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Report: Short Inpatient Stays Down Under Two-Midnight Rule, but Challenges Remain

Short inpatient hospital stays are down under the Two-Midnight Rule, according to a new report from the Office of the Inspector General (OIG).

The OIG report, “Vulnerabilities Remain Under Medicare’s 2-Midnight Hospital Policy,” analyzed data for Medicare Part A hospital claims and Part B outpatient claims to determine the overall effectiveness of the Two-Midnight Rule in producing savings for the Medicare system and to identify any unintended consequences of the rule. The Centers for Medicare & Medicaid Services (CMS) implemented the rule, stating that payment for services is generally appropriate when an inpatient hospital stay is expected to last at least two midnights. Exceptions exist where documentation in the medical record supports the need for inpatient treatment despite a stay of less than two midnights.

The OIG found that, in fiscal year 2014, the number of short inpatient stays decreased by 9.9%, and the number of outpatient stays increased by 11.6%. A “short stay” is defined as one that lasts less than two midnights.

The OIG also reported the following findings:

  • Medicare paid approximately $2.9 billion in FY 2014 for inappropriate short inpatient stays.
  • Medicare pays more for some short inpatient stays than short outpatient stays for the same diagnosis. The report found that, on average, Medicare pays three times as much for equivalent short inpatient stays than it does for short outpatient stays.
  • Hospitals continue to vary greatly in how they manage inpatient and outpatient stays.
  • The increased number of beneficiaries being treated in outpatient settings has caused them to shoulder the burden of paying for skilled nursing facilities (SNF) because Medicare covers SNF services only if a beneficiary had a hospital stay that included at least three nights as an inpatient.

The OIG recommended CMS improve oversight of hospital billing by taking the following steps:

  1. Increase the analysis of hospital billing with focus on hospitals with high or increasing numbers of short inpatient stays.
  2. Identify and target review of short inpatient stays.
  3. Study the effects of adding outpatient time to inpatient time to help beneficiaries qualify for SNF services.
  4. Assess ways of protecting beneficiaries in outpatient stays from paying disproportionate amounts.

CMS has agreed with the OIG findings and promised to implement these initiatives to benefit the system and the beneficiaries.


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