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Two Midnight Rule: How to Avoid an OIG Audit

The Two Midnight rule, adopted in October 2013 by the Centers for Medicare and Medicaid Services, states that more highly reimbursed inpatient payment is appropriate if care is expected to last at least two midnights; otherwise, observation stays should be used.

Original Two Midnight Rule

In general, the original Two Midnight rule stated that, Payable under Part A Inpatient Hospital Claims would be as follows:

two midnight rule explanation

What is the Financial Responsibility of the Patient?

  • Inpatient = Part A Deductible to be paid
  • Outpatient = 20 % of charges

This causes a financial strain on the patient to have to pay 20% of the charges accrued for a long weekend stay that may have been appropriate to be made an Inpatient level of care, which would be paid under Part A. Therefore, hospitals must notify patients of their outpatient status within 36 hours of admission, so they are aware of this financial responsibility. This is also why it is imperative for the physician to have strong documentation supporting an Inpatient level of care if warranted.

Level of Care Audits by Office of Inspector General

In 2020, the OIG added to the work plan the review of Inpatient Stays which they deemed were appropriate to classify patient’s level of care as an outpatient. Meaning these patients did not fit the two midnight rule. This is still being looked at today.

How many of you currently have patients that are either assigned Observation Status and are well past a two day stay, or are assigned Inpatient Status and had less than a two day stay?

These types of clinical scenarios should be reviewed to ensure adequate supporting documentation that is needed to assign the correct level of care upon admission. By doing so, facilities can decrease their risk of an OIG audit.

Two Midnight Rule Resources

Below is a screenshot on how find the OIG work plan:

We also want to share with you a great FAQ resource from CMS that also gives clinical scenarios to help decide on what is the proper level of care.

Contact Us

To learn more about how Blue & Co. can assist your organization with mitigating the potential for level of care audits related to observation and in-patient criteria, please reach out to your local Blue & Co. Advisor or a member of our revenue cycle team listed below.

Monica Genzman, RHIT, CDIP, Senior Consultant

The information contained within this post is accurate as of March 4, 2022.

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