How does the two-midnight rule apply when a traditional Medicare patient has no safe discharge plan?

For a traditional Medicare patient admitted for observation, it is not uncommon to remain in the hospital longer than two midnights due to non-medical reasons including waiting for a transfer to another facility or family situations. In these cases, the reason the patient remains hospitalized is the lack of a safe discharge plan. Should such a patient’s status be changed from observation to inpatient when crossing the second midnight? The short answer is no.

According to CMS, any traditional Medicare patient whose care is expected to require more than two midnights of hospital care and meets medical necessity for an inpatient stay, should be admitted as a full inpatient. On the other hand, if the patient meets the need for hospital care but is not expected to cross two midnights, they should be admitted as an observation stay (with the exception of patient admitted for services on the CMS Inpatient Only List.) If the patient does require care beyond the two midnights and now meets the medical criteria for a full inpatient admission continued stay, the Centers for Medicare & Medicaid Services’ two-midnight rule requires that the patient be converted to an inpatient level of care. However, without accompanying medical conditions necessitating the extended stay, it is not appropriate to convert the patient from observation to inpatient status for the convenience of time and money when the patient could have been discharged. In other words, according to CMS, it would not meet the criteria needed for a change of status to inpatient.

The only case in which the change of status would be appropriate is if the patient’s condition changed significantly from the initial presentation or if the patient should have been an inpatient admission in the beginning due to the nature of their presenting illness. The length of stay alone is not a reason for admission and does not meet CMS’s two-midnight rule. CMS allows patients to stay in observation for up to 72 hours, if absolutely necessary, to allow for time to transfer to a safe destination. “Observation services rendered beyond 72 hours is considered medically unlikely and will be denied as such. The appeals process must be followed to have observation services exceeding 72 hours to be considered for payment,” according to CMS, IOM Claims Processing Manual, Publication 100-04, Chapter 4, section 290.1

In such cases, there are some key points to remember:

  1. Except for the Inpatient Only List procedures, inpatient stays should be certified when the practitioner expects the stay to be at least two midnights. According to the CMS Two-Midnight Rule “Medicare Part A payment was generally not appropriate for hospital stays expected to last less than two midnights.”
  2. In some cases, inpatients can be converted to outpatient observation when an inpatient stay is determined to be medically unnecessary after the fact. (Condition Code 44 is used in such cases.)
  3. Converting an outpatient observation to inpatient admissions would only be correct if medical necessity for admission were determined to be met when the change is made. Convenience does not qualify for inpatient or, at times, even observation.
  4. Hospitals unable to discharge a patient due to non-medically necessary reasons, could consider changing the status to “outpatient in a bed” which is technically a level of care where a patient is not admitted but not an observation patient. See more about OPIB here . RAC also provides guidelines
  5. A patient should be certified as needing inpatient admission initially to consider the extension of inpatient stay for placement. It is only acceptable if initially the patient was already appropriately established as an inpatient level of care. (A1C)
  6. Observation is 24 hours, rarely 48 hours and should not exceed 72 hours. If admission is not medically necessary, the patient should be discharged, according to CMS.

One thing CMS makes clear, “admissions are not deemed covered, or non-covered, solely on the basis of length of time the patient actually spends in the hospital.” (Chapter 6.5.2) Hospital lengths of stay can extend beyond the time medically necessary for myriad reasons, but in such cases, the admission status, especially in the case of traditional Medicare patients, cannot be changed from observation to inpatient as a result.



CMS Fact Sheet: Two-Midnight Rule, October 30, 2015,

Billing and Coding: Acute Care: Inpatient, Observation and Treatment Room Services

Medicare Patients: Observation or Inpatient Admission? TMF Health Quality Institute Microsoft Word – obs_vs_admit_color.doc (

Required Inpatient Documentation, RAC Summit

 Outpatient in a Bed:

CMS (IOM) Program Integrity Manual, Publication 100-08, Chapter 6, Section 6.5.2(A)

Hospital Inpatient Admission Order and Certification, Department of Health & Human Services Centers for Medicare & Medicaid Services – Center for Medicare January 30, 2014.

CMS (IOM) Program Integrity Manual, Publication 100-08, Chapter 6, Section 6.5.2(A)

CMS IOM Claims Processing Manual, Publication 100-04, Chapter 4, section 290.1

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