Two Midnight Rule: How to Avoid an OIG Audit

By Monica Genzman, RHIT, CDIP

Reprinted with permission. The information contained within this post is accurate as of March 4, 2022.

The Two Midnight rule, adopted in October 2013 by the Centers for Medicare and Medicaid Services, states that more highly reimbursed inpatient payment is appropriate if care is expected to last at least two midnights; otherwise, observation stays should be used.

Original Two Midnight Rule
In general, the original Two Midnight rule stated that, Payable under Part A Inpatient Hospital Claims would be as follows:

What is the Financial Responsibility of the Patient?

  • Inpatient = Part A Deductible to be paid
  • Outpatient = 20% of charges

This causes a financial strain on the patient to have to pay 20% of the charges accrued for a long weekend stay that may have been appropriate to be made an Inpatient level of care, which would be paid under Part A. Therefore, hospitals must notify patients of their outpatient status within 36 hours of admission, so they are aware of this financial responsibility. This is also why it is imperative for the physician to have strong documentation supporting an Inpatient level of care if warranted.

Level of Care Audits by Office of Inspector General
In 2020, the OIG added to the work plan the review of Inpatient Stays which they deemed were appropriate to classify patient’s level of care as an outpatient. Meaning these patients did not fit the two midnight rule. This is still being looked at today.

How many of you currently have patients that are either assigned Observation Status and are well past a two day stay, or are assigned Inpatient Status and had less than a two day stay?

These types of clinical scenarios should be reviewed to ensure adequate supporting documentation that is needed to assign the correct level of care upon admission. By doing so, facilities can decrease their risk of an OIG audit.

Two Midnight Rule Resources
The OIG work plan, including CMS Oversight of the Two-Midnight Rule for Inpatient Admissions, is available on the OIG website.

We also want to share with you a great FAQ resource from CMS that gives clinical scenarios to help decide on what is the proper level of care.


About the Author
Monica Genzman, RHIT, CDIP, is a Senior Consultant with Blue & Co., LLC on the Indianapolis Revenue Cycle team. Monica has over 25 years of experience in the healthcare industry. She currently provides consultation and support services to hospitals regarding coding quality and assessments as well as clinical documentation improvement.

Monica Genzman, RHIT, CDIP, Senior Consultant

To learn more about how Blue & Co. can assist your organization with mitigating the potential for level of care audits related to observation and in-patient criteria, please reach out to Blue & Co.


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Disclaimer: This article is written for educational purposes only. Every reasonable effort has been made to ensure its accuracy and completeness. It is the responsibility of the reader to refer to the definitions, descriptions, conventions, and guidelines specific to each coding classification, as well as relevant laws and regulations when selecting and reporting medical codes.

About the Author

Libman Education
Libman Education is recognized by individual HIM professionals and their employers as the trusted resource for training on medical record coding. Over 12,000 individuals enroll annually in Libman Education’s WebinarPlus™ self-paced online courses written by leading industry experts. Our focus is on coding from beginner to advanced (ICD-10-CM, ICD-10-PCS, CPT), as well as coding credential prep (both AHIMA and AAPC), and other topics where in-depth specialized knowledge of relevant coding systems and their application is essential (Auditing, CDI, HCCs, IR/CV, LTAC, SNF, Home Health, IRF, and Pediatrics).

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