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Vulnerabilities Remain Under Medicare's 2-Midnight Hospital Policy


CMS implemented the "2-midnight" policy in fiscal year (FY) 2014. The policy establishes that inpatient payment is generally appropriate if physicians expect beneficiaries' care to last at least 2-midnights; otherwise, outpatient payment would generally be appropriate. CMS implemented the 2-midnight policy to address three vulnerabilities in hospitals' use of inpatient and outpatient stays: improper payments for short inpatient stays; adverse consequences for beneficiaries of long outpatient stays, including that they may not have the 3 inpatient nights needed to qualify for skilled nursing facility (SNF) services; and inconsistent use of inpatient and outpatient stays among hospitals. This report follows up on previous OIG work and compares data from the year before and the year after the implementation of the 2-midnight policy.


We analyzed paid Medicare hospital claims from FY 2013 and FY 2014. We identified inpatient stays using Part A hospital claims and outpatient stays using Part B hospital claims. We defined a "short stay" as one that lasted fewer than 2 midnights and a "long stay" as one that lasted 2 midnights or longer. For short inpatient stays, we determined whether claims information met CMS's criteria for payment under the 2-midnight policy (e.g., if the stay included an inpatient-only procedure).


We found that the number of inpatient stays decreased and the number of outpatient stays increased since the implementation of the 2-midnight policy. Further, short inpatient stays decreased more than long outpatient stays. Despite these changes, vulnerabilities still exist.


CMS needs to address these continuing vulnerabilities by improving oversight of hospital billing under the 2-midnight policy and increasing protections for beneficiaries. We recommend that CMS (1) conduct routine analysis of hospital billing and target for review the hospitals with high or increasing numbers of short inpatient stays that are potentially inappropriate under the 2-midnight policy; (2) identify and target for review the short inpatient stays that are potentially inappropriate under the 2-midnight policy; (3) analyze the potential impacts of counting time spent as an outpatient toward the 3-night requirement for SNF services so that beneficiaries receiving similar hospital care have similar access to these services; and (4) explore ways of protecting beneficiaries in outpatient stays from paying more than they would have paid as inpatients. CMS concurred with all four recommendations.