Roosevelt Institute | Cornell University

The Two-Midnight Rule Negatively Impacts Hospitals and Patients Alike

By Matthew HersmanPublished November 9, 2014

In 2013, the Center for Medicare and Medicaid Services implemented a rule that required patients to spend two nights in a hospital in order to qualify for in-patient hospital rates. This rule has had a negative effect on patients and has had a costly impact on hospitals.

By Matthew Hersman, 11/9/2014

In 2013, the Center for Medicare and Medicaid Services (CMS) implemented the Two Midnight Rule. This rule stated that in order for a hospitalized patient to qualify as an inpatient, the patient must spend at least two full nights at a hospital. CMS implemented this policy in order to better regulate Medicare payments to ensure that the payments they make accurately reflect the hospital treatment. By requiring physicians to provide documented reasons for a patient's stay, this was seen as a way to better monitor physicians' treatment over patients. 

However, what this legislation really does is undermine the clinical authority a physician has of its patients and drastically cut much needed revenues for some hospitals. Inpatient rates are typically three times greater than those of outpatient rates, which can mean a difference of thousands of dollars per patient. Furthermore, this rule negatively impacts some hospitals greater than others. These cuts affect low-acuity community hospitals the most, which are hospitals where the majority of patients require short hospital stays.  These low-acuity hospitals are typically smaller and lower-rated, and as a result are less able to handle the loss in revenues when compared to other larger hospitals. The Two-Midnight rule also negatively affects all hospitals that rely on inpatient care much more than hospitals that do not. As a result, tertiary hospitals and academic medical centers have seen the greatest hit, as they tend to focus on inpatient care.

In addition, due to funding cuts, hospitals are also much more likely to send patients to observational outpatient care. Studies have shown that because this is strictly a time-based policy with no relevance to sound clinical judgment, a patient's hospital status is influenced by the time of day a patient gets sick rather than his actual clinical needs. Physicians do not treat patients by attempting to forecast the future, but this model forces physicians to do just that. As a result, more patients are shipped to observation status in order to save costs.

The Two-Midnight Rule leads to an unfair loss in revenues for some hospitals over others and has been shown to directly affect the type of care a patient receives. Monetary restrictions like this should never compromise a patient's care. The Two-Midnight Rule has caused a wave of protest and controversy in the healthcare field since its inception and for good reason. It is a rule that needs to be removed and replaced with a system that exhibits less deteriorative qualities.