Hospitals have always had a difficult time distinguishing between inpatient and observation status. The two-midnight rule, originally slated to take effect on Oct. 1, 2013, provided some clarity; however, many questions remain amid repeated delays. Here is the latest update.   

Since the original publication of the two-midnight rule in the 2014 fiscal year Inpatient Prospective Payment System (IPPS) Final Rule, the Centers for Medicare & Medicaid Services (CMS) has delayed enforcement of the regulation twice. The first delay postponed enactment to September 2014. However, also in 2014, the “doc fix” to the sustainable growth rate (SGR) formula included a second delay postponing enactment of the rule to the end of March 2015. In April of this year, Congress passed a permanent SGR fix (the Medicare Access and CHIP Reauthorization Act of 2015) that postponed the two-midnight rule yet again to the end of September 2015. The Act also extends a moratorium for Recovery Auditors (RACs), preventing them from being able to review patient status on hospitals’ admissions between Oct. 1, 2013 and April 30, 2015, until September 30, 2015. 

The industry will probably see additional guidance once the 2016 IPPS final rule is published. In its proposed rule released in April, CMS stated that it expects to “include a further discussion of the broader set of issues related to short inpatient hospital stays, long outpatient stays with observation services, and the related -0.2 percent IPPS payment adjustment in the CY 2016 hospital outpatient prospective payment system proposed rule that will be published this summer.” 

Despite all these delays, hospitals can make the two-midnight rule their friend instead of their foe by focusing on using the regulatory guidance to guide improvements in medical necessity documentation.

Silver linings and red flags 

The two-midnight rule provides a published and mandated line in the sand for healthcare providers. It denotes an expected time frame for inpatient admissions — meaning that a physician must expect a patient to remain in the hospital for at least two midnights. Previously, organizations operated under the assumption that inpatient admission generally required 24 hours of care in the hospital. However, this perception was never substantiated by any formal regulation.

The rule raises red flags related to patient status. Organizations can’t simply rest on their laurels and assume all is fine when they secure a physician order for admission and the two-midnight threshold has been crossed. When it comes to patient status, hospitals must get it right. Patient status not only affects reimbursement, but also patient copayments and deductibles.

In a July 2014 white paper published by the Society for Hospital Medicine titled The Observation Status Problem—Impacts and Recommendations for Change, researchers found that the two-midnight rule has a negative effect on workflow as well as the physician-patient relationship. This is primarily because the rule is so difficult to operationalize and then explain to patients and their families. Why? It all goes back to clinical documentation.

Clinical documentation must answer “why”

Documentation must support why a patient’s stay is expected to be a minimum of two midnights. Above all, inpatient services must be medically necessary. The lack of documented medical necessity is the reason why most hospitals find themselves struggling in the midst of a RAC or Medicare Administrative Contractor (MAC) audit of inpatient admissions. Auditors seek clinical documentation justifying why services were rendered in an inpatient setting.

Cardiovascular diagnoses (e.g., rule-out chest pain, COPD, CHF exacerbation, and cardiac arrhythmia) are common targets. Physicians tend to omit CC and MCC diagnoses that affect the overall severity of illness, making it appear as though these patients didn’t require inpatient care. Documentation such as “the patient is very sick” doesn’t suffice.

Auditors also tend to target one-day stays. For example, consider a patient treated as an outpatient but then admitted overnight out of convenience (e.g., because he or she has nowhere else to go). One-day stays also occur when patients undergo outpatient procedures but then develop a post-operative complication, such as excessive pain or heart palpitations. Physicians often document “admit and observe overnight” when they should document “observe patient and re-evaluate in the morning.” 

Finally, denials frequently occur when there is a missing or flawed order for the admission, or when the physician attestation statement doesn’t include supporting documentation. Based on Primeau Consulting Group’s experience, auditors also target these specific DRGs: 

  • 065 (intracranial hemorrhage or cerebral infarction with CC)
  • 177 (respiratory infections and inflammations with MCC)
  • 191 (COPD with CC)
  • 193 (simple pneumonia and pleurisy with MCC)
  • 292 (heart failure and shock with CC)
  • 309 (cardiac arrhythmia and conduction disorders with CC)
  • 377 (gastrointestinal hemorrhage with MCC)
  • 392 (esophagitis gastroenteritis and miscellaneous digestive disorders without MCC)
  • 640 (nutritional and miscellaneous metabolic disorders with MCC)
  • 682 (renal failure with MCC)
  • 683 (renal failure with CC)
  • 871 (septicemia or severe sepsis without mechanical ventilation 96-plus hours with MCC)
  • 917 (poisoning and toxic effects of drugs with MCC)

Know if your hospital is vulnerable

Complex data analysis gives auditors unprecedented access to information about billing and coding patterns and trends. Auditors will definitely target hospitals they believe are gaming the system or intentionally keeping patients for two midnights solely to meet the benchmark. Other hospitals that may be vulnerable include: 

  • Those with a high volume of admissions
  • Those whose volume of admissions has increased as compared with previous years
  • Those with a high volume of short stays, including one-day stays

Consider the following five tips to maintain compliance with the two-midnight rule.

Five tips to boost compliance

1. Encourage physicians to use the term “admit” only when admitting the patient as an inpatient. Acceptable documentation for an inpatient admission includes:

  • Admit to inpatient
  • Admit as an inpatient
  • Admit for inpatient services

2. Seek case manager or clinical documentation improvement (CDI) specialist input. Case managers and CDI specialists can review documentation concurrently and obtain clarification before the record reaches the coder and an incorrect patient status is assigned. This is particularly true for inpatient cases stemming from emergency medicine or outpatient/ambulatory surgery departments.

3. Bulletproof your claims. To justify medical necessity, documentation must always include the following elements: 

  • Expected duration of the inpatient stay
  • Reason for inpatient treatment or study
  • Severity of signs and symptoms, including the exacerbation of any chronic conditions
  • Clinical evidence, such as labs and X-rays
  • Risk of negative outcome
  • Detailed plan of care, including any necessary tests or consultations
  • Specific CCs and MCCs
  • Anticipated plans for post-discharge care 

4. Create policies to address gray areas. Two-midnight documentation policies should include the following:

  • Documentation expectations for all inpatient admissions.
  • How the organization will handle hospital stays for which the physician cannot reliably predict duration. We advise to treat the patient as an outpatient and admit only if and when additional information suggests a longer stay or the passing of a second midnight is anticipated.
  • How the organization will handle hospital stays for which the patient doesn’t stay for two midnights even after the order is written. CMS and MACs will presume the inpatient status was not reasonable and necessary. Document why the patient’s stay was shorter than expected. For example, did the patient’s symptoms or condition resolve? 

5. Learn from MAC probe-and-educate audits. These audits, now extended through September 2015, provide valuable insight into compliance vulnerabilities. MACs first conduct prepayment probes (at least 10 claims per hospital and as many as 25 claims for larger hospitals) before performing any further in-depth audits. These audits are not punitive, and organizations should take the opportunity to learn from them.

About the Author 

Debi Primeau, MA, RHIA, FAHIMA, is president of Primeau Consulting Group. She has over 35 years of experience in health information management as an executive consultant, IS director, and HIM director. Previously, Debi worked with various HIM consulting companies as the VP of HIM services, compliance of privacy, and security, being responsible for developing and implementing clinical documentation improvement programs as well as developing and providing education and training programs. She is a graduate of the University of Phoenix with a degree in business management, in addition to a Master’s degree in organizational management. 

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