Observation Status: Effect of “Two Midnights” Rule on LOS, Skilled Nursing Placement

Ann M. Sheehy, M.D., M.S. Associate Professor Division Head, Hospital Medicine University of Wisconsin Department of MedicineMedicalResearch.com Interview with:
Ann M. Sheehy, M.D., M.S.
Associate Professor
Division Head, Hospital Medicine
University of Wisconsin Department of Medicine

MedicalResearch.com: What are the main findings of the study?

Answer: The Centers for Medicare and Medicaid Services (CMS) has changed their definition for observation status. Previously, observation status was determined by Interqual clinical criteria. The new rule states that all patients with length of stay < 2 midnights, with few exceptions, will be observation, and patients staying ≥ 2 midnights will be inpatient. We applied the proposed (now final) CMS rules change to our present inpatient and observation patients to model the potential effects of this policy change. We found that many more short stay inpatients at our hospital (8,231) would lose inpatient status (and therefore be hurt by the rules change) than longer stay observation patients (1,211) who would be helped by gaining inpatient status. At our hospital, this would have resulted in significant financial losses.

We also found that only a small number (35%) of observation patients would gain skilled nursing facility benefit with these rules.

Finally, we studied the relationship between time of day of admission and achievement of a 2 midnight stay. Clearly, patients admitted just before midnight will achieve 2 midnights much more quickly hours-wise than a patient admitted at 1:00am. We studied the relationship between the 2 midnight stay and actual length of stay (in hours) and found that 46.9% of patients <2 midnights fell in the overlap zone between our shortest ≥ 2 midnight stay (26.6 hours) and longest <2 midnight stay (47.2 hours). In other words, 46.9% of <2 midnight stay patients would be assigned observation status instead of inpatient by virtue of time of day of presentation in relation to midnight.

MedicalResearch.com: Were any of the findings unexpected?

Answer:  We were surprised by the number of patients who would lose inpatient status under these rules change, and we were surprised that more people would not gain skilled nursing facility coverage with this rules change. Perhaps most interesting and relevant to practicing hospitalists is the overlap in length of stay between patients with <2 midnight and ≥ 2 midnight stays. This means that a hospitalist may be caring for 2 identical patients with identical problems needing identical care, but their insurance coverage (Medicare Part A or Part B), and their status (inpatient versus observation) will be different simply based on the time of day they present with respect to midnight.

MedicalResearch.com: What should clinicians and patients take away from your report?

Answer:  Clinicians need to follow these new rules in caring for their patients. However, clinicians are also responsible for systems improvement. These rules may unfortunately create an increase in length of stay, as the incentives for crossing 2 midnights are great, and the disconnect between actual length of stay and midnight stay is significant. Increased length of stay would add additional unnecessary cost to the system.  If this happens, clinicians need to be prepared to provide feedback to Medicare, and hopefully these rules can be modified in the future.

MedicalResearch.com: What recommendations do you have for future research as a result of this study?

Answer:  We will need to continue to monitor the actual clinical and financial effects of these rules change.


Sheehy AM, Graf B, Gangireddy S, et al. Hospitalized but Not Admitted: Characteristics of Patients With “Observation Status” at an Academic Medical Center. JAMA Intern Med. 2013;():-. doi:10.1001/jamainternmed.2013.8185