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Hospitals See Increase in Missing Payments in Q1, Two-Midnight Rule Could Affect 20% of Medicare Advantage Encounters, According to New Strata Report

May 15, 2024

CHICAGO, May 14, 2024 (GLOBE NEWSWIRE) — Hospitals and health systems nationwide saw a sizable increase in delayed or missing payments in the first quarter, due in part to a recent, large-scale disruption to payment processing services, according to a new report from Strata Decision Technology

Depending on the size of the hospital, estimated gaps in expected versus actual revenue ranged from 16.5% to 17.9% of payments for the first three months of 2024. The findings are among multiple analyses in the report, which includes data from Strata’s database of more than 1,600 hospitals. The report also examined the projected impacts of expansion of the Two-Midnight Rule, and rapid growth in outpatient surgeries in recent years.

The data on missing payments found that the largest and the smallest hospitals — as defined by annual operating expenses — were the most affected. Given that payments can take many weeks after the date of service to process, the shortfall for the largest U.S. hospitals started at 12.2% for services provided in January and rose to 21.1% by March for an average of 17.9% over the three-month period. The smallest hospitals had an average 17.1% shortfall for the quarter, with the gap swelling from 12% in January to 20.4% by March.

“Our data show that hospitals across the country experienced significant shortfalls in payment volumes in the first quarter that could have ripple effects throughout the year,” said Steve Wasson, chief data and intelligence officer at Strata Decision Technology. “The long-term impacts of this disruption remain to be seen, but we will continue to monitor and report on hospitals’ financial performance in the months ahead.”

Impacts of the Two-Midnight Rule

A separate analysis found that expansion of the Two-Midnight Rule could affect more than 20% of Medicare Advantage encounters in 2024. The rule requires patients to be admitted as an inpatient if the treating clinician determines they require hospital care that extends beyond two midnights. The Centers for Medicare and Medicaid Services (CMS) first implemented the Two-Midnight Rule for Medicare in 2013 and expanded it to include more than 30 million people enrolled in Medicare Advantage plans, effective in January of this year.

An analysis of Medicare Advantage encounters from 2023 — before the rule was expanded — found that 22.3% were held in observation status for two days or more. Expansion of the rule already contributed to higher inpatient volumes in the first quarter. In March, inpatient admissions rose 3.9% year-over-year (YOY) while outpatient admissions decreased 5.1% YOY.

Expansion of Outpatient Surgeries

A third analysis examined changes in the share of surgical procedures performed in outpatient settings. Starting in 2019, CMS removed certain surgical procedures from its inpatient-only list, allowing them to be covered in outpatient surgical centers. As a result, the share of surgical procedures performed in outpatient settings grew from 33.6% in January 2019 to 45% in March 2024. The shift was especially dramatic for certain high-volume procedures. For example, the share of knee replacement surgeries performed on an outpatient basis jumped from 20.1% in January 2019 to 80.7% in March 2024.

Read the Q1 2024 Strata Performance Trends report to learn more. 

About the Data 

The report uses data from Strata’s StrataSphere® and Comparative Analytics database. Comparative Analytics offers access to near real-time data drawn from more than 135,000 physicians from over 10,000 practices and 139 specialty categories, and from 500+ unique departments across more than 1,600 hospitals. Comparative Analytics also provides data and comparisons specific to a single organization for visibility into how their market is evolving. StrataSphere is a unique and comprehensive data-sharing platform that helps providers leverage the power of a network that represents approximately 25% of all provider spend in U.S. healthcare. This report incorporates data from more than 600 hospitals with StrataJazz® Decision Support.

About Strata Decision Technology 

Strata Decision Technology provides a cloud-based platform for software and service solutions to help organizations better analyze, plan, and perform in support of their missions. With the combination of Syntellis Performance Solutions’ Axiom solutions, more than 2,300 organizations rely on Strata to provide their financial analytics, planning, and performance solutions. Strata has been named the market leader for Business Decision Support for 18 consecutive years. By uniting these two industry leaders, Strata continues to deliver market-leading solutions and world-class service, with an increased focus on accelerating innovation. For more information, please go to

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Media contact: 
Sally Brown, Inkhouse 
[email protected]