Observation and inpatient status: clinical impact of the 2-midnight rule

In response to growing concern over frequency and duration of observation encounters, the Centers for Medicare and Medicaid Services enacted a rules change on October 1, 2013, classifying most hospital encounters of <2 midnights as observation, and those ≥2 midnights as inpatient. However, limited data exist to predict the impact of the new rule.

To answer the following: (1) Will the rule reduce observation encounter frequency? (2) Are short-stay (<2 midnights) inpatient encounters often misclassified observation encounters? (3) Do 2 midnights separate distinct clinical populations, making this rule logical? (4) Do nonclinical factors such as time of day of admission impact classification under the rule?

Retrospective descriptive study of all observation and inpatient encounters initiated between January 1, 2012 and February 28, 2013 at a Midwestern academic medical center.

Demographics, insurance type, and characteristics of hospitalization were abstracted for each encounter.

Of 36,193 encounters, 4,769 (13.2%) were observation. Applying the new rules predicted a net loss of 14.9% inpatient stays; for Medicare only, a loss of 7.4%. Less than 2-midnight inpatient and observation stays were different, sharing only 1 of 5 top International Classification of Diseases, 9th Revision (ICD-9) codes, but for encounters classified as observation, 4 of 5 top ICD-9 codes were the same across the length of stay. Observation encounters starting before 8:00 am less commonly spanned 2 midnights (13.6%) than later encounters (31.2%).

The 2-midnight rule adds new challenges to observation and inpatient policy. These findings suggest a need for rules modification.