It’s High Time For Medicare To Dump An Archaic Rule

It’s Time: Repeal the 3-Day Inpatient Hospital Requirement for Medicare Skilled Nursing Facility Coverage

Last year, the Center for Medicare Advocacy suggested that it was time to repeal the three-day inpatient hospital requirement that is necessary for Part A coverage in the traditional Medicare program. The recent Second Circuit decision in Barrows v. Becerra, which holds that Medicare beneficiaries have a Constitutional right to appeal when their status is changed from inpatient to observation, has renewed focus on the statutory three-day stay requirement.
When Medicare was enacted in 1965, it limited coverage in a skilled nursing facility (SNF) under Part A to beneficiaries who had been inpatients in an acute care hospital for at least three consecutive days before their discharge to a SNF. The benefit, called extended care, was viewed, literally, as a limited extension of a hospital stay. Since the average length of stay in an acute care hospital for a patient aged 65 or older in 1965 was more than 13 days, most hospitalized Medicare beneficiaries had no difficulty satisfying the three-day inpatient requirement. Times have changed.

Congress should repeal the three-day inpatient requirement for multiple reasons.

Medical care has changed in the past 55 years.

Many medical procedures, including surgeries, that required inpatient hospital stays for multiple days or weeks in 1965 now require limited hospital stays or may even be done on an outpatient basis. Following these procedures, patients may nevertheless need the skilled nursing or skilled rehabilitation services that a SNF provides. As the Centers for Medicare & Medicaid Services (CMS) acknowledged in 2014, in proposed rules for Accountable Care Organizations (ACOs).

Repealing the three-day inpatient hospital requirement reflects the realities of modern medicine.

Traditional Medicare and Medicare Advantage need to be aligned.

While the traditional Medicare program retains the three-day requirement, Medicare Advantage (MA) plans are permitted by law to waive the three-day requirement, and most do. At present, approximately 42 percent of Medicare beneficiaries receive their health care through MA plans, either because MA is the only option offered by their former employers or unions as retiree health or because they choose MA.

More than 60 percent of all Medicare beneficiaries receive coverage through programs that generally waive the three-day requirement. All Medicare beneficiaries should receive comparable care and services, regardless of how they participate in Medicare.

Observation status in hospitals deprives beneficiaries of Medicare SNF benefits and necessary care.

Over the last 20 years, under pressure from CMS, acute care hospitals have increasingly described patients as receiving care in observation stays, covered by Medicare Part B rather than by Part A. What CMS labels “observation services” are provided to patients in “outpatient” status, which does not qualify patients for Part A SNF coverage, even though the care and services that observation patients receive may be indistinguishable from the care and services received by inpatients and even when observation patients have been hospitalized for three days or more. The HHS Office of Inspector General has identified the unfair and uneven impact of observation status on beneficiaries across the country and, in December 2016, called for ensuring that all Medicare beneficiaries have the same access to post-hospital care in a SNF, regardless of how their hospital stays are classified.

Neither a 2013 regulation (the two-midnight rule) nor a 2015 law (the NOTICE Act) has resolved the problem of observation status.

Administrative and legislative actions have not resolved the problems with observation status. In October 2013, CMS promulgated the “two-midnight rule,” establishing time-based criteria to clarify when hospitals should either admit patients as inpatients or classify patients as outpatients. CMS also intended to reduce the numbers of long outpatient stays and short inpatient admissions. The HHS Office of Inspector General reported in 2016 that the two-midnight rule had not achieved those goals.

The Notice of Observation Treatment and Implication for Care Eligibility (NOTICE) Act, enacted in 2015, requires hospitals to inform patients of their outpatient observation status when they are outpatients for more than 24 hours. Since March 2017, hospitals have been required to use the written Medicare Outpatient Observation Notice (MOON) and provide patients in observation status with an oral explanation of their status and its consequences. The MOON does not give patients hearing rights and does not count the time in the hospital for purposes of SNF coverage.

Both the regulation and the law retained the three-day inpatient requirement. Neither resolved problems for beneficiaries resulting from the statutory provision.

Health equity requires elimination of observation stays.

Recent research finds that the poorest Medicare beneficiaries nationwide are more likely both to have their repeated hospital stays classified as observation and not to receive SNF care as a result. The study also finds that if these beneficiaries receive care in a SNF following hospitalization, they are less likely to return to an acute care hospital. The coronavirus pandemic has highlighted racial and economic disparities in health care (and elsewhere). Eliminating the three-day inpatient requirement would further health equity.

Observation status is a surprise medical bill.

Congress addressed surprise medical bills in the No Surprises Act, part of the Consolidated Appropriations Act, 2021. The essence of surprise medical bills is that a patient receives a bill for medical care that the patient had no way of knowing about or anticipating or agreeing to in advance. Although the new federal legislation addresses surprise medical bills only in private insurance, Congressman Joseph Courtney (D-CT) has described observation status for Medicare beneficiaries as “surprise medical bills on steroids.” The consequences for patients are the same in observation status – patients have no way to protect themselves from large bills for necessary health care. Repealing the three-day inpatient requirement would eliminate surprise bills for beneficiaries needing SNF care.


The three-day inpatient stay requirement is an anachronism. Both medical care and the Medicare program have dramatically changed in the last 55 years. Nearly two-thirds of all Medicare beneficiaries receive coverage through Medicare programs that waive the three-day inpatient requirement. If the recent Second Circuit decision in Barrows stands, it means that additional beneficiaries in traditional Medicare will have their SNF stays covered by Medicare as they successfully appeal their observation status.

Patients classified as outpatients receiving observation services, rather than as inpatients, are deprived of necessary SNF care or incur surprise costs for SNF stays. Observation status has a disparate impact on the poorest Americans. Waiver of the three-day requirement during the public health emergency has not resulted in a significant change in Part A admissions to SNFs.

Congress needs to repeal the 1965 statutory provision that limits Medicare Part A coverage in a SNF to beneficiaries who have been hospitalized as inpatients for at least three consecutive days. It is time to simplify and modernize Medicare – and eliminate the 3-day inpatient hospital requirement!

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