Author: Juliet Ugarte Hopkins, MD, ACPA-C | August 3, 2026
More than a decade after its October 2013 implementation, the Medicare Two-Midnight Rule should, in theory, be one of the simplest and most straightforward frameworks for assigning hospital status. In practice, however, it remains a persistent source of confusion for hospitals, clinicians, utilization managers, and even payers themselves.
Some Medicaid status determinations are also based on the Two-Midnight Rule, but this is not universal from state to state. Additionally, some states have other qualifiers for Inpatient status, which can be confounding from a medical necessity perspective because they may rely more on the length of hospitalization than on the true need for hospital services.
Commercial plans often align themselves with one of the two major criteria-set guidelines, and while these guidelines promote themselves as grounded in evidence-based practice, there is no way to care for patients as if following along in a cookbook.
Finally, status assignment associated with Medicare Advantage plans may be the most confounding of all, given their assigned obligation, per the Centers for Medicare and Medicaid Services (CMS), to utilize the Two-Midnight Rule, coupled with a lack of obligation to trust the attending clinician’s determination of medical necessity for continued hospital care.
Taking all of this into account, it makes sense that utilization managers have long served as an important resource for clinicians when deciding appropriate patient status. Whether at the time of hospitalization or a day or two later, physician advisors and utilization management leaders routinely emphasize to their hospitals’ medical staffs that clinicians should actively collaborate with, and rely on, utilization managers to assist with appropriate statusing of their patients.
What is not standard? The clinicians involved in these conversations about patient status, how the communication takes place, and how the decided-upon status order is entered into the electronic medical record. These variations from hospital to hospital may be justifiable, but at the end of the day, all must comply with CMS rules, in particular 42 CFR § 412.3 from the Code of Federal Regulations.
As I reviewed in an article in February of this year, the Rule explicitly states, “The expectation of the physician should be based on such complex medical factors as patient history and comorbidities, the severity of signs and symptoms, current medical needs, and the risk of an adverse event…” and, “…who is…knowledgeable about the patient’s hospital course, medical plan of care, and current condition at the time of admission.”
Do emergency medicine physicians meet this qualification when they decide a patient must be hospitalized and is not appropriate for discharge from the emergency department (ED)? I say no, since their scope of the patient’s care involves only the time spent in the ED. They are not considering the future hospital course or medical plan of care following the patient’s departure from the ED.
As such, I do not believe they can compliantly designate a Medicare patient as Inpatient or Outpatient with Observation services. However, standard operating procedure in many hospitals involves ED utilization managers working side by side with ED physicians and providing, among other things, suggestions on appropriate patient status.
Relatedly, even if the suggestions are not directed to the ED physicians but instead to the accepting or attending physicians, the practice can be just as problematic. There is an important distinction between collaborating with a physician to come to agreement on appropriate status assignment and dictating status assignment. Unfortunately, this is a scenario I am hearing about increasingly often. The utilization nurse manager, applying MCG or InterQual criteria or using their own clinical judgment to suspect that an at least two-midnight hospitalization will be required, communicates to the attending physician what status should be chosen. There is no discussion, no sharing of the points the utilization manager is considering to make the determination, just direction of Inpatient or “Observation.” Then, either the clinician places the order as directed, or, in even more egregious situations, the order has already been placed as pended in the electronic health record by the utilization manager and only needs the physician’s signature to complete and activate.
The common reasoning for this practice is that utilization managers are experts in patient statusing and are the best and most readily available resource for clinicians making this decision. I do not disagree with that. However, in virtually all the scenarios I have encountered across the country, the main reason is to take responsibility out of the clinicians’ purview entirely, with the aim of avoiding inappropriate status determinations.
In effect: do not bother teaching clinicians how to status patients; just tell them to order whatever status the utilization manager tells them to pick.
I believe this is a non-compliant practice and that it runs counter to 42 CFR § 412.3. In this instance, the clinician is not taking into account the factors the Rule requires to make the status determination. All they do is accept direction from the utilization manager and affix their signature to it.
How do I know this? Because when I ask clinicians working within hospitals that use this practice how they determine status for their patients, they tell me, “I have no idea; I just pick whatever the utilization manager tells me to pick.” This cannot be your medical staff’s answer. In the event of an audit, in theory, it could lead to a devastating retrospective review of months and months of Inpatient cases.
So what should hospitals do instead? I have long supported educating medical staff on medical necessity, the Two-Midnight Rule, and the practical application of the Rule to all patients. True, some of their decisions will be incorrect in cases involving commercial or even some Medicaid plans, but at least they will be following the direction of 42 CFR § 412.3 for the Medicare population. After that is when utilization managers come into play, reaching out with corrections when needed because a payor does not follow the Rule.
In real time, can utilization managers help clinicians make status determinations? Absolutely. But the key word is help. This interaction should be a discussion about the patient’s condition, the plan of care, and the medical factors supporting the conclusion. Utilization managers should be trusted collaborators and expert resources, not substitutes for the clinician’s required judgment.
The goal is not to remove clinicians from status assignment; it is to make sure they are prepared to make, understand, and own the determination in a way that is clinically sound and compliant.
This article was originally published on RACmonitor.
