All or Nothing – Inpatient or Outpatient, a Patient Either Requires Hospital Care, or Doesn’t

In honor of National Case Management Week, I am covering a topic that, while a repeat, is so widely misunderstood (particularly by government contractors!) that it merits repetition.

I am going to reexplain why there is absolutely no such thing as a Medicare three-day observation stay. It simply cannot exist. I am going to repeat that for emphasis: it is absolutely impossible to have a Medicare observation stay that lasts three or more days. The complexities of regulations often prevent this type of declarative statement.

Why is this different?    

The answer is the Two-Midnight Rule.

Under the Medicare Two-Midnight Rule, which you can find at 42 CFR 412.3, “an inpatient admission is generally appropriate for payment under Medicare Part A when the admitting physician expects the patient to require hospital care that crosses two midnights.” As soon as a physician expects a Medicare patient’s hospital stay to last through a second midnight, the physician should order inpatient admission.

If it is 11:59 p.m. immediately before the second midnight, the doctor should be entering an admission order, unless they think the world is going to end or the patient is walking out in the next 60 seconds. 

Now, I know some people, and many Medicare auditors, are saying “but wait, what if the patient only requires observation? You can’t order inpatient admission when the patient only requires observation!”

But those people are totally wrong. Ask yourself this question: is observation care hospital care? Obviously, the answer is yes. They are not getting the “observation” at a movie or at a restaurant; they are getting it in the hospital.

“Observation” is a type of hospital care. Under the regulation, when “hospital care” is expected to last past the second midnight, the status of the patient moves from being outpatient to inpatient. Outpatient and inpatient are statuses.

When a patient requires hospital care that is expected to last fewer than two midnights, they are an outpatient. When the care is expected to last more than two midnights, which it obviously is, if it has already lasted two midnights, the patient is an inpatient. That is true even if the patient is sitting in a bed in the ED hallway.

There is no geographic component to the test. If they are in the hospital, requiring hospital care, and expected to need it for two midnights, they should be admitted.      

Now, you might be thinking, “what if the patient is not really that sick?” Well, if they are not sick enough to require “hospital care,” then the patient should not be in the hospital at all. Inpatient and outpatient are not different levels of care; they are different patient statuses.

If the patient doesn’t require hospital care, it is improper to bill for any service. The test is the length of time the patient is expected to need hospital care. If they need any type of hospital care for two midnights, they are an inpatient. If they don’t need hospital care, they are nothing. Okay, that’s too cold. They are still a human being.

But they have no status in the hospital. They are effectively a visitor. And if they want to stay in the hospital, they are going to have to pay out-of-pocket for that privilege. So, when a Medicare patient is in the hospital more than two nights, they are an inpatient or they are self-pay. Those are the only two options available!

Finally, Medicare Advantage (MA) plans are required to offer coverage at least as generous as Medicare. (See 42 CFR 422.101.) If a Medicare Advantage plan tries to disregard the Two-Midnight Rule, refer them to the regulation. If that fails, I recommend contacting the Centers for Medicare & Medicaid Services (CMS) to have them correct the plan’s legal violations.