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Medical advances have enabled many people to be cared for appropriately in an outpatient setting rather than being admitted to a hospital.

Yet, since Medicare payment rates are generally lower for outpatient visits than inpatient hospital stays, hospitals have a financial incentive to admit patients.

Observing what were believed to be inappropriate admissions, in 2013 Medicare adopted the "two-midnight rule" stating that hospitals would only be paid inpatient rates if the patient was expected to stay in the hospital over two nights. The rule was controversial, but data show that it changed hospital visit behavior.

The two-midnight rule is part of a larger effort to ensure appropriate payments within Medicare.

Sabrina Poon from the Vanderbilt University Medical Center joins A Health Podyssey to discuss the effects of the rule and whether or not it obtained its objective.

Poon and colleagues published a paper in the November 2021 issue of Health Affairs investigating how the two-midnight rule affected inpatient admissions and outpatient observation stays.

They conclude that the shift from inpatient to observation stays is directly associated with adoption of the rule, the change occurred quickly after the rule was implemented, and it had different affects for patients with more chronic conditions.

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