Despite calls by advocacy groups for nursing homes to eliminate the 3-day hospital stay rule, the structure of insurance plans, preferred provider networks and lobbying interests might make that a distant reality.

According to Joe Veno, president of EF Senior Living Management, insurers and provider networks have invested substantial resources in building systems around the 3-day rule, including selective access to 3-day stay waivers. 

A stumbling block has been the presence of preferred provider networks (PPNs) – groups of health-care providers such SNFs, hospitals, home-health agencies or physicians that an insurer or health system selects as its preferred partners because they meet certain performance, quality, and cost standards.

Currently, only facilities with strong quality indicators, such as 4- or 5-star ratings, strong surveys and superior care metrics, can obtain waivers through participation in specific networks, Veno said. And so, ultimately undoing the industry infrastructure built around restricted waiver access will be slow and politically challenging.

Dr. Taimur Mirza, chief medical officer at ArchCare, told Skilled Nursing News that managed care lobby groups have stood as a big obstacle in the rule’s removal.

“Eliminating the rule is the right clinical and operational move, but the path is slow,” said Mirza. “The insurance design, preferred-provider structures, and the lobbying interests around Medicare Advantage slow everything down.”

One of the incentives for hospitals should be to reduce bottlenecks. And yet, the rule, which was waived during the pandemic and ultimately worsens bottlenecks, remains in place.

“The hospitals need to jump on board with a little more because they’re constantly concerned with their bedlock or inability to place patients,” Veno told SNN.

And Mirza wholeheartedly agrees.

“The rule absolutely adds to bottlenecks. We routinely see patients who are clinically stable for post-acute rehab or sub-acute care, but we hold them in the hospital only to satisfy the rule,” Mirza said. “That is bad use of beds, bad for patient flow, and bad for the Medicare trust fund. The medical necessity for skilled care should drive the decision, not a rigid requirement for three midnights.”

ArchCare is a continuing care retirement community (CCRC) of the Archdiocese of New York and operates nursing homes in six locations in the state.

Mirza said the 3-day stay rule is in fact interfering with providing much-needed care.

“The 3-day rule has outlived its purpose. It was built for a delivery system that no longer exists. Today it creates avoidable delays, clogs hospital beds, and forces clinicians to make placement decisions based on an arbitrary clock instead of actual need,” said Mirza. “At a time when hospitals are strained and SNFs are caring for far higher-acuity patients than they did when this rule was written, keeping it makes little sense.”

Reimagining the star ratings

The CMS star-rating system is intentionally structured so that only about 30% of facilities can be four or five stars. The federal agency resets regional medians to ensure the rest – or about 70% – of the facilities remain at three stars or below, Veno said. This design prevents large numbers of providers from qualifying for waivers and reinforces the exclusivity of preferred provider networks.

In Veno’s view, this system unfairly restricts access to 3-day stay waivers.

“The 5-star has gotten so watered down and so manipulated that I think it carries less weight. The issue is that a waiver is directly tied to your star rating in most cases,” Veno said. “They should lower their expectations in the preferred provider organizations as it relates to the waiver, because it’s just really tough to attain for 70% of the industry.”

That said, lawmakers may worry that loosening the rule to make it open to 2-star and 3-star facilities, for example, could give the appearance that they are willing to compromise care quality, Veno said. And yet, many of these lower star facilities deliver “exceptional quality.”

Medicare Advantage’s ‘gatekeeping power’

The decision to keep the 3-day rule in place is not shaped by patient needs, but financial benefits for managed care, these industry leaders suggest.

“MA plans benefit from keeping tight control over utilization, and many will resist changes that weaken their gatekeeping power,” said Mirza.

The 3-day stay rule forces many patients who only need brief stabilization or rehab to remain in the hospital unnecessarily just to qualify for SNF care, said Veno. This burdens hospitals, distorts their operations, and isn’t based on clinical need. Although waivers exist, they’re hard to obtain, and the system is structured more around accountability and financial incentives than what’s best for patients.

“Many patients that do not have a significant health setback, maybe just some dizziness or some basic health need … but yet they have to be in the hospital to access the secondary level of care, whether that be a rehab visit, or a nursing home, or anything of that nature,” said Veno. “The system is built on holding the nursing homes accountable, but in turn, completely changing the way the hospitals have to maximize their revenue.”

Ushering change with IPO list phase out

CMS’ plan to phase out the inpatient-only (IPO) list, shifting hundreds of procedures from inpatient to outpatient settings, has prompted nursing home advocacy groups such as LeadingAge to warn that Medicare beneficiaries could lose access to necessary SNF care unless the 3-day stay rule is eliminated. 

LeadingAge argues that because up to half of SNF admissions follow musculoskeletal procedures, for example, patients will still require post-acute rehabilitation even if surgeries occur outside the hospital. The largest association of nonprofit providers urged CMS in late September to support full repeal of the rule or, at minimum, waive it for procedures removed from the IPO list. Otherwise, it recommends delaying the IPO phase-out.

LeadingAge has used the moment to also push for a broader rethinking of the SNF’s role. 

As more complex care moves beyond hospital walls, SNFs are increasingly equipped to provide chronic-condition management, IV therapy, observation after outpatient procedures, and other stabilizing services, providers have long argued.

“[A]s 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,” LeadingAge stated in a letter to CMS earlier.

LeadingAge envisions allowing physicians to directly admit appropriate patients to SNFs – avoiding unnecessary hospital stays and reducing Medicare costs. But it’s uncertain if this will make a difference toward removing the 3-day stay rule.

“Even with the IPO list phase-out, I don’t see rapid movement. The technical and political hurdles are significant. Unless Congress takes this on directly, it could take several years, and more likely closer to a decade, for full elimination. Waiver models have shown it works, but shifting that into permanent policy is another matter,” said Mirza. “Bottom line: it should go, but I don’t expect Washington or the insurance market to move with the speed the care environment demands.”