Department of Health and Human Services 
OFFICE OF 
 
 
INSPECTOR GENERAL 
 
 
 
 
 
 
 
 
V R
U  LNERABILITIES  EMAIN 
 
U M 
  NDER  EDICARE S 
 
2-M H
IDNIGHT  OSPITAL 
 
P  
OLICY
 
 
Daniel R. Levinson  
Inspector General 
 
December 2016 
OEI-02-15-00020   
Report in Brief 
December 2016 
OEI-02-15-00020 
 
Why OIG Did This Review   Vulnerabilities Remain Under Medicares  
The Centers for Medicare & Medicaid 
2-Midnight Hospital Policy 
Services (CMS) implemented the 
2-midnight policy in fiscal year 
What OIG Found 
(FY) 2014.  The policy establishes that 
OIG found that the number of inpatient stays decreased and the 
inpatient payment is generally 
number of outpatient stays increased since the implementation of the 
appropriate if physicians expect 
2-midnight policy.  Further, short inpatient stays decreased more than 
beneficiaries care to last at 
long outpatient stays.  However, despite these changes, vulnerabilities 
least 2 midnights; otherwise, outpatient 
still exist.    
payment would generally be appropriate.   
  Hospitals are billing for many short inpatient stays that are 
CMS implemented the 2-midnight policy 
potentially inappropriate under the policy; Medicare paid 
to address three vulnerabilities in 
almost $2.9 billion for these stays in FY 2014. 
hospitals use of inpatient and outpatient 
stays:  improper payments for short    Medicare pays more for some short inpatient stays than for short 
inpatient stays; adverse consequences  outpatient stays, although the stays are for similar reasons. 
for beneficiaries of long outpatient stays, 
  Hospitals continue to bill for a large number of long outpatient 
including that they may not have 
stays. 
the 3 inpatient nights needed to qualify 
for skilled nursing facility (SNF) services;    An increased number of beneficiaries in outpatient stays pay 
and inconsistent use of inpatient and  more and have limited access to SNF services than they would as 
outpatient stays among hospitals.  inpatients. 
This report follows up on previous Office    Hospitals continue to vary in how they use inpatient and 
of Inspector General (OIG) work and  outpatient stays. 
compares data from the year before and 
the year after the implementation of the  CMS needs to address these continuing vulnerabilities by 
2-midnight policy. 
improving oversight of hospital billing under the 2-midnight 
How OIG Did This Review  policy and increasing protections for beneficiaries.   
We analyzed paid Medicare hospital 
 
claims from FY 2013 and FY 2014.  We 
identified inpatient stays using Part A  What OIG Recommends and Agency Response   
hospital claims and outpatient stays  We recommend that CMS (1) conduct routine analysis of hospital billing 
using Part B hospital claims.  We defined  and target for review the hospitals with high or increasing numbers of 
a short stay as one that lasted less  short inpatient stays that are potentially inappropriate under the 2-
than 2 midnights and a long stay as one  midnight policy; (2) identify and target for review the short inpatient 
that lasted 2 midnights or longer.  For  stays that are potentially inappropriate under the 2-midnight 
short inpatient stays, we determined  policy; (3) analyze the potential impacts of counting time spent as an 
whether claims information met CMSs  outpatient toward the 3-night requirement for SNF services so that 
criteria for payment under the 2- beneficiaries receiving similar hospital care have similar access to these 
midnight policy (e.g. if the stay included  services; and (4) explore ways of protecting beneficiaries in outpatient 
an inpatient-only procedure).    stays from paying more than they would have paid as inpatients. 
CMS concurred with all four recommendations. 
Full report can be found at https://oig.hhs.gov/oei/reports/oei-02-15-00020.asp 
   
TABLE OF CONTENTS 
 
Objectives ....................................................................................................1 
Background ..................................................................................................1 
Methodology ................................................................................................7 
Findings........................................................................................................9 
Hospital inpatient stays decreased and outpatient stays increased 
since the implementation of the 2-midnight policy .........................9 
Despite changes, vulnerabilities remain and raise concerns about 
the cost to Medicare and beneficiaries ...........................................10 
Hospitals continue to vary in how they use inpatient and outpatient 
stays................................................................................................14 
Conclusion and Recommendations ............................................................16 
Agency Comments and OIG Response..........................................19 
Appendixes ................................................................................................20 
A:  Detailed Methodology .............................................................20 
B:  Description of Reasons for Stay ...............................................23 
C:  Change in Stays from FY 2013 to FY 2014 .............................24 
D:  Short Inpatient Stays That Were Appropriate Under the 
2-Midnight Policy in FY 2014 .................................................25 
E:  Most Common Reasons for Certain Types of Hospital Stays ..26 
F:   Average Medicare and Beneficiary Payments for Certain  
Most Common Reasons for Stays ............................................28 
G:  Beneficiary Payments for Coronary Stent Insertions ...............29 
H:  Agency Comments ...................................................................30 
Acknowledgments......................................................................................33
   
   
OBJECTIVES 
1.  To assess the changes in hospital inpatient and outpatient stays since 
the implementation of Medicares 2-midnight policy. 
2.  To identify remaining vulnerabilities since the implementation of the 
2-midnight policy. 
3.  To determine the extent to which hospitals use of inpatient and 
outpatient stays vary. 
BACKGROUND 
In fiscal year (FY) 2014, the Centers for Medicare & Medicaid Services 
(CMS) implemented the 2-midnight policy to clarify the appropriateness 
of inpatient hospital admissions.1  Specifically, the policy establishes that 
inpatient payment is generally appropriate if physicians expect 
beneficiaries care to last at least 2 midnights; otherwise, outpatient 
payment would generally be appropriate. 
CMS implemented the 2-midnight policy to address vulnerabilities in 
hospitals billing of short inpatient stays and long outpatient stays and the 
associated cost to Medicare and beneficiaries.  Before the policy was 
implemented, CMS found that a significant portion of payments for short 
inpatient staysi.e., stays lasting less than 2 midnightswere improper 
because the services should have been billed as outpatient services.2 
In addition, CMS, Members of Congress, and others were concerned about 
long outpatient staysthose lasting 2 midnights or longer.  In particular, 
they were concerned that beneficiaries may pay more as outpatients than 
they would as inpatients.  This could happen because of differences in 
payments by beneficiaries for inpatient and outpatient stays.  Moreover, 
they were concerned that beneficiaries who are not admitted as inpatients 
may not qualify under Medicare for skilled nursing facility (SNF) services 
following discharge from the hospital.  Another concern leading to the 
2-midnight policy was that hospitals were using inpatient and outpatient 
stays inconsistentlysome hospitals were more likely to use short 
inpatient stays, while others were more likely to use outpatient stays.  
                                                                                                                         
1 78 Fed. Reg. 50506 (Aug. 19, 2013). 
2 CMS, Comprehensive Error Rate Testing, Medicare Fee-for-Service 2014 Improper 
Payment Report, July 2015.  Accessed at https://www.cms.gov/Research-Statistics-Data-
and-Systems/Monitoring-Programs/Medicare-FFS-Compliance-Programs/CERT/CERT-
Reports-Items/Medicare-FeeforService-2014-Improper-Payments-Report.html on 
May 10, 2016. 
Vulnerabilities Remain Under Medicares 2-Midnight Hospital Policy (OEI-02-15-00020)  1 
   
   
 
The text box above summarizes these known vulnerabilities prior to the 
implementation of the 2-midnight policy.  
In previous work, the Office of Inspector General (OIG) provided data 
related to these concerns.3  Before the 2-midnight policy was 
implemented, OIG found that Medicare paid hospitals more for short 
inpatient stays than for outpatient stays, on average, and that some 
hospitals were far more likely to use short inpatient stays rather than 
outpatient stays.  We concluded that hospitals have a financial incentive to 
use short inpatient stays.  In addition, we found that, on average, 
beneficiaries paid twice as much for a short inpatient stay than for an 
outpatient stay that included observation services.  However, some 
beneficiaries in outpatient stays paid more than they would have if they 
had been admitted as inpatients.  Also, some beneficiaries were 
responsible for SNF charges after they were discharged from hospitals. 
This report follows up on our previous work and compares data from the 
year before and the year after the implementation of the 2-midnight policy.  
It identifies remaining vulnerabilities and provides recommendations to 
address them. 
The 2-Midnight Policy 
The decision to admit a beneficiary as an inpatient is made by the treating 
physician, who must consider several clinical factors including the 
beneficiarys medical history, the severity of the beneficiarys symptoms, 
and the expected care.4 
                                                                                                                         
3 OIG, Hospitals Use of Observation Stays and Short Inpatient Stays for Medicare 
Beneficiaries, OEI-02-12-00040, July 2013. 
4 CMS, Medicare Benefit Policy Manual (MBPM), Pub. No. 100-02, ch. 1,  10.  Prior to 
FY 2014, CMS guidance stated that physicians should consider whether the beneficiary 
would require at least 24 hours of care. 
Vulnerabilities Remain Under Medicares 2-Midnight Hospital Policy (OEI-02-15-00020)  2 
   
   
At the beginning of FY 2014, CMS implemented the 2-midnight policy to 
clarify the appropriateness of payments for inpatient stays.  The policy 
establishes that Medicare will generally pay for an inpatient stay if 
physicians reasonably expect beneficiaries care to last at 
least 2 midnights; otherwise, payment would generally be made for 
treatment as outpatients. 
 
CMS anticipated that the 2-midnight policy would decrease hospitals use 
of short inpatient stays and long outpatient stays.  CMS also anticipated 
that the policy would provide hospitals with some clarity that would 
promote the consistent, appropriate use of inpatient and outpatient stays.5  
The consistent, appropriate use of these stays would also result in more 
consistent payments by Medicare and beneficiaries.  The text box above 
summarizes these anticipated outcomes. 
The policy also establishes that inpatient stays lasting at least 2 midnights 
from the date of inpatient admission will be presumed appropriate for 
payment.6  Those lasting less than 2 midnights may be reviewed by CMS 
for compliance with the policy.  CMS identified several circumstances 
under which a staythough shortwould nevertheless be appropriate and 
consistent with the policy.  These circumstances include stays with:  
1.  inpatient-only procedures; 
2.  mechanical ventilation initiated during the visit; 
3.  an unforeseen circumstance, such as the beneficiarys death, 
transfer to another hospital, or leaving against medical advice; or 
                                                                                                                         
5 78 Fed. Reg. 50948 (Aug. 19, 2013). 
6 This guidance is for CMSs contractors as they review inpatient claims for compliance.   
Vulnerabilities Remain Under Medicares 2-Midnight Hospital Policy (OEI-02-15-00020)  3 
   
   
4.  2 midnights or longer in the hospital when outpatient time prior to 
admission is added to inpatient time. 7  
Limited Enforcement 
In the first 2 years of the policy, CMS engaged in limited reviews of short 
inpatient stays.  During this timeFY 2014 and FY 2015CMSs 
Recovery Auditors were prohibited from reviewing short inpatient stays to 
determine whether the admissions were appropriate under the 2-midnight 
policy.  Instead, CMSs Medicare Administrative Contractors reviewed 
medical records for small samples of each hospitals short inpatient stays.  
If the results of the sample indicated poor compliance with the policy, the 
contractors educated the hospital and conducted further reviews. 
Recent Changes 
CMS has made two recent revisions to the 2-midnight policy.8  First, 
beginning in 2016, it allowed for case-by-case exceptions to the policy in 
which a physician determines that an inpatient stay is necessary absent an 
expected length of stay of at least 2 midnights.  The physicians decision 
must be documented in the medical record and is subject to review by 
CMSs contractors.  Second, CMS changed its enforcement policy so that 
CMSs Quality Improvement Organizations first review small samples of 
medical records to determine whether hospitals are complying with 
the 2-midnight policy.  If they find deficiencies, these organizations 
educate the hospitals to promote compliance.  If deficiencies continue, 
they refer the hospitals to the Recovery Auditors for further reviews. 
Medicare and Beneficiary Payments for Hospital Stays 
Medicare and beneficiary payments to hospitals differ for inpatient and 
outpatient stays.  Under the 2-midnight policy, stays expected to last at 
least 2 midnights are generally appropriate for inpatient payment; other 
stays are generally appropriate for outpatient payment (see Figure 1). 
                                                                                                                         
7 See 80 Fed. Reg. 7054070541 (July 8, 2015) and CMS, Frequently Asked Questions: 2 
Midnight Inpatient Admission Guidance & Patient Status Reviews for Admissions on or 
after October 1, 2013.  Accessed at https://www.cms.gov/Research-Statistics-Data-and-
Systems/Monitoring-Programs/Medicare-FFS-Compliance-Programs/Medical-
Review/InpatientHospitalReviews.html on November 5, 2013. 
8 80 Fed. Reg. 39206 (July 8, 2015). 
Vulnerabilities Remain Under Medicares 2-Midnight Hospital Policy (OEI-02-15-00020)  4 
   
   
Figure 1:  Comparison Between Payments for Inpatient and Outpatient 
Stays, FY 2014* 
 
 
 
* While the information in this table applies generally to inpatient and outpatient stays in 
FY 2014, there are some circumstances under which different payment rules would apply. 
** Stays are classified into Medicare severity diagnosis related groups (MS-DRGs), each of 
which has an associated payment rate. 
 
Inpatient Stays 
Medicare Part A pays hospitals for inpatient stays under the Inpatient 
Prospective Payment System (IPPS).9  Each stay is classified into a 
Medicare severity diagnosis related group (MS-DRG).  These groups are 
based on the beneficiarys primary and secondary diagnoses and the 
procedures the hospital performed, as well as other factors.10  Medicare 
pays hospitals a different payment rate for each MS-DRG.11  Beneficiaries  
   
                                                                                                                         
9 Social Security Act,  1886(d); 42 CFR pt. 412. 
10 Each MS-DRG generally falls into one of three severity levels, depending on the 
beneficiarys secondary diagnoses.  For example, a beneficiary with no secondary 
diagnoses that increase the complexity of care would be in a low-severity MS-DRG, 
a beneficiary with asthma would be in a medium-severity MS-DRG, and a beneficiary 
with pneumonia would be in a high-severity MS-DRG. 
11 Payment rates are adjusted by a variety of facility-level factors, such as a geographic 
factor to account for differences in labor costs. 
Vulnerabilities Remain Under Medicares 2-Midnight Hospital Policy (OEI-02-15-00020)  5 
   
   
are responsible for an inpatient deductible; in 2014, the deductible 
was $1,216.12 
Outpatient Stays 
Medicare Part B pays hospitals for outpatient stays under the Outpatient 
Prospective Payment System (OPPS).13  When a hospital bills Medicare, 
the claim typically includes many services.  Under the OPPS, each service 
has an associated Medicare payment rate.  For most services, Medicare 
pays 80 percent of this rate, while the beneficiary is responsible for the 
remaining 20 percent.14  Beneficiary copayments are capped so 
beneficiaries do not pay more than the inpatient deductible for any 
individual outpatient service, but there is no policy to prevent the 
payments for multiple services from adding up to more than the inpatient 
deductible.15  Beginning in 2015, CMS began implementing 
comprehensive ambulatory payment classifications, which are designed 
to provide a single payment rate for a primary service and any secondary 
services related to it.16  In these circumstances, beneficiaries would be 
responsible for 20 percent of the single payment amount rather than 
for 20 percent of the payment amount for each individual service.17 
In addition, beneficiaries may be charged for self-administered drugs 
taken during their outpatient stays because Medicare Part B generally does 
not cover them.18 
SNF Services After a Hospital Stay 
Medicare Part A pays SNFs under the SNF Prospective Payment System.19  
To qualify for SNF services, a Medicare beneficiary must have had an 
                                                                                                                         
12 Beneficiaries are responsible for paying the deductible once per benefit period, even 
though a benefit period may include multiple inpatient hospital stays.  A benefit period 
ends when the beneficiary has not received Medicare-covered hospital or SNF services 
for 60 consecutive days. 
13 Social Security Act,  1833(t); 42 CFR part 419. 
14 Social Security Act,  1833(t); 42 CFR  419.40(b); CMS, Medicare Claims 
Processing Manual, Pub. No. 100-04, ch. 4,  30. 
15 See Social Security Act,  1833(t)(8)(C) and 42 CFR  419.40(c). 
16 78 Fed. Reg. 74861 (Dec. 10, 2013). 
17 The beneficiarys 20 percent of the single payment amount may not exceed the 
inpatient deductible. 
18 Self-administered drugs are not covered unless they are required for the outpatient 
services that beneficiaries receive.  Even if they are not covered, hospitals may not 
always bill beneficiaries for the self-administered drug charges.  In some cases, 
beneficiaries may choose to request reimbursement from their Part D plan; however, if 
the Part D plan reimburses the beneficiary, it may be at a rate lower than that charged by 
the hospital.  Beneficiaries would be responsible for the difference. 
19 Social Security Act,  1886(e)(4); 42 CFR part 413. 
Vulnerabilities Remain Under Medicares 2-Midnight Hospital Policy (OEI-02-15-00020)  6 
   
   
inpatient stay in a hospital for at least 3 nights.20  Outpatient stays and time 
spent as an outpatient prior to inpatient admission do not count toward this 
requirement.21  Beneficiaries may choose to receive SNF services when 
they do not qualify for them under Medicare, but the beneficiaries are then 
responsible for the full SNF charges. 
METHODOLOGY 
We based this study on an analysis of paid Medicare Part A and Part B 
hospital claims and Part B noninstitutional provider claims from the 
National Claims History file with dates of service in FY 2013 and 
FY 2014.  We excluded claims from hospitals that were not paid under 
both the OPPS and the IPPS, such as long-term care hospitals, critical 
access hospitals, and hospitals in Maryland.   
For this study, inpatient stays were identified using Part A hospital claims, 
and outpatient stays were identified using Part B hospital claims.  We 
defined a short stay as one that lasted less than 2 midnights and a long 
stay as one that lasted 2 midnights or longer.22 
For short inpatient stays, we determined whether information on the 
hospital claims met CMSs criteria for inpatient payment under  
the 2-midnight policy.  If so, we considered the stay appropriate for 
payment under the 2-midnight policy; if not, we considered the stay to be 
potentially inappropriate for payment.  We based this analysis on claims 
and did not do a medical record review.  Information on the claim can 
indicate only whether the stay was potentially inappropriate under the 
policy.  A medical record review would be needed to make a final and 
complete determination of whether a stay was in fact appropriate.23  
See Appendix A for more detailed information about the methodology and 
Appendix B for descriptions of the reasons for the inpatient and outpatient 
stays presented in this report. 
Limitations 
This study was based on hospital claims and did not include a medical 
record review.  We did not determine whether each claim met all of 
Medicares requirements, including whether services billed were 
medically necessary.  In addition, we did not isolate the effect of the 
                                                                                                                         
20 This qualifying hospital stay typically must occur within the 30 days prior to the SNF 
admission.  See Social Security Act  1861(i) and 42 CFR  409.30.   
21 MBPM, ch. 8,  10. 
22 For inpatient stays, this definition is based on the date of the inpatient admission and 
includes only time spent as an inpatient. 
23 For example, a medical review may show that some short inpatient stays were 
appropriate because the beneficiary experienced clinical improvement after the physician 
documented an expectation of a 2-midnight stay. 
Vulnerabilities Remain Under Medicares 2-Midnight Hospital Policy (OEI-02-15-00020)  7 
   
   
2-midnight policy; instead, we looked at the differences in types of stays 
before and after the implementation of the policy.  Some of these 
differences could be related to factors other than the 2-midnight policy.   
Standards 
This study was conducted in accordance with the Quality Standards for 
Inspection and Evaluation issued by the Council of the Inspectors General 
on Integrity and Efficiency. 
   
Vulnerabilities Remain Under Medicares 2-Midnight Hospital Policy (OEI-02-15-00020)  8 
   
   
FINDINGS 
Hospital inpatient stays decreased and outpatient 
stays increased since the implementation of the 
2-midnight policy 
Overall, the number of hospital inpatient stays decreased and the number 
of outpatient stays increased in FY 2014, the year the 2-midnight policy 
was implemented.  Specifically, inpatient stays decreased 
by 262,794 stays, and outpatient stays increased by a similar number
259,908.  These changes represent a 2.8 percent decrease in inpatient stays 
and an 8.1 percent increase in outpatient stays (see Table 1).  Despite these 
changes, vulnerabilities remain and raise concerns about the cost to 
Medicare and beneficiaries. 
Table 1:  Change in Stays From FY 2013 to FY 2014 
Setting  FY 2014  Change From FY 2013  Percentage Change From FY 2013 
Inpatient  9,083,804  -262,794  -2.8% 
Outpatient  3,458,234  259,908  8.1% 
     Total  12,542,038  -2,886  
Source:  OIG analysis of CMS data, 2016. 
Short inpatient stays decreased more than long outpatient 
stays  
CMS anticipated that the 2-midnight policy would decrease the number of 
short inpatient stays (those lasting fewer than 2 midnights).  In FY 2014, 
short inpatient stays decreased by almost 10 percent.   
CMS anticipated that the policy would also decrease the number of long 
outpatient stays (those lasting 2 midnights or longer).  In FY 2014, long 
Figure 2:  Changes in Types of Hospital Stays, FY 2013 to FY 2014 
 
Source: OIG analysis of CMS data, 2016. 
Vulnerabilities Remain Under Medicares 2-Midnight Hospital Policy (OEI-02-15-00020)  9 
   
   
outpatient stays decreased only slightly, by about 3 percent (see 
Figure 2 and Appendix C). 
Despite changes, vulnerabilities remain and raise 
concerns about the cost to Medicare and beneficiaries 
Despite the changes in hospital billing, vulnerabilities still exist.  Hospitals 
are billing for many short inpatient stays that are potentially inappropriate 
under the 2-midnight policy and some of them indicate that Medicare
and beneficiariesmay be paying differently for similar care.  Moreover, 
hospitals continue to bill for a large number of long outpatient stays.  An 
increased number of beneficiaries in outpatient stays pay more and have 
limited access to SNF services than they would as inpatients. 
Hospitals are billing for many short inpatient stays that are 
potentially inappropriate under the 2-midnight policy 
Hospitals were paid for a total of 1,074,267 short inpatient stays in 
FY 2014.  Of these, 39 percent were potentially inappropriate for payment 
under the 2-midnight policy because the claims did not appear to meet any 
of CMSs criteria for an appropriate short inpatient stay.24  Short inpatient 
stays that were potentially inappropriate under the policy decreased by 
almost one-third from the previous year, yet there were still 423,544 of 
them in FY 2014.  See Table 2, and for more information about the short 
inpatient stays that were appropriate under the 2-midnight policy, see 
Appendix D. 
Medicare paid almost $2.9 billion for short inpatient stays that were 
potentially inappropriate under the policy in FY 2014.  Medical record 
reviews are necessary to make a final and complete determination of 
whether these stays are appropriate or not.25  However, these stays cannot 
be reviewed by CMS contractors for this purpose because CMSs 
enforcement during this time period was limited to medical record reviews 
of small samples of each hospitals short inpatient stays, and additional 
medical record reviews are prohibited.26 
 
                                                                                                                         
24 We identified stays with the following characteristics:  inpatient-only procedures; 
mechanical ventilation; an unforeseen circumstance such as the beneficiarys death, 
transfer to another hospital, or departure against medical advice; or a duration of 
2 midnights or longer in the hospital when outpatient time prior to admission is added to 
inpatient time (see Appendixes B and D). 
25 For example, a medical review may show that some are appropriate because the 
beneficiary experienced clinical improvement after the physician documented an 
expectation of a 2-midnight stay. 
26 80 Fed. Reg. 70540 (July 8, 2015). 
Vulnerabilities Remain Under Medicares 2-Midnight Hospital Policy (OEI-02-15-00020)  10 
   
   
Table 2:  Change in Short Inpatient Stays From FY 2013 to FY 2014 
Change From  Percentage Change 
Short Inpatient Type  FY 2014 
FY 2013  From FY 2013 
Appropriate under the 2-midnight 
650,723  72,669  12.6% 
policy 
Potentially inappropriate under the 
423,544  -190,729  -31.0% 
2-midnight policy 
     Total  1,074,267  -118,060  -9.9% 
 
Source:  OIG analysis of CMS data, 2016.
Medicare pays more for some short inpatient stays than for 
short outpatient stays, although the stays are for similar 
reasons  
The most common reasons for short  Figure 3:  Average Medicare 
Payments for Short Inpatient Stays 
inpatient stays were similar to the 
and Short Outpatient Stays for Most 
most common reasons for short 
Common Reasons in FY 2014 
outpatient stays, though all of these 
stays lasted fewer than 2 midnights.27  
For example, four of the six most 
common reasons for short inpatient 
stays were also the four most 
common reasons for short outpatient 
stays.  See Appendix E for the most 
common reasons for each type of 
stay. 
Although reasons for the stays were 
similar, Medicare payments were 
not.  On average, Medicare paid 
three times as much for a short 
inpatient stay than for a short 
outpatient stay.  Further, for all of 
the 10 most common reasons for 
short inpatient stays, Medicare paid 
more for short inpatient stays than 
for short outpatient stays (see 
Appendix F).  For example, for 
digestive disorders, Medicare paid an 
average of $4,572 for short inpatient 
stays but $789 for short outpatient   
stays (see Figure 3).  These payment  Source: OIG analysis of CMS data, 2016. 
                                                                                                                         
27 For this analysis, we included only short inpatient stays that were potentially 
inappropriate under the 2-midnight policy. 
Vulnerabilities Remain Under Medicares 2-Midnight Hospital Policy (OEI-02-15-00020)  11 
   
   
differences raise concerns that 
Figure 4:  Average Beneficiary 
Medicare is paying differently for  Payments for Short Inpatient Stays 
similar care.  and Short Outpatient Stays for Most 
Common Reasons in FY 2014 
Beneficiaries, too, typically paid 
more for short inpatient stays than for 
short outpatient stays.  On average, 
beneficiaries paid almost two times 
as much for a short inpatient stay 
than for a short outpatient stay.  
Further, for nine of the most common 
reasons for short inpatient stays, 
beneficiaries paid more for short 
inpatient stays than for short 
outpatient stays (see Appendix F).  
For example, beneficiaries with 
digestive disorders paid an average 
of $984 for short inpatient stays but 
an average of $231 for short 
outpatient stays, a notable exception 
being for coronary stent insertions 
(see Figure 4).   
Hospitals continue to bill for a 
large number of long outpatient 
stays 
Long outpatient stays decreased only   
slightly in FY 2014by  Source: OIG analysis of CMS data, 2016. 
about 3 percent.  Hospitals continued 
to bill a significant number748,337despite the 2-midnight policy.  
A large number of long outpatient stays is somewhat unexpected because 
these stays likely met the 2-midnight policys expected-length-of-stay 
requirement for inpatient admission, and providers have a financial 
incentive to admit beneficiaries as inpatients when possible.  That 
providers did not admit these beneficiaries may indicate that other factors 
caused them to continue to bill for a large number of long outpatient stays.  
These factors may include an inability to safely discharge beneficiaries, 
delays in care, or confusion about the 2-midnight policy. 
An increased number of beneficiaries in outpatient stays pay 
more and have limited access to SNF services than they would 
as inpatients  
Some beneficiaries in outpatient staysboth short and longfaced 
financial consequences that they would not have faced had they been in 
Vulnerabilities Remain Under Medicares 2-Midnight Hospital Policy (OEI-02-15-00020)  12 
   
   
inpatient stays.  These consequences include paying more for hospital and 
SNF services because Medicare policies differ for inpatient and outpatient 
stays. 
On average, beneficiaries paid more for inpatient stays than for outpatient 
stays, but in some instances the reverse was the case.  In FY 2014, 
beneficiaries in 352,940 outpatient stays paid more than the inpatient 
deductible.28  This is an increase of almost 50,000 in such outpatient stays, 
or 16 percent, from FY 2013.  The most common reason for these stays 
was coronary stent insertion, accounting for just over one-quarter of such 
stays.  See Appendix G for more information about how these stays 
increased beneficiaries payments.  Beneficiaries in outpatient stays 
generally pay 20 percent of Medicares rate for each service, and there is 
no cap on the total amount they can be responsible for paying.29 
In addition, an increased number of beneficiaries in outpatient stays had 
charges for self-administered drugs.30  In FY 2014, beneficiaries 
in 1,628,628 outpatient stays had charges for such drugs, an increase 
of 13 percent from FY 2013.  When the charges were present on a claim, 
the average amount was $207, essentially the same as in FY 2013.31  This 
amounted to more than $337 million in charges.  
For some beneficiaries, time spent as an outpatient could mean facing 
substantial charges after they leave the hospital.  Medicare covers SNF 
services only if a beneficiary had a hospital stay that included at least 
3 nights as an inpatient.  An increased number of beneficiaries in 
FY 2014 did not qualify for SNF services after their hospital stays.  In that 
fiscal year, beneficiaries had 633,148 hospital stays that lasted at 
least 3 nights but did not include 3 inpatient nights.  This number of stays 
reflects a 6 percent increase from FY 2013.  These beneficiaries did not 
qualify for SNF services under Medicare and, therefore, would have been 
responsible for any SNF charges incurred following their hospital stays.32 
For most of these stays (432,740), beneficiaries spent some nights in the 
hospital as outpatients and then were admitted as inpatients for additional 
nights.  This type of stay increased by 20 percent from FY 2013.  For the 
                                                                                                                         
28 The inpatient deductible was $1,216 in calendar year 2014.  
29 In circumstances involving comprehensive ambulatory payment classifications, 
beneficiaries may be responsible for a single payment rather than for payments for each 
individual service. 
30 Beneficiaries in inpatient stays typically do not pay for these drugs.   
31 Hospitals may not always bill beneficiaries for these charges.   
32 For this study, we did not determine the extent to which beneficiaries who had hospital 
stays of at least 3 nights but not 3 inpatient nights needed SNF services.  However, prior 
OIG work found that 4 percent of these beneficiaries in 2012 went to a SNF following 
discharge from the hospital.  See OIG, Hospitals Use of Observation Stays and Short 
Inpatient Stays for Medicare Beneficiaries, OEI-02-12-00040, July 2013. 
Vulnerabilities Remain Under Medicares 2-Midnight Hospital Policy (OEI-02-15-00020)  13 
   
   
other stays (200,408), beneficiaries spent 3 or more nights as outpatients 
and were never admitted.  This type of stay decreased from FY 2013 (see 
Table 3). 
Table 3:  Change From FY 2013 to FY 2014 in Hospital Stays That Lasted 
at Least 3 Nights but Did Not Include 3 Inpatient Nights 
Change From  Percentage Change 
Type of Stay  FY 2014 
FY 2013  From FY 2013 
3 or more nights as outpatient and never 
200,408  -36,163  -15.3% 
admitted as inpatient 
Began as outpatient and admitted as 
432,740  72,342  20.1% 
inpatient 
     Total  633,148  36,179  6.1% 
Source:  OIG analysis of CMS data, 2016. 
Hospitals continue to vary in how they use inpatient 
and outpatient stays 
CMS anticipated that the 2-midnight policy would promote the consistent, 
appropriate use of inpatient and outpatient stays.  However, hospitals 
continued to vary in how they used short inpatient stays and long 
outpatient stays in FY 2014.33  For example, nationally, 
approximately 3 percent of all stays were short inpatient stays.  However, 
this percentage varied among hospitals, ranging from about 1 percent to 
more than 5 percent (see Table 4).  For comparison, these same values 
were approximately 2 and 8 percent in FY 2013.  While the variation 
decreased in FY 2014, hospitals use of short inpatient stays remained 
inconsistent. 
Similarly, 6 percent of all stays were long outpatient stays in FY 2014.  
Again, this percentage varied among hospitals, ranging from 
about 2 percent to almost 11 percent, essentially unchanged from 
FY 2013.   
Table 4:  Distribution of the Use of Stays Among Hospitals in FY 2014 
Distribution Among Hospitals 
  Length of  Percentage of All 
Setting  Stay  Stays  National  10th  50th  90th 
Percentile  Percentile  Percentile 
Inpatient  Short  3.4%  1.1%  3.1%  5.4% 
Outpatient  Long  6.0%  2.1%  5.7%  10.8% 
Source:  OIG analysis of CMS data, 2016. 
Furthermore, while use of short inpatient and long outpatient stays 
decreased in FY 2014 nationally, some hospitals increased their use of 
                                                                                                                         
33 For this analysis, we included only short inpatient stays that were potentially 
inappropriate under the 2-midnight policy. 
Vulnerabilities Remain Under Medicares 2-Midnight Hospital Policy (OEI-02-15-00020)  14 
   
   
these stays, which is inconsistent with the stated goals of the 2-midnight 
policy.  Specifically, 18 percent of hospitals increased their use of short 
inpatient stays.  Similarly, 51 percent of hospitals increased their use of 
long outpatient stays. 
This pattern was even more pronounced for certain reasons for stays.  For 
example, nationally, the use of short inpatient stays for chest pain 
decreased substantially in FY 2014.  At some hospitals, use decreased to 
zero.  However, 29 percent of hospitals actually increased their use of 
short inpatient stays for chest pain. 
For stays involving chest pain, Medicare and beneficiaries paid hospitals 
more for short inpatient stays than for short outpatient stays.  Medicare 
paid hospitals an average of $3,797 for a short inpatient stay 
and $1,327 for a short outpatient stay.  As a result, hospitals that had a 
high or increasing use of short inpatient stays for chest pain received 
larger payments than hospitals that had a low or decreasing use of short 
inpatient stays for chest pain. 
   
Vulnerabilities Remain Under Medicares 2-Midnight Hospital Policy (OEI-02-15-00020)  15 
   
   
CONCLUSION AND RECOMMENDATIONS 
Overall, we found that the number of inpatient stays decreased and the 
number of outpatient stays increased since the implementation of the 
2-midnight policy.  Short inpatient stays decreased more than long 
outpatient stays.  Despite these changes, vulnerabilities still exist.   
Hospitals are billing for many short inpatient stays that are potentially 
inappropriate under the 2-midnight policy, and some of these stays are for 
similar reasons as short outpatient stays.  This raises concerns that 
Medicare is paying differently for similar care and may reflect hospitals 
financial incentives to use inpatient stays.  Hospitals also continue to bill 
for a large number of long outpatient stays.  Moreover, an increased 
number of beneficiaries in outpatient stays pay more and have limited 
access to SNF services than they would as inpatients.  Finally, hospitals 
continue to vary in how they use inpatient and outpatient stays, even 
though the policy was intended to promote consistency among hospitals.   
CMS needs to address these vulnerabilities by improving oversight of 
hospital billing under the 2-midnight policy and increasing protections for 
beneficiaries. 
Specifically, we recommend that CMS: 
Conduct routine analysis of hospital billing and target for 
review the hospitals with high or increasing numbers of short 
inpatient stays that are potentially inappropriate under the 
2-midnight policy 
Since the 2-midnight policy was implemented, enforcement has been 
limited.  We found that hospitals billed for a large number of potentially 
inappropriate short inpatient stays; for these stays, Medicare paid a total of 
almost $2.9 billion.  We also found that hospitals may have financial 
incentives to use short inpatient stays, and that some hospitals increased 
their use of these stays, which is inconsistent with the stated goals of the 
2-midnight policy.   
CMS should routinely conduct analysis to identify hospitals that have high 
or increasing numbers of short inpatient stays that are potentially 
inappropriate under the 2-midnight policy.  CMS should use this analysis 
to inform its auditing and enforcement strategies.  Such oversight is even 
more important given the change made in 2016 to allow for case-by-case 
exceptions to the 2-midnight policy.  This policy change has the potential 
for abuse and should be monitored closely. 
CMS should use the analysis to instruct the Quality Improvement 
Organizations to target the identified hospitals for larger samples or more 
Vulnerabilities Remain Under Medicares 2-Midnight Hospital Policy (OEI-02-15-00020)  16 
   
   
frequent medical record reviews.  If warranted, these hospitals should be 
referred to the Recovery Auditors for further audits and possible 
recoupments.  In addition, we will refer to CMS the list of hospitals that 
we identified as having high or increasing numbers of short inpatient stays 
for appropriate followup. 
Identify and target for review the short inpatient stays that are 
potentially inappropriate under the 2-midnight policy  
We found that about 40 percent of all short inpatient stays were potentially 
inappropriate under the 2-midnight policy.  CMS should routinely use 
claims information to identify such stays and target these potentially 
inappropriate stays for medical review to determine whether they are 
appropriate.  Using medical reviews in this way would be a more efficient 
use of Medicare resources than a strategy that looks at all short inpatient 
stays. 
CMS should develop tools to effectively identify these short inpatient 
stays for review.  For example, CMS should develop a list of inpatient 
procedure codes associated with inpatient-only procedures.34  In addition, 
CMS should encourage and expand hospitals use of an existing code that 
allows them to indicate on Medicare claims a beneficiarys time spent as 
an outpatient prior to inpatient admission.  CMS should use this code to 
add together the beneficiarys time as an outpatient and time as an 
inpatient to determine whether the beneficiary spent at least 2 midnights in 
the hospital in total.  By using this code, the inpatient-only procedure 
codes, and discharge codes on claims, CMS could distinguish stays that 
are potentially inappropriate under the policy from those that are 
appropriate. 
Analyze the potential impacts of counting time spent as an 
outpatient toward the 3-night requirement for SNF services so 
that beneficiaries receiving similar hospital care have similar 
access to these services 
Under current Medicare policy, beneficiaries with similar post-hospital 
care needs have different access to and cost sharing for SNF services 
depending on whether they were hospital outpatients or inpatients.  CMS 
should analyze the potential impacts of counting time spent as an 
outpatient toward the 3-night requirement to qualify for SNF services, 
which would provide equitable access to SNF services for Medicare 
beneficiaries regardless of whether they are inpatients or outpatients.  
                                                                                                                         
34 Currently, CMS has only a list of outpatient procedure codes associated with inpatient-
only procedures to ensure that these codes are not used on outpatient claims.  There is no 
corresponding list of the inpatient procedure codes associated with inpatient-only 
procedures. 
Vulnerabilities Remain Under Medicares 2-Midnight Hospital Policy (OEI-02-15-00020)  17 
   
   
CMS should closely review and weigh the financial implications of any 
proposed policy change for both the Medicare program and its 
beneficiaries.   
Explore methods for protecting beneficiaries in outpatient 
stays from paying more than they would have paid as 
inpatients 
Beneficiaries generally pay for each Part B service they receive.35  As a 
result, beneficiaries in outpatient stays may pay more than they would as 
inpatients because they may receive many services and their payments 
may add up to more than the inpatient deductible.  CMS should assess the 
extent to which Medicare beneficiaries in outpatient stays continue to pay 
more than they would as inpatients.  It should also explore methods, 
including statutory or other policy changes as necessary, for ensuring 
more equitable cost sharing for beneficiaries with similar care needs 
regardless of whether they are inpatients or outpatients.  For example, 
CMS could consider capping beneficiary payments for the entire 
outpatient hospital stay at the level of the inpatient deductible.   
In addition, many beneficiaries in outpatient stays incur charges for 
self-administered drugs.  Hospitals may choose whether or not to bill 
beneficiaries for these charges, which means that some beneficiaries have 
to pay for them while others do not.  CMS should assess the extent to 
which hospitals bill beneficiaries for these charges.  CMS should consider 
covering self-administered drugs in certain circumstances, such as when 
the beneficiary has been an outpatient for 24 or more hours, so that 
beneficiaries payments are not dependent on the hospital at which they 
seek treatment. 
For any potential change in policy, CMS should conduct an analysis of the 
potential implications for Medicare and beneficiaries.  CMS should use 
the results of these analyses to develop legislative proposals, as 
appropriate, to seek the authority to implement changes that would further 
the goal of more equitable beneficiary cost sharing. 
   
                                                                                                                         
35 In circumstances involving comprehensive ambulatory payment classifications, 
beneficiaries may be responsible for a single payment rather than for payments for each 
individual service. 
Vulnerabilities Remain Under Medicares 2-Midnight Hospital Policy (OEI-02-15-00020)  18 
   
   
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 
RESPONSE 
CMS concurred with all four of our recommendations. 
First, CMS concurred with our recommendation to conduct routine 
analysis of hospital billing and target for review the hospitals with high or 
increasing numbers of short inpatient stays.  CMS stated that it will 
instruct its Quality Improvement Organizations, which review medical 
records to determine whether hospitals are complying with the 2-midnight 
policy, to conduct such analysis. 
Second, CMS concurred with our recommendation to identify and target 
for review the short inpatient stays that are potentially inappropriate under 
the 2-midnight policy.  CMS stated that its Quality Improvement 
Organizations are currently conducting initial patient status reviews of 
short stays in hospitals to determine the appropriateness of Part A payment 
for short stay hospital claims. 
Third, CMS concurred with our recommendation to analyze the potential 
impacts of counting time spent as an outpatient toward the 3-night 
requirement to qualify for SNF services.  CMS noted that while it will 
analyze the potential impacts of such a policy change, it currently lacks 
the statutory authority to make the policy change. 
Finally, CMS concurred with our recommendation to explore methods for 
protecting beneficiaries in outpatient stays from paying more than they 
would have paid as inpatients.  CMS noted that it has already explored its 
existing statutory authority to protect beneficiaries in these situations.  The 
current statutory requirements are fairly prescriptive surrounding 
beneficiary cost-sharing liabilities under the IPPS and the OPPS.  CMS 
has taken several steps within its statutory authority to reduce beneficiary 
cost sharing.  For example, it established Comprehensive Ambulatory 
Payment classifications under the OPPS, which establishes a single 
copayment and helps protect beneficiaries from paying a copayment for 
each service furnished in an encounter.  
For the full text of CMSs comments, see Appendix H. 
 
   
Vulnerabilities Remain Under Medicares 2-Midnight Hospital Policy (OEI-02-15-00020)  19 
   
   
APPENDIX A 
Detailed Methodology 
We based this study on an analysis of paid Medicare Part A and Part B 
hospital claims and Part B noninstitutional provider claims from the 
National Claims History file with dates of service in FY 2013 and 
FY 2014.  We excluded claims from hospitals that were not paid under 
both the OPPS and IPPS, such as long-term care hospitals, critical access 
hospitals, and hospitals in Maryland. 
We used the Medicare claims to identify hospital stays relevant to the 
analysis of the 2-midnight policy.36  For outpatient stays, we identified all 
Part B hospital claims that (1) included observation services or (2) lasted 
at least 1 night and included emergency department services or a major 
procedure.37  We used Part A hospital claims to identify all inpatient 
stays.38  We then calculated the length of each stay.  We considered stays 
short if they lasted fewer than 2 midnights and long if they lasted 
2 midnights or longer.39 
We used this information to calculate the number and percentage of stays 
by setting (i.e. inpatient and outpatient) and length of stay (i.e. short and 
long) in FY 2013 and FY 2014.  We calculated the difference and the 
percentage change between FY 2013 and FY 2014.  We also calculated 
the average Medicare and beneficiary payment in FY 2014 by setting and 
length of stay. 
We then determined the reason for each stay.  For inpatient stays, we used 
the MS-DRG on the claim as the reason for the stay.  For outpatient stays, 
we calculated what the MS-DRG would have been if the beneficiary had 
been admitted.  We used information on the hospital and noninstitutional 
provider claims regarding the beneficiaries primary and secondary 
                                                                                                                         
36 For the purposes of this report, we considered each hospital claim to be a hospital stay. 
37 Observation services are short-term treatments and assessments to determine whether a 
beneficiary should be admitted as an inpatient or discharged.  Claims with observation 
services were identified as those with a claim line item with a revenue center code of 
0760 or 0762.  For claims that lasted at least 1 night, we did not include claims for 
repetitive and recurring services, such as physical therapy and chemotherapy.  The dates 
on these claims may indicate, for example, a 30-day stay; however, the beneficiaries did 
not spend those nights in the hospital, instead returning periodically (e.g., once a week) 
for the same services.   
38 Stays that included time spent as an outpatient prior to inpatient admission are counted 
as inpatient stays in this report. 
39 For inpatient stays, this definition is based on the date of the inpatient admission and 
includes only time spent as an inpatient.  In determining the length of stay for outpatient 
stays, we attempted to include only continuous nights spent in the hospital.   
Vulnerabilities Remain Under Medicares 2-Midnight Hospital Policy (OEI-02-15-00020)  20 
   
   
diagnoses, procedures, age, and gender.40  We ran this information through 
CMSs grouping software to determine the reason for the stay.41  We 
tested our method on a subset of inpatient claims.  We used the results of 
this testing to correct the number of outpatient stays associated with each 
reason.  
We then determined the top 10 reasons for stays in FY 2014 by setting and 
length of stay.  See Appendix B for descriptions of the reasons for these 
stays.  We also calculated the average Medicare and beneficiary payment 
for each reason in FY 2014 by setting and length of stay.42   
Analysis of short inpatient stays.  For short inpatient stays, we determined 
whether the information on the claim indicated that the stay met CMSs 
criteria for an inpatient stay under the 2-midnight policy43 (see 
Appendix D).  For example, we used codes on the Part B noninstitutional  
provider claims to determine if inpatient-only procedures were provided.  
We also used discharge codes on the claims to determine whether 
beneficiaries died, were transferred, or left against medical advice.44  We 
used the MS-DRG on claims to determine whether mechanical ventilation 
was provided.  Finally, we used information on the hospital and 
noninstitutional provider claims to calculate the total nights spent in the 
hospital, including outpatient time prior to inpatient admission.  If the total 
number of nights spent in the hospital was 2 or greater, we determined that 
the stay was appropriate under the 2-midnight policy.   
We then summed the number of short inpatient stays that were appropriate 
and potentially inappropriate under the policy in FY 2013 and FY 2014.  
We calculated the difference and the percentage change between the two 
fiscal years.  We also calculated the total Medicare payments in FY 2014 
for the short inpatient stays that were potentially inappropriate under the 
2-midnight policy. 
                                                                                                                         
40 We converted the Current Procedural Terminology procedure codes on the 
noninstitutional provider claims to ICD-9 procedure codes using information from 
MediRegs and other sources.  (ICD-9 is the International Classification of Diseases, 
Ninth Revision, Clinical Modification.) 
41 Medicare Severity Grouper with Medicare Code Editor Software, Installation and 
Users Manual, October 2014. 
42 For outpatient stays, these average payments are estimates because of the method we 
used for determining the reasons for these stays. 
43 Information on the claim can indicate only whether the stay was potentially 
inappropriate under the policy.  A medical record review would be needed to determine 
whether these stays were appropriate under the 2-midnight policy. 
44 We were unable to use claims information to identify short inpatient stays during 
which the beneficiary experienced clinical improvement after the physician documented 
an expectation of a 2-midnignt stay.  
Vulnerabilities Remain Under Medicares 2-Midnight Hospital Policy (OEI-02-15-00020)  21 
   
   
We compared in several ways the short inpatient stays that were 
potentially inappropriate under the 2-midnight policy and short outpatient 
stays.  First, we compared the most common reasons for the two types of 
stays.  We determined the overlap among the top reasons for the two types 
of stays.  Second, we compared average Medicare and beneficiary 
payments for the two types of stays.   
Analysis of beneficiary payments for outpatient stays and SNF access.  For 
all outpatient stays, we determined how often beneficiaries paid more than 
the inpatient deductible in FY 2013 and FY 2014.  We calculated the 
difference and percentage change between the two fiscal years.  We also 
determined the most common reason for stays for which beneficiaries paid 
more than the inpatient deductible in FY 2014. 
Next, we calculated the number of outpatient stays in FY 2013 and 
FY 2014 that included charges for self-administered drugs.  We calculated 
the difference and percentage change between the two fiscal years.  We 
also calculated the average charge amount when charges were present on 
the claims for each of the fiscal years and the total charges in FY 2014. 
Finally, we identified all hospital stays in FY 2013 and FY 2014 in which 
beneficiaries spent at least 3 nights in the hospital but had fewer than 
3 nights as inpatients.  These stays included both long outpatient stays and 
short or 2-midnight inpatient stays for which beneficiaries spent time as 
outpatients prior to admission.45  We calculated the difference and 
percentage change between the two fiscal years.   
Analysis of short inpatient and long outpatient stays by hospital.  For each 
hospital, we calculated the percentage of all stays that were short inpatient 
and long outpatient in FY 2013 and FY 2014.46   
We calculated the distribution of these percentages.  Next, we calculated 
the percentage of hospitals that increased their use of short inpatient and of 
long outpatient stays from FY 2013 to FY 2014. 
   
                                                                                                                         
45 We excluded from this analysis the hospital stays with discharge codes that indicated 
that the beneficiaries died, were transferred, or were still in the hospital. 
46 We conducted this analysis using provider numbers.  We excluded from this analysis 
the hospitals that did not have at least 50 claims in both FY 2013 and FY 2014.  We also 
excluded short inpatient stays that were appropriate under the 2-midnight policy. 
Vulnerabilities Remain Under Medicares 2-Midnight Hospital Policy (OEI-02-15-00020)  22 
   
   
APPENDIX B 
Description of Reasons for Stay* 
Reason for Stay  Detailed Description 
Back problems  Medical back problems 
Chest pain  Chest pain 
Chronic obstructive pulmonary disease  Chronic obstructive pulmonary disease (high 
(high severity)  severity) 
Circulatory disorders except acute myocardial 
Circulatory disorders 
infarction, with cardiac catheterization 
Coronary stent insertion  Percutaneous cardiovascular procedures with stent 
Esophagitis, gastroenteritis, and miscellaneous 
Digestive disorders 
digestive disorders 
Dizziness  Dysequilibrium 
Fainting  Syncope and collapse 
Heart failure and shock (high severity)  Heart failure and shock (high severity) 
Heart failure and shock (medium severity)  Heart failure and shock (medium severity) 
Injuries to the skin or tissue  Trauma to the skin, subcutaneous tissue, and breast 
Irregular heartbeat  Cardiac arrhythmia and conduction disorders 
Cardiac arrhythmia and conduction disorders 
Irregular heartbeat (medium severity) 
(medium severity) 
Major joint replacement or reattachment of lower 
Joint replacement of lower extremity 
extremity 
Kidney and urinary tract infections  Kidney and urinary tract infections 
Loss of blood flow to the brain  Transient ischemia 
Nutritional and miscellaneous metabolic disorders 
Nutritional disorders 
(e.g., vitamin deficiency) 
Pneumonia (high severity)  Simple pneumonia and pleurisy (high severity) 
Pneumonia (medium severity)  Simple pneumonia and pleurisy (medium severity) 
Red blood cell disorders (e.g., anemia, sickle-cell 
Red blood cell disorders 
disease) 
Renal failure (medium severity)  Renal failure (medium severity) 
Respiratory signs and symptoms (e.g., coughing, 
Respiratory signs and symptoms 
shortness of breath) 
Septicemia (high severity)  Septicemia or severe sepsis (high severity) 
General signs and symptoms  Signs and symptoms (e.g., general pain, malaise) 
* Unless noted otherwise, throughout this report, all of the reasons for stays were for beneficiaries at the low-
severity leveli.e., without secondary diagnoses that can increase the complexity of care.   
Source:  Adapted from CMS, FY 2014 IPPS Final Rule, Table 5. 
Vulnerabilities Remain Under Medicares 2-Midnight Hospital Policy (OEI-02-15-00020)  23 
   
   
APPENDIX C 
Change in Stays from FY 2013 to FY 2014 
      Change From  Percentage Change 
Setting  Length of Stay  FY 2014  FY 2013  From FY 2013 
Short  2,709,897  281,156  11.6% 
Outpatient 
Long  748,337  -21,248  -2.8% 
Short  1,074,267  -118,060  -9.9% 
Inpatient 
Long  8,009,537  -144,734  -1.8% 
     Total    12,542,038  -2,886   
Source:  OIG analysis of CMS data, 2016. 
 
   
Vulnerabilities Remain Under Medicares 2-Midnight Hospital Policy (OEI-02-15-00020)  24 
   
   
APPENDIX D 
Short Inpatient Stays That Were Appropriate Under the 
2-Midnight Policy in FY 2014 
CMS provided several circumstances under which inpatient stays lasting 
or expected to last fewer than 2 midnights are appropriate for inpatient 
payment and consistent with the 2-midnight policy.47  These circumstances 
include stays with:  
1.  inpatient-only procedures; 
2.  mechanical ventilation initiated during the visit; 
3.  an unforeseen circumstance, such as the beneficiarys death, 
transfer to another hospital, or leaving against medical advice; or 
4.  2 midnights or longer in the hospital when outpatient time prior to 
admission is added to inpatient time.  
The first two types of stays are appropriately inpatient even if the treating 
physician does not expect care to last 2 midnights.  The latter two types of 
stays are appropriately inpatient, even though they are short, only if the 
treating physician documented a reasonable expectation of a stay 
lasting 2 midnights or longer.  As discussed in the detailed methodology, 
we used claims information to identify these short inpatient stays that were 
appropriate under the 2-midnight policy.   
 
Percentage of Short Inpatient 
   
      Stays That Were Appropriate 
Under the 2-Midnight Policy With 
Characteristic of Stay  FY 2014* 
  This Characteristic* 
Stay lasted 2 midnights when outpatient time 
  367,870  56.5% 
prior to the inpatient admission is included 
  Stay involved an inpatient-only procedure  158,137  24.0%  
 
Stay in which beneficiary died  75,237  11.6% 
 
Stay in which beneficiary transferred to 
57,673  8.9% 
another hospital 
 
Stay in which beneficiary left against medical 
33,797  5.0%  
  advice 
  Stay involved mechanical ventilation  8,298  1.3% 
     Total  650,723  100%  
* Columns do not sum to totals because a  stay may have more than one characteristic.   
Source:  OIG analysis of CMS data, 2016.
                                                                                                                         
47 See 80 Fed. Reg. 7054070541 (July 8, 2015) and CMS, Frequently Asked Questions: 
2 Midnight Inpatient Admission Guidance & Patient Status Reviews for Admissions on or 
after October 1, 2013.  Accessed at https://www.cms.gov/Research-Statistics-Data-and-
Systems/Monitoring-Programs/Medicare-FFS-Compliance-Programs/Medical-
Review/InpatientHospitalReviews.html on November 5, 2013. 
Vulnerabilities Remain Under Medicares 2-Midnight Hospital Policy (OEI-02-15-00020)  25 
   
   
APPENDIX E  
Most Common Reasons for Certain Types of Hospital Stays 
 
Table E.1:  Most Common Reasons for Short Inpatient Stays That Were 
Potentially Inappropriate Under the 2-Midnight Policy, FY 2014* 
 
  Number of Short  Percentage of Short 
Most Common Reasons for Short Inpatient Stays  Inpatient Stays  Inpatient Stays 
Irregular heartbeat  16,235  3.8% 
Chest pain  14,766  3.5% 
Digestive disorders  13,544  3.2% 
Loss of blood flow to the brain  10,146  2.4% 
Coronary stent insertion  9,846  2.3% 
Fainting  9,158  2.2% 
Nutritional disorders  8,924   2.1% 
Irregular heartbeat (medium severity)  8,881  2.1% 
Circulatory disorders  8,677   2.0% 
Red blood cell disorders   7,752  1.8% 
* Short inpatient stays that were appropriate were removed for this analysis.   
Source:  OIG analysis of CMS data, 2016. 
 
Table E.2:  Most Common Reasons for Short Outpatient Stays, FY 2014 
 
Most Common Reasons for Short Outpatient  Number of Short  Percentage of Short 
Stays  Outpatient Stays  Outpatient Stays 
Chest pain  356,625  13.2% 
Digestive disorders  185,202  6.8% 
Fainting  84,596  3.1% 
Coronary stent insertion  81,966  3.0% 
General signs and symptoms  63,330  2.3% 
Injuries to the skin or tissue  58,963  2.2% 
Kidney and urinary tract infections  52,817  1.9% 
Back problems  50,393  1.9% 
Respiratory signs and symptoms  47,232  1.7% 
Circulatory disorders  46,448  1.7% 
Source:  OIG analysis of CMS data, 2016. 
 
 
Vulnerabilities Remain Under Medicares 2-Midnight Hospital Policy (OEI-02-15-00020)  26 
   
   
APPENDIX E (CONTINUED) 
 
Table E.3:  Most Common Reasons for Long Inpatient Stays, FY 2014 
  Number of Long  Percentage of Long 
Most Common Reasons for Long Inpatient Stays  Inpatient Stays  Inpatient Stays 
Joint replacement of lower extremity  392,292  4.9% 
Septicemia (high severity)  389,076  4.9% 
Heart failure and shock (high severity)  183,088  2.3% 
Heart failure and shock (medium severity)  170,813  2.1% 
Digestive disorders  149,417  1.9% 
Kidney and urinary tract infections  138,350  1.7% 
Pneumonia (medium severity)  132,808  1.7% 
Renal failure (medium severity)  128,034  1.6% 
Pneumonia (high severity)  125,649  1.6% 
Chronic obstructive pulmonary disease (high severity)  123,512  1.5% 
Source:  OIG analysis of CMS data, 2016. 
 
Table E.4:  Most Common Reasons for Long Outpatient Stays, FY 2014 
 
    Number of Long  Percentage of Long 
Most Common Reasons for Long Outpatient Stays  Outpatient Stays  Outpatient Stays 
Chest pain  85,535  11.4% 
Digestive disorders  47,019  6.3% 
Fainting  42,115  5.6% 
General signs and symptoms  27,293  3.6% 
Nutritional disorders  18,756  2.5% 
Circulatory disorders  18,301  2.4% 
Back problems  15,793  2.1% 
Dizziness  15,691  2.1% 
Kidney and urinary tract infections  14,375  1.9% 
Coronary stent insertion  13,068  1.7% 
Source:  OIG analysis of CMS data, 2016. 
   
Vulnerabilities Remain Under Medicares 2-Midnight Hospital Policy (OEI-02-15-00020)  27 
   
   
APPENDIX F 
Average Medicare and Beneficiary Payments for Certain Most 
Common Reasons for Stays 
 
Table F.1:  Average Medicare Payments for Short Inpatient and Short 
Outpatient Stays for Most Common Reasons for Short Inpatient Stays in  
FY 2014 
 
Most Common Reasons for Short  Short Outpatient  Short Inpatient 
Inpatient Stays  Stay  Stay 
 
Coronary stent insertion  $8,364  $13,269   
 
Circulatory disorders  $2,463  $6,706 
 
Irregular heartbeat (medium severity)  $1,905  $4,801 
 
Loss of blood flow to the brain  $1,575  $4,039   
 
Irregular heartbeat   $1,559  $3,069 
 
Chest pain  $1,327  $3,797 
 
Fainting  $1,309  $4,578   
 
Red blood cell disorders   $1,150  $5,119 
 
Nutritional disorders  $924  $4,226 
 
Digestive disorders  $789  $4,572   
Source: OIG analysis of CMS data, 2016. 
 
Table F.2:  Average Beneficiary Payments for Short Inpatient and Short 
Outpatient Stays for Most Common Reasons for Short Inpatient Stays in  
FY 2014 
 
Short Outpatient  Short Inpatient 
Reason for Stay  Stay  Stay   
 
Coronary stent insertion  $1,667  $1,022 
 
Circulatory disorders  $903  $1,011   
 
Loss of blood flow to the brain  $461  $1,079 
 
Irregular heartbeat (medium severity)  $374  $936 
 
Fainting  $354  $1,004   
 
Chest pain  $344  $981 
 
Irregular heartbeat   $326  $1,050 
 
Red blood cell disorders   $293  $832   
 
Nutritional disorders  $244  $898 
 
Digestive disorders  $231  $984 
 
   
Source:  OIG analysis of CMS data, 2016.
Vulnerabilities Remain Under Medicares 2-Midnight Hospital Policy (OEI-02-15-00020)  28 
   
   
APPENDIX G 
Beneficiary Payments for Coronary Stent Insertions 
Changes in stays for coronary stent insertions illustrate how an increase in 
the use of outpatient stays also increased beneficiary payments.  From 
FY 2013 to FY 2014, short inpatient stays for coronary stent insertions 
decreased significantly, while short outpatient stays increased.  Because 
beneficiaries tended to pay more for short outpatient stays, the increase in 
this type of stay also increased beneficiary payments. 
 
 
 
 
Source: OIG analysis of CMS data, 2016. 
 
Vulnerabilities Remain Under Medicares 2-Midnight Hospital Policy (OEI-02-15-00020)  29 
   
   
APPENDIX H 
Agency Comments 
 
Vulnerabilities Remain Under Medicares 2-Midnight Hospital Policy (OEI-02-15-00020)  30 
   
   
   
Vulnerabilities Remain Under Medicares 2-Midnight Hospital Policy (OEI-02-15-00020)  31 
   
   
 
   
Vulnerabilities Remain Under Medicares 2-Midnight Hospital Policy (OEI-02-15-00020)  32 
   
   
ACKNOWLEDGMENTS 
This report was prepared under the direction of Jodi Nudelman, Regional 
Inspector General for Evaluation and Inspections in the New York regional 
office, and Nancy Harrison and Meridith Seife, Deputy Regional 
Inspectors General. 
Rachel Bryan served as team leader for this study.  Other Office of 
Evaluation and Inspections staff from the New York regional office who 
conducted the study include Kari-Anna Adrian, Marissa Baron, 
Judy Bartlett, and Daniel S. Song.  Central office staff who provided 
support include Clarence Arnold, Evan Godfrey, Althea Hosein, 
Christine Moritz, Berivan Demir Neubert, and Jessica Swanstrom. 
 
Vulnerabilities Remain Under Medicares 2-Midnight Hospital Policy (OEI-02-15-00020)  33 
   
Office of Inspector General
http://oig.hhs.gov  
 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95452, as  
amended, is  to protect the integrity of the Department of  Health and Human Services  
(HHS) programs, as  well  as the health  and welfare of individuals served by those programs.  
This statutory mission is carried  out through a nationwide network of audits, investigations,  
and inspections conducted by the following operating components: 
Office of Audit Services 
The Office  of  Audit Services  (OAS) provides auditing services  for HHS, either by  conducting  
audits  with its own audit resources or by  overseeing  audit work done by others.  Audits  
examine the performance of HHS programs and/or its grantees and contractors in carrying  
out their respective responsibilities and are intended  to provide independent assessments of 
HHS programs and operations.  These assessments help reduce waste, abuse, and  
mismanagement and promote economy and efficiency  throughout  HHS. 
Office of Evaluation and Inspections 
The Office  of  Evaluation and Inspections (OEI)  conducts national evaluations to  provide 
HHS, Congress, and the public with timely, useful, and reliable information on significant 
issues.  These evaluations focus on preventing fraud,  waste, or abuse  and promoting  
economy, efficiency, and effectiveness of departmental programs.  To promote impact, OEI 
reports also present practical recommendations for improving program operations.  
Office of Investigations 
The Office of Investigations (OI) conducts criminal, civil, and administrative investigations  
of fraud and misconduct  related to HHS programs, operations, and individuals.  With  
investigators working in all 50 States and the District of Columbia, OI  utilizes its resources 
by actively  coordinating with the Department  of Justice  and other Federal, State, and local 
law enforcement authorities.  The investigative efforts of OI often lead to  criminal 
convictions, administrative sanctions,  and/or  civil monetary  penalties.  
Office of Counsel to the Inspector General 
The Office of Counsel to the  Inspector  General (OCIG) provides general legal services to 
OIG, rendering  advice and opinions on HHS programs and operations and  providing all  
legal support for OIGs  internal operations.  OCIG represents  OIG in all civil and 
administrative fraud and  abuse cases involving HHS programs, including False Claims Act, 
program exclusion, and civil monetary penalty cases.  In  connection with these cases, OCIG 
also negotiates and monitors corporate integrity agreements.  OCIG renders advisory 
opinions, issues compliance program  guidance, publishes fraud alerts, and provides other  
guidance  to  the health care industry concerning the anti-kickback statute and other  OIG  
enforcement authorities.