CMS Expands the Two-Midnight Rule for 2024

In January 2024, the Centers for Medicare & Medicaid Services (CMS) expanded the Two-Midnight Rule, reshaping how providers determine inpatient admissions. The update directly affects hospitals, providers, and Medicare Advantage (MA) payers, aiming to streamline care delivery while ensuring fair reimbursement.

Originally implemented in 2013, the Two-Midnight Rule required patients to be admitted as inpatients if their care was expected to span at least two midnights. This was designed to reduce inappropriate outpatient “observation” stays, which often increased patient out-of-pocket costs.

• Medicare Advantage plans are now required to follow the rule.
• Case-by-case exceptions apply if medical necessity is documented.
• Expanded guidance covers inpatient-only procedures and high-risk treatments.
• Greater emphasis on accurate documentation and compliance from providers.

The policy shift has triggered noticeable changes in care delivery and reimbursement:

• Hospitals: Inpatient revenue spiked in early 2024, with Strata Decision Technology reporting year-over-year inpatient growth surpassing outpatient revenue for the first time in two years.
• Medicare Advantage Plans: Expected cost increases due to more inpatient admissions.
• Patients: Reduced exposure to unnecessary observation status costs and better care alignment.

CMS clarified that patients may still be admitted for shorter stays if medical necessity is documented, including:

• Emergent inpatient-only procedures
• High-risk medication administration
• Serious comorbidities requiring close monitoring

• CMS expansion levels the playing field between Medicare and Medicare Advantage.
• Stronger compliance and documentation are crucial for providers.
• Patients stand to benefit from reduced financial strain and improved care.

• CMS Fact Sheet: Two-Midnight Rule
• Becker’s Hospital Review – How the Rule Impacts MA Patients