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During the past two decades several policies have attempted to replace inappropriate hospital inpatient stays with observation hospital stays, where patients receive hospital care but are classified as outpatients. The Two-Midnight rule, adopted in October 2013 by the Centers for Medicare and Medicaid Services, states that more highly reimbursed inpatient payment is appropriate if care is expected to last at least two midnights; otherwise, observation stays should be used. For hospitals, the administrative burden associated with making these status determinations is substantial. We found that after the Two-Midnight rule was implemented, potentially inappropriate short inpatient stays decreased immediately by 2.0 stays per 1,000 beneficiaries and potentially more appropriate short outpatient stays increased immediately by 1.8 stays per 1,000 beneficiaries, hastening a preexisting trend in this direction. However, after this initial improvement, the rate of change slowed to a new steady state. Given the steady state and ongoing administrative resources needed, it is time to reconsider the value of status determination required by the Two-Midnight rule.

Medicare Two-Midnight Rule Accelerated Shift To Observation Stays