A proposal from the Centers for Medicare & Medicaid Services (CMS) to phase out a list of inpatient-only hospital procedures threatens skilled nursing facility (SNF) access if the so-called three-day stay rule is not eliminated, and also should prompt bigger thinking about the role SNFs can and should play in the U.S. health care system.

That’s according to comments that LeadingAge, which represents more than 5,400 nonprofit providers and other organizations, recently submitted to CMS.

At issue is the Medicare program’s inpatient-only (IPO) list. As more complex procedures can now take place outside of the hospital on an outpatient basis – for example, in ambulatory surgery centers (ASCs) – CMS is moving to phase out the IPO list over the course of three years. This would start in calendar year 2026 with the removal of 285 procedures, mostly musculoskeletal. 

LeadingAge is concerned about how this change might affect Medicare beneficiaries’ access to post-acute care in SNFs. That’s because people on traditional Medicare currently must have a three-day inpatient hospital stay within 30 days of being admitted to a SNF in order to qualify for coverage.

So, LeadingAge is recommending that CMS “pursue the elimination of the outdated 3-day inpatient stay requirement” as the IPO list is phased out. But the provider association went further in its comment letter to CMS, proposing that the agency reconsider how SNFs can contribute to both patient wellbeing and costs to the Medicare program.

“Finally, as CMS continues to re-imagine care delivery for the 21st century, we would be interested in working with CMS staff to imagine a new role for SNFs that leverages their expertise in chronic care management and could reduce Medicare spending, a key goal,” the letter stated.

Ending the three-day stay rule

LeadingAge’s concern over post-acute access is particularly sharp because 20% to 50% of current skilled nursing facility admissions are for Medicare beneficiaries following musculoskeletal procedures, according to reports from the association’s SNF members.

“We believe it is unlikely that the need for SNF services would be completely unnecessary just because a procedure was shifted to an outpatient setting,” the LeadingAge comment letter stated. “While some of these procedures may be less invasive, it does not mean that these patients do not continue to need skilled care and the more intensive rehabilitation therapies that a SNF setting offers.”

Therefore, CMS should pursue the elimination of the three-day stay rule, LeadingAge recommended. This change only would affect the roughly 20% of Medicare beneficiaries who are still subject to the rule, given that it is not in effect for Medicare Advantage plans and Accountable Care Organizations (ACOs).

Given that ending the three-day stay rule likely requires legislation, LeadingAge also is urging CMS to more immediately waive the three-day stay rule for procedures removed from the IPO list, if the treating physician recommends post-acute SNF care.

“Absent CMS’s ability to take these steps, we ask CMS to delay the phase-out of the IPO list, as we are concerned about the consequences for patient access to SNF care,” LeadingAge wrote.

Reimagining the role of SNFs

Ending the three-day stay rule is just one step toward transforming SNFs from being primarily considered sites of post-hospital rehabilitation to being settings where patients who have chronic conditions can receive stabilizing treatments as needed.

That’s the vision that LeadingAge shared with CMS. The provider association described how people with chronic conditions sometimes require care such as 24-hour supervision, IV medications, medication support or other services that can be safely provided in a SNF. Furthermore, SNFs could be a place where patients – particularly those without family caregivers at home – could receive post-procedure observation after they are discharged from an ASC.

“We envision CMS giving treating physicians the option to directly admit a patient to a SNF when the person needs help to stabilize aspects of their chronic condition, allowing them to avoid an unnecessary emergency department visit and the associated cost,” the comment letter stated.

Enabling SNFs to play this type of role could be especially important given the trend of more complex care being delivered outside of hospital walls. This trend is already altering SNF care, with providers elevating their clinical capabilities and responding to the evolving needs of their referring hospitals and health care systems.

“The health systems, hospitals – our acute care partners – are really looking to fine-tune what they’re doing in their four walls … they’re looking to the post-acute and skilled nursing industry to really pick up the pieces of where the hospitals left off,” Joseph Kiernan, chief strategy officer and senior vice president network development at Ocean Healthcare, said at the recent Skilled Nursing News RETHINK Conference in Chicago.

Enabling direct admissions to SNFs is a logical step in this evolution of the hospital-SNF relationship, Kiernan and Lifespark Founder and CEO Joel Theisen argued.

Indeed, the need for a qualifying hospital stay for SNF coverage is contributing to a cycle in which older adults with multiple comorbidities continuously migrate among care settings, which compromises their quality of life and drives up costs.

“They don’t have to go to the hospital, they don’t need to go to the ER, get reworked up, go into the floor, get all messed up, and then pop out two weeks later into the SNF, right? Just go right to the SNF where you know them, know what their deal is,” Theisen said at RETHINK.

Avoiding unnecessary hospitalizations by allowing direct admission to SNFs also is an issue of preserving patient dignity, Creative Solutions in Healthcare CEO Gary Blake said at RETHINK.

“If I can be [in a SNF] without going to the hospital, there is not one hand in this room that I think would go up to say, ‘No, I want to go lay 18 hours on a gurney,’” he said.

The time may be ripe for finally ending the three-day stay rule, not only because of the complications posed by the phase-out of the IPO list, but because provisions of the One Big Beautiful Bill Act (OBBBA) might lead to strained hospital capacity.

As people lose Medicaid coverage due to more stringent eligibility requirements under OBBBA, they are likely to turn to hospital emergency departments as their primary site of care, several SNF leaders said at RETHINK. If hospital capacity is under pressure, this would provide one more argument in favor of eliminating the three-day stay rule, to enable people to either avoid hospital stays entirely or more quickly transition to SNFs.

Joel VanEaton, EVP of Compliance and Regulatory Affairs at Broad River Rehabilitation, is among those pushing for the SNF sector to seize the moment and urge CMS to end the three-day stay rule.

“The 3-day hospital stay is vestigial, it’s something that isn’t necessary anymore,” he said at RETHINK.