Hospitals Manipulate Medicare's 2-Midnight Rule

Unintentional Effects of The Affordable Care Act

Doctor speaks to patient in bed hooked up to heart monitor
A hospital can admit you as an inpatient or monitor you under observation. Ariel Skelley / Blend Images ? Getty Images

Since the Affordable Care Act was enacted in 2010, Medicare has undergone changes to reign in costs. These changes may have had unintended consequences for care you receive in the hospital.

How The Readmissions Reductions Program Works

In October 2012, the Centers for Medicare and Medicaid began to penalize hospitals that had a high number of patients returning for admission within 30 days. The Readmissions Reductions Program, created under the Affordable Care Act, specifically looks at admissions for heart attack, heart failure, pneumonia, hip/knee replacement, and chronic obstructive pulmonary disease (COPD).

With reduced payments as high as three percent, these penalties could result in millions of lost dollars for hospitals. For fiscal year 2016 (October 1, 2015 through September 30, 2016), 2,592 hospitals will lose a combined $420 million in Medicare payments based on this program alone.

How the 2-Midnight Rule Works

In October 2013, the Affordable Care Act changed how Medicare covered your hospital stays. Instead of basing its coverage on how sick you are, it bases it on how long you are in the hospital. Part A only takes effect if your stay crosses two midnights. This is known as the 2-Midnight Rule. When you do not meet these criteria, you are put "under observation."

Observation stays have been on the rise since the ruling took effect. According to MedPac, "The number of observation hours (both packaged and separately paid) has increased substantially, from about 23 million in 2006 to 53 million in 2013."

How This Affects What You Pay

When you are admitted to the hospital as an inpatient, your Medicare Part A benefits take effect. You pay a flat deductible for your stay that covers up to 60 days. This tends to cost you less than you would pay if your Medicare Part B -- medical insurance -- paid the bill for an observation stay. That said, Part A tends to cost the government more.

Part A pays for hospital stays and Part B pays for observation stays.

Logistically, you pay different amounts for the same care depending on how your hospital stay is labeled. Would you prefer to pay the $1,288 Part A deductible or 20 percent of all hospital costs for Part B coverage?

How This Affects Your Hospital Stay

Hospitals aim to avoid readmissions and costly penalties. With the 2-Midnight Rule and increases in observation stays, this could put them at an advantage. Observation stays do not count towards the readmission metric. Some question whether hospitals are gaming the system by placing patients under observation status to subvert fines.

However, hospitals also want to be reimbursed for their services. The truth is that hospitals are more likely to receive payment from Medicare than from some low-income beneficiaries who are unable to afford it. Hospitals could profit more from inpatient admissions over observation stays.

The question should not be what benefits the hospital more but that you receive appropriate, affordable fair care based on your medical needs. If you have one of the medical conditions that the Readmissions Reductions Program reviews, you may want to speak with your healthcare providers to make sure your admission orders are appropriate.

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View Article Sources
  • Centers for Medicare and Medicaid. Readmissions Reduction Program. Updated November 16, 2015.
  • The Medicare Payment Advisory Committee. Health Care Spending and the Medicare Program. Published June 2015.
  • Rau, J. Half Of Nation’s Hospitals Fail Again To Escape Medicare’s Readmission Penalties. Kaiser Health News. Published August 3, 2015.