The Two Midnight Rule Puts New Pressure On Hospitals – Here’s Why We Should Embrace It

Do not fear the Two Midnight Rule. Yes change is upon us, AND there are some important ways for hospitals to prepare for these changes.

On October 1, 2013 the rules changed, with CMS altering its guidelines for inpatient admissions and how Medicare audit contractors are going to view these admissions.

In short, a hospital admission must span two midnights to qualify for an inpatient DRG. These two midnight stay patients must meet the Medicare acceptable standard guidelines for admission, otherwise payment to the hospital will be rejected outright. Anything shorter, which does not span two midnights will be deemed an outpatient service. Furthermore, if a patient is in observation or extended stay status past two midnights, these will be denied.

It is is important to know when the time clock starts for the two midnight rule. One may think it starts the moment the patient is admitted or the decision to admit to the inpatient arena is made. However this is not the case. The clock starts ticking the moment the patient enters the hospital system in the outpatient arena. So the time spend in the emergency department, outpatient surgical suites or diagnostic areas count toward the time for the two midnight rule.

All of this adds up to new pressures on hospitals to conduct their business more efficiently. All those one day admissions and extended recovery patients will need to be converted to observation status. Furthermore, observation patients will need to be more effectively managed and have shorter lengths-of-stay (LOS). Hospitals will no longer be able to keep patients in extended observation status, as these cases will be heavily scrutinized.

Observation service LOS is tied to the type of observation unit model that is being used in a hospital. It is well documented that observation patients scattered around the hospital and cared for by various providers, leads to higher lengths of stay. Some hospitals in this scattered bed management style have an average LOS of 46 hours or more on average (not including time spent in the ER). Continued management in this style will leave these hospitals in hot water with RAC auditors as they apply the new two midnight rule.

Conversely, a well run observation unit is in the strategic best interest of the hospital. A closed observation unit, run by a dedicated group of providers who treat observations patients 24 hours a day, can achieve amazing results. These results are being achieved in well-run, forward-thinking hospitals around the country, achieving lengths of stay between 18-20 hours. The care is high quality and efficient. This should be the gold standard.

The closed dedicated provider Observation Unit is not the way of the future, but really the way of the present. Hospitals that have these units are seeing shorter lengths of stay for their patients, which translates into increased capacity, savings in bed day utilization, and higher patient satisfaction. The trickle down effects are very palpable: increased bed capacity, less ER boarding, decreased diversion hours, and higher HcAPs scores. All of which can dramatically improve the financial health of a hospital institution.