Lawmakers Again Take Aim at ‘Observation Stay’ Rules for Medicare SNF Coverage

A bipartisan coalition of federal lawmakers this week took another stab at clarifying the rules regarding a frequently confusing aspect of skilled nursing coverage under Medicare.

Under the terms of the proposed legislation, the Improving Access to Medicare Coverage Act of 2019, so-called “observation stays” would count toward the three days of inpatient acute care required for beneficiaries to receive Medicare nursing home coverage.

Seniors frequently experience confusion when in the hospital on an observation basis, as it can often look and feel exactly like a formal admission — but without the guaranteed 100 days of SNF coverage that come with official inpatient status.


“Whether a patient is in the hospital for three days as an inpatient, or for three days under ‘observation status’ — three days is three days, and quibbling over semantics should not keep Americans from accessing the care they’ve been prescribed by health care professionals, or force them to go into medical debt in order to cover the cost,” Rep. Joe Courtney, a Connecticut Democrat, said in a statement announcing the introduction of the legislation.

Courtney has been trying to push some form of observation-stay reform since 2011, when he first introduced a bill that would count observation stays toward a senior’s Medicare nursing home eligibility. The initiative has received bipartisan support both upon its initial introduction and during the years since, with the 2019 version of the bill co-sponsored by Republican Rep. Glenn Thompson of Pennsylvania and Sen. Sherrod Brown, an Ohio Democrat who recently flirted with a 2020 presidential run.

“This legislation would improve access to the medical care seniors need, and saves money on hospital readmission costs,” Brown said in the statement. “It’s a simple fix and the least we can do to protect our seniors from outrageous medical costs that they have no control over.”


The so-called “three-day stay” rule represents a barrier to SNF care for seniors, and a variety of alternative models — including Medicare Advantage and bundled payments — allow payers to waive the requirement. A December 2018 overhaul to the rules for accountable care organizations (ACOs) also expanded access to the waivers.

The Department of Health and Human Services (HHS) determined late last year that the government had paid out more than $84 million for SNF services that didn’t meet the three-day stay rule, though it was unclear whether the hospitals realized the errors or failed to properly explain the difference between observation and inpatient stays.

“We noted that hospitals did not always provide correct inpatient stay information to SNFs, and SNFs knowingly or unknowingly reported erroneous hospital stay information on their Medicare claims to meet the three-day rule,” the HHS Office of the Inspector General (OIG) wrote in its report. “We determined that the SNFs used a combination of inpatient and non-inpatient hospital days to determine whether the three-day rule was met.”

The two main organizations that represent skilled nursing operators applauded the re-introduction of the bill.

“This would be the simplest and fairest way to resolve the observation days issue,” LeadingAge president and CEO Katie Smith Sloan said in a statement. “LeadingAge strongly supports the legislation and we urge Congress to pass it without delay.”

Sloan, whose organization represents non-profit providers, noted that patients who fail to meet the Medicare coverage requirement are frequently saddled with prohibitively expensive out-of-pocket costs.

Mark Parkinson of the American Health Care Association, which lobbies on behalf of for-profit operators, echoed that concern in his statement.

“This bipartisan bill will help fix an outdated policy that continues to leave millions of Medicare beneficiaries surprised by thousands of dollars in medical bills and hanging with uncertainty regarding their access to the Medicare coverage they deserve,” Parkinson, the group’s CEO and president, said.

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