Inpatient or Under Observation - Understanding the 2-Midnight Rule

Staying In the Hospital Does Not Make You an Inpatient

Chest Pain Heart Attack
Chest pain may be a sign of a heart attack.. stop123/E+/Getty Images

Do not think that Medicare is going to pay for you to stay in the hospital just because you have chest pain. It may be hard to believe that Medicare may not want to cover services that could save you from a heart attack but there are rules in place to save the government money. While chest pain could mean you are having a heart attack, your symptoms could also be a result of acid flux, muscle strain or even anxiety.

Medical Necessity

Medicare bases its decision on medical necessity. Medical necessity is a slippery concept. It means that Medicare needs to see an absolute need for you to have a service, whether that is an outpatient or inpatient setting. It needs to see the service as an acceptable standard of care, one that is cost effective for the evaluation at hand and one that has shown benefit in diagnosing or treating a given condition.

For the record, doctors often see things differently than the federal government.

When it comes to staying in the hospital, Medicare uses labels to guide their medical necessity rules. Are you "under observation" as an outpatient or admitted as an inpatient? It is time to learn what these terms really mean.

The Two-Midnight Rule

Just because you stay in the hospital overnight does not mean you are an inpatient. In October 2013, Medicare added regulations that changed what it meant to be an inpatient.

Known as the Two-Midnight Rule, Medicare required that a hospital stay needed to span at least two midnights before it could be considered for inpatient status. The Two-Midnight Rule aims to decrease the burden of cost on the Medicare Trust Fund and to help stretch that money out for years to come.

When you think about it, the timing is arbitrary. Take the example of someone admitted on November 1. Someone admitted at 12:01am would not be a potential inpatient until 12:01am on November 3 according to the 2-Midnight Rule. Someone admitted at 11:59pm, 23 hours and 58 minutes later, nearly a full day later, would also meet criteria on November 3 at 12:01am. Inpatient status is not fairly based on how much time someone actually spent in the hospital. If the government wanted to make things fair and balanced, they should have designated a certain number of hours of care to define what they deemed appropriate for inpatient care.

Should you pay more because of the time of day your doctor put the orders into the chart?

How Medicare Pays

Outpatient services, including "under observation" stays, are paid for by Medicare Part B. Generally speaking, you will pay 20 percent for every aspect of care you receive during your evaluation, even if it happens in the hospital. These services quickly add up ranging from insertion of an IV line to laboratory tests to medical supplies to nursing care to use the hospital bed.

In 2012, 23 percent of observation hospital stays were for chest pain and those visits averaged $1,655 in out of pocket costs for Medicare beneficiaries.

Alternatively, inpatient hospital admissions are covered by Part A. When you are admitted as an inpatient, you pay a flat deductible rate. Since all the services you receive are bundled into one payment, the Part A deductible tends to be less expensive than what you would pay under Part B. In 2012, that deductible cost $1,156. Medicare would be responsible for footing the rest of the bill.

Being "under observation" for chest pain in 2012 cost would have cost you an extra $499 even though you received the exact same medical services.

What This Means For You

Thankfully, The Centers for Medicare and Medicaid Services (CMS) is making some changes to the Two-Midnight Rule for 2016. The rule still stands but a doctor now has more say into whether or not an inpatient admission is approved by Medicare, regardless of how long the stay lasts. Talk to your doctor if you find yourself in the hospital. His documenting his reasons for favoring an inpatient admission on your medical chart could make the difference.

So will Medicare pay for your chest pain? More or less. Whether it is a heart attack or bad acid reflux, they could pay under your Part A benefit if they see a medical need. How much they will pay will depend on when you seek help.


Centers for Medicare and Medicaid Services. Fact Sheet: Two-Midnight Rule. Published July 1, 2015.

Hospital short stay policy issues. MedPac. . Published September 12, 2014.

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