Understanding Two Midnight Rule Compliance

 In Articles, Coding & Documentation, Policy Updates

A CMS regulation affecting Medicare inpatient stays known as the “two midnight rule” was effective on October 1, 2013. Many hospitals are struggling with how to best achieve compliance with this rule because it has the potential to be very disruptive in the hospital environment.

Here are three key components of the rule:

  1. In order for a Medicare patient to be considered an inpatient, the patient must stay two midnights.
  2. To be considered an inpatient, a surgical patient must have an Inpatient Order prior to starting a case.
  3. A signed “Physician Certification” must be in the chart before the patient is discharged.

If all three components are not met, CMS will deny all payment and the hospital will not be reimbursed for the cost of the admission.


CMS states that patients are generally appropriate for inpatient admission when the physician (1) expects the beneficiary to require a stay that crosses at least two midnights and (2) admits the beneficiary based upon that expectation.

The time a Medicare beneficiary spends as an outpatient (ER, Observation) before the formal inpatient admission order is not inpatient time but may be considered by the physician when determining if the expectation of a stay lasting at least two midnights in the hospital is reasonable and was generally appropriate for inpatient admission.

Here are two examples:

  • A Medicare patient presents to the ER at 8 p.m. The patient is placed on observation status until 8 a.m. the next day. At that time, the physician determines the patient should stay another day. Even though the patient is not an inpatient for two midnights the first midnight counts toward meeting the rule. Note: the provider would bill observation for the first day and admission for the second day.
  • A Medicare surgical patient who is expected to stay on as an inpatient needs an inpatient order prior to starting the case. This order can be delivered by a midlevel or PA, but it must be signed or authenticated by the attending physician before the patient is discharged. Many hospitals are adding a form to the preoperative H&P/orders area to document this order in surgical patients staying as inpatients. However, if at the beginning of the surgical case the patient is not expected to be admitted but due to a complication during the surgery the physician determines an admission is medically necessary the order can be written at that time.


CMS requires physician certification of the medical necessity that such services be provided on an inpatient basis. The documentation must support the need for inpatient admission. Certification can be gathered from within the medical record but must completed and signed before discharge.  This is a new CMS requirement.  The Physician Certification must be signed by a physician and is not valid if signed by a midlevel or PA.

There are 4 components to physician certification:

  1. Inpatient Order,
  2. Reason for Inpatient Level of Care (Diagnosis at a minimum),
  3. Anticipated Length of Stay, and
  4. plans for Post-Hospital Care, if appropriate.

Those permitted to certify an admission order are:

  1. A physician who is a doctor of medicine or osteopathy,
  2. A dentist under special circumstances,
  3. A doctor of podiatric medicine if his or her certification is consistent with the function he or she is authorized to perform under state law,
  4. Must have admitting privileges,
  5. Must be knowledgeable of the patient’s hospital course, medical plan of care, and current condition.


Even if the patient meets the expectation of the two midnight rule, the patient chart must support the medical necessity for the stay. Include medical history and comorbidities, summary of the history of present illness, current medical needs (plan of care), and risk(s) of adverse events.   CMS states “the factors that lead a physician to admit a particular beneficiary based on the physician’s clinical expectation are significant clinical consideration and must be clearly and completely documented in the medical record.”

Many organizations have lots of questions about this rule such as how this rule could potentially affect professional (physician) reimbursement if the inpatient criterion is not met. For example, if a hospitalist determines an admission is warranted but does not complete the appropriate certification prior to discharge then will the consulting specialists on the case be denied payment?  Many hospitals are still trying to devise a workable solution to meet the guidelines, but, unfortunately, CMS has not yet provided answers to the many questions hospitals and providers are asking.

We encourage you to contact the medical staff office of your hospital to better understand the new procedures being implemented to meet these requirements. For MSOC billing clients, your client analyst will be monitoring payment on inpatient services to quickly identify and resolve any issues that may arise. 

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