s two-midnight rule as well as the difference in hospital reimbursement between different types of patients.

The Medicare two-midnight rule is a regulation to be included in the Medicare’s payment rules. It will serve to differentiate between an inpatient who qualifies for part A payments or part B payment services. According to the rule, a patient may be admitted as an inpatient, but on review, he/she is found to have been admitted inappropriately. Medicare will therefore not recognize the case as an inpatient admission thus fails to qualify for part A payments. The rule establishes that admissions lasting for at least two midnights qualify as inpatient services and therefore part A payments should be made. Conversely, admissions that do not last for two midnights should be treated as outpatient cases. They therefore qualify for part B payments (Davis, 2014).

The rule is expected to take effect from 1st October 2014, and critics argue that it will affect operations in hospitals (Davis, 2014). The rule expects that Physicians will use their judgment to foresee the possibility of a patient spending more than two midnights in the hospital and therefore admit the patient as an inpatient. In the event that the physician makes the wrong judgment and treats a case as an inpatient rather than an outpatient, the claim will be denied and Medicare will not make part A payments (Davis, 2014). There will be a rise in outpatient cases which will lead to lesser payment by Medicare to hospitals, thus affecting the operations of the hospital.

In view of this new rule, the status given to a patient in a hospital significantly matters. The status, whether observation or inpatient, is a determinant of how much the patient will contribute as ‘out of pocket’ (Davis, 2014). Observation status patients are those patients who get admitted when they do not have severe problems that require highly skilled care. At the time of admission, the doctor may not be very sure of how sick the patient is or the patient could be too sick to be cared for at the doctor’s office. The doctor therefore admits the patient and keeps him/her under observation. Should the patient become sicker, they are given the inpatient status. If they improve, and their level of sickness is known, they are allowed to go home. During this time when the patient is placed under observation, though admitted, he/she is given the observation status and is considered as an outpatient.

There is a difference in hospital reimbursement between an observation patient and an inpatient. The observation patient is considered under Medicare part B payment services where the rate of reimbursement is lower as compared to the inpatient rates (Miller, 2014). The observation status patient is also expected to co-pay with Medicare by raising a given amount of money for the hospital bill. Should an observation patient go to a nursing facility after admission, they pay for the full cost, ‘out of pocket’, with no assistance from Medicare. However, though the reimbursement is lower, the hospital can bill Medicare for an observation patient by the physician filling and signing the relevant admission documents that are required to file a claim. Upon review by Medicare administrative contractors and recovery auditors, the status of a patient may be changed from inpatient to observation if the inpatient admission was not necessary (Miller, 2014). In this case, since the claim will be denied, the hospital can rebill Medicare for inpatient part B services.

Due to recent Medicare changes, physicians need to be cautious when admitting patients. Patients who are likely to spend at least two midnights need to be admitted as inpatients. This will also depend on the level of sickness of the patient. Should the patient be sick, but not to an extent of being given an inpatient admission, they need to be given the observation status. This will minimize the number of claim denials to the hospitals because of the two-midnight rule.



Works Cited

Davis, E. (2014, February 28). Hospitalized in Observation Status? You’ll Pay, n. page. Retrieved from

Miller, M. (2014, January 23). Hospitalized but ‘under observation’? Seniors, beware.Reuters, n. page. Retrieved from