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Series: CMS Oversight of the Two-Midnight Rule for Inpatient Admissions

Announced on  | Last Modified on  | Series Number: W-00-24-35857
Status
Active
Agency
Centers for Medicare and Medicaid Services

OBJECTIVE

Prior OIG audits identified millions of dollars in overpayments for inpatient claims with short lengths of stay. Instead of billing the stays as inpatient claims, they should have been billed as outpatient claims, which usually results in a lower payment. To reduce inpatient admission errors, CMS implemented the Two-Midnight Rule in fiscal year 2014.Under the Two-Midnight Rule, CMS generally considered it inappropriate to receive payment under the inpatient prospective payment system for stays not expected to span at least two midnights. The only procedures excluded from the rule were newly initiated mechanical ventilation and any procedures appearing on the Inpatient Only List. Revisions were made to the Two-Midnight Rule after its implementation. We plan to audit hospital inpatient claims after the implementation of and revisions to the Two-Midnight Rule to determine whether inpatient claims with short lengths of stay were incorrectly billed as inpatient and should have been billed as outpatient or outpatient with observation. We also plan to review policies and procedures for enforcing the Two-Midnight Rule at the administrative level and contractor level. While OIG previously stated that it would not audit short stays after October 1, 2013, this serves as notification that the OIG will begin auditing short stay claims again, and when appropriate, recommend overpayment collections.

There are 2 projects in this series.

Project titles will remain unpublished until projects are complete and reports are posted.

ACTIVE PROJECTS IN THIS SERIES (1)

Project A-04-24-03004 • Announced on Aug 2, 2024

COMPLETED PROJECTS IN THIS SERIES (1)

Medicare Program Oversight

Project A-09-21-03022 • Completed on June 11, 2024

TIMELINE

  • July 26, 2021
    Series Number W-00-24-35857 Assigned
  • July 26, 2021
    Project Announced

    Medicare Program Oversight - A-09-21-03022

  • June 11, 2024
    Project Complete - A-09-21-03022

    Medicare Program Oversight has been marked as complete. This audit resulted in 4 recommendations.

  • August 2, 2024
    Project Announced

    Project A-04-24-03004

  • Today
    1 Audit In-Progress
  • Est FY2026
    Estimated Fiscal Year for Series Completion

1 REPORT PUBLISHED

CMS Could Strengthen Program Safeguards To Prevent and Detect Improper Medicare Payments for Short Inpatient Stays (A-09-21-03022)

24-A-09-081.01 to CMS - Closed Unimplemented
Closed on 08/25/2025
To strengthen program safeguards for preventing and detecting improper payments for short inpatient stays and recovering overpayments for claims that do not comply with Medicare requirements, we recommend that the Centers for Medicare & Medicaid Services work with its contractors to add information to inpatient claims indicating any stay that did not span two or more midnights because of an unforeseen circumstance (e.g., a condition code).

24-A-09-081.02 to CMS - Open Unimplemented
Update expected on 06/02/2026
To strengthen program safeguards for preventing and detecting improper payments for short inpatient stays and recovering overpayments for claims that do not comply with Medicare requirements, we recommend that the Centers for Medicare & Medicaid Services work with its contractors to develop a list of ICD-10 procedure codes associated with the HCPCS codes on the inpatient only procedures list.

24-A-09-081.03 to CMS - Closed Implemented
Closed on 11/17/2025
To strengthen program safeguards for preventing and detecting improper payments for short inpatient stays and recovering overpayments for claims that do not comply with Medicare requirements, we recommend that the Centers for Medicare & Medicaid Services work with its contractors to implement prepayment edits for claims for short inpatient stays at risk for noncompliance with the two-midnight rule (i.e., short inpatient stays with risk factors such as canceled procedures or certain MS-DRGs).

24-A-09-081.04 to CMS - Closed Implemented
Closed on 10/23/2024
To strengthen program safeguards for preventing and detecting improper payments for short inpatient stays and recovering overpayments for claims that do not comply with Medicare requirements, we recommend that the Centers for Medicare & Medicaid Services work with its contractors to update policies and procedures for postpayment reviews to focus on claims for short inpatient stays identified as at risk for noncompliance with the two-midnight rule and recovery of overpayments (e.g., through additional reviews by RACs or other contractors).

View in Recommendation Tracker
Work Plan Type
Office of Audit Services
HHS Agencies
Centers for Medicare and Medicaid Services
Issue Areas
Departmental Operational Issues Financial Stewardship Hospitals
Target Groups
-
Financial Groups
Medicare A