Navigating the Two-Midnight Rule with Medicare Advantage
By Tiffany Ferguson, LMSW, CMAC, ACM
In its Contract Year 2026 Medicare Advantage and Part D Final Rule (CMS-4208-F), the Centers for Medicare & Medicaid Services (CMS) addressed ongoing confusion about how Medicare Advantage (MA) plans apply inpatient criteria, specifically the “two-midnight rule” and how this interacts with appeal processes through the Independent Review Entity (IRE).
Layered deep in the seventh provision to clarify terminology regarding inpatient level of care, which primarily surrounds clarification of concurrent status changes and notice requirements for MA plans to patients, you will find a question from a key commenter who raised concerns about the disconnect between the two-midnight presumption used in traditional Medicare and the flexibility afforded to MA plans in denying inpatient claims.
The concern focused on the patient experience: beneficiaries are often admitted under an inpatient order, only to learn later that their stay has been reclassified as outpatient or observation, despite receiving the same level of hospital care. This results in potential financial liability and confusion, particularly when coverage status changes mid-stay.
Despite the gains that many hospitals felt regarding MA final rule 4201, this appears to be an interesting clarification regarding the difference between the two-midnight presumption verse the two-midnight benchmark.
CMS clarified that while the rule strengthens various enrollee protections, it does not extend the two-midnight presumption to MA plans. The presumption, which deems inpatient admissions crossing two midnights as appropriate for Part A payment, was designed as a safeguard for traditional Medicare post-payment reviews conducted by Recovery Audit Contractors (RACs) or Quality Improvement Organizations (QIOs). The response then went on to say that this ruling is not a universal standard and does not bind MA organizations.
MA plans, however, are required to follow the inpatient admission criteria outlined in 42 CFR §412.3, commonly referred to as the “two-midnight benchmark.” This means that if a physician expects the patient to require hospital care spanning at least two midnights and formally admits the patient as such, the criteria for inpatient coverage may be met assuming the documentation supports medical necessity.
Importantly, CMS emphasized that if the IRE overturns an MA denial and determines that the inpatient admission meets criteria under §412.3, MA plans must honor the IRE’s decision and effectuate payment.
Although the two-midnight presumption remains outside the MA scope, CMS has taken other steps in the final rule to reduce patient and provider burden. These include stronger notice requirements for communication tools from MA plans to ensure level of care changes are communicated timely to patients, clarification on when MA beneficiary financial liability is triggered, and limitations on retroactive reclassification of previously approved inpatient stays.
To safeguard against the two-midnight benchmarking allowance for MA plans, the burden of proof will remain on providers to ensure thorough documentation surrounding intentions for admission, and the clinical rationale for inpatient care.