Three-Day Stay Rule Generates Up to $447M in Extra Medicare Spending

The three-day hospital stay rule required for Medicare to cover subsequent skilled nursing facility stays may have generated millions in extra payments to SNFs, a new working paper from the National Bureau of Economic Research suggests.

Medicare will not pay for fee-for-service care provided in a SNF unless the patient has stayed in a hospital for at least three days, as measured by the number of midnights that a patient spent in the acute setting. But that could actually be costing the program money, the researchers said, by encouraging hospitals to utilize the service simply because they can after the three-day window.

“Back-of-the-envelope calculations suggest that the three-day has
the potential to generate significant overuse of SNF services,” Ginger Zhe Jin of the University of Maryland, Susan Feng Lu of Purdue University, and Ajin Lee of Michigan State University wrote in the paper, issued this month. “Pooling all conditions and projecting from our sample to the whole Medicare system, we estimate that the three-day rule may have generated an extra Medicare payment to SNFs of $100-447 million per year, without a significant reduction in hospital readmissions.”

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For the working paper, the authors drew from the inpatient discharge data of the Arizona (2004-2007), Florida (2005-2013), New York (2005-2013), and Washington (2004-2013) State Inpatient Databases (SID) of the Healthcare Cost and Utilization Project (HCUP). They merged that with the American Hospital Association’s Annual Survey of Hospitals.

In addition, the researchers made used the 2003-2013 Online Survey Certificate and Reporting Database (OSCAR), which includes all Medicare- and Medicaid-certified nursing homes operating in the U.S. and gives nursing home characteristics such as facility locations, deficiency citations, and occupancy rate.

One of the notable findings was the fact that even though just 9.4% of Medicare patients and 8% of all patients in their sample were discharged to SNFs, Medicare patients discharged zero to 24 hours after the three-day cutoff were 6.8 percentage points more likely to be discharged to a SNF than those who were discharged the same time before the cut-off.

Though SNF discharge did have a negative effect on 30- or 60-day hospital readmissions in the whole sample, that impact was “entirely driven” by sicker patients with more comorbidities, the researchers said. Focusing on patients with fewer comorbidities revealed no significant readmission difference between the patients discharged to SNFs and the patients discharged elsewhere.

Over half the patients discharged to SNFs on the third day had knee or
hip replacement (KHR), and for such patients alone, the three-day rule boosted the probability of SNF discharge by 14 percentage points, the researchers said.

“Though KHR patients are on average healthier than patients with heart disease, stroke, and other conditions, KHR is the only category for which we find a significant increase in hospital readmission rate as a result of the three-day rule,” they wrote. “This perverse effect is larger and only significant in the [areas] where the average SNFs have a lower-than-state-median occupancy rate or a higher-than-state-median total deficiency count. This suggests that many KHR patients are discharged to SNFs simply because Medicare will pay for it and there is a bed available in nearby SNFs. Unfortunately, discharging KHR patients to SNF is associated with a greater likelihood of hospital readmission within 30 and 60 days.”

Written by Maggie Flynn

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