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

BACKGROUND: 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.
OBJECTIVE: 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? DESIGN, SETTING AND PATIENTS: Retrospective descriptive study of all observation and inpatient encounters initiated between January 1, 2012 and February 28, 2013 at a Midwestern academic medical center. MEASUREMENTS: Demographics, insurance type, and characteristics of hospitalization were abstracted for each encounter.
RESULTS: 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%).
CONCLUSIONS: The 2-midnight rule adds new challenges to observation and inpatient policy. These findings suggest a need for rules modification.