Skilled nursing leaders are renewing calls to eliminate the three-day stay rule in light of a policy change that the Centers for Medicare & Medicaid Services (CMS) finalized last week.

Specifically, CMS is moving ahead with plans to phase out the inpatient-only (IPO) list, which details the procedures that Medicare covers only if the beneficiary receives the care as a hospital inpatient.

CMS proposed this change in July 2025, sparking alarm among skilled nursing providers and industry advocates. Their concerns were rooted in the fact that Medicare only covers post-acute SNF care for people who have a preceding stay of at least three days as a hospital inpatient – this is the so-called three-day stay rule. So, if the elimination of the IPO list leads to more outpatient procedures, that could limit access to Medicare-covered followup SNF care.

Of particular note, CMS proposed phasing out the IPO list over three years, starting with 285 procedures – mostly musculoskeletal – in calendar year 2026. Currently, 20% to 50% of skilled nursing facility admissions are for Medicare beneficiaries following musculoskeletal procedures, LeadingAge noted in its comment on the IPO proposal. LeadingAge is the nation’s largest association representing not-for-profit aging services providers.

CMS addressed these concerns in its final rule, issued on Nov. 21. Removing a procedure from the IPO list does not mean that it must only be performed in an outpatient setting, the agency emphasized.

“ … We would expect that those Medicare beneficiaries identified as appropriate candidates to receive a surgical procedure in the outpatient setting would not be expected to require SNF care following surgery,” the final rule stated. “Instead, we expect that these beneficiaries would be appropriate for discharge to home (with outpatient therapy) or home health care.”

LeadingAge appreciates this clarification, Nicole Fallon, VP, integrated services and managed care, told Skilled Nursing News. She pointed out another “important safeguard” is that CMS expects surgeons and hospitals to act in each patient’s best interest, taking into account a procedure’s riskiness when determining the most appropriate site of care.

However, the rule does not explicitly require surgeons to consider a patient’s likely need for post-acute care or the mechanisms through which a patient will access and pay for that type of care. And this, Fallon said, could be problematic.

“Surgeons, for instance, may not be familiar with Medicare’s eligibility requirements for SNF care, which could lead to unintended consequences,” she told SNN. “For example, a surgeon might determine that an outpatient procedure is clinically safe – without realizing that this decision could make the patient ineligible for SNF services.”

Older adults might therefore find themselves on the hook for considerable medical bills, if they are in need of SNF-based post-acute care but have not qualified for Medicare coverage of such services. It’s an issue that has long plagued the sector due to complications created by the three-day stay rule. For example, people may spend days in a hospital under observation rather than inpatient status, then transfer to a SNF without realizing that the three-day stay requirement has not been met.

“Regardless of their inpatient or observation designation, seniors must be able to access post-acute care in a skilled nursing facility when they need it without fear of considerable out-of-pocket costs,” John Kane, SVP of reimbursement for the American Health Care Association/National Center for Assisted Living (AHCA/NCAL), stated to SNN. “We will continue to advocate for policies that eliminate the antiquated policy of the three-day stay, and prevent any Medicare beneficiaries from falling through the cracks.”

AHCA/NCAL is the largest association of nursing home providers in the United States.

Policymaking in isolation

CMS is moving to phase out the IPO list in large part because more sophisticated technology, pain management capabilities and other advancements now support more advanced care in outpatient settings. Those same trends have transformed care in skilled nursing facilities, which increasingly have an array of capabilities that enable them to both provide more complex post-acute care and manage chronic conditions more effectively.

But while CMS is altering its rules for hospitals and ambulatory surgery centers (ASCs) through the IPO list phase-out, the agency and Congress are not moving with such speed in updating SNF regulations.

“If acute care is changing, then post-acute care policy must evolve as well,” said Fallon.

There are a variety of reasons why the three-day stay rule has been so hard to change. For instance, Medicare Advantage payers can leverage waivers to the rule as a way to reward preferred partners that meet benchmarks for cost control and quality outcomes; these organizations do not have strong incentives to cede this power by supporting the elimination of the three-day stay rule.

But skilled nursing industry leaders are urging more allies across the health care landscape to push Congress to axe the three-day stay rule. Hospitals could be stronger supporters in this effort, given that the rule leads to bottlenecks, with patients who are clinically ready for transfer taking up beds to meet the Medicare requirement.

“The hospitals need to jump on board with a little more because they’re constantly concerned with their bedlock or inability to place patients,” Joe Veno, president of EF Senior Living Management, recently told SNN.

And ultimately, the good of the patient should be guiding policy, Veno and other leaders on this issue emphasize.

“ … Health care decisions often focus on isolated components — such as whether a surgery can be performed on an outpatient basis — rather than considering the patient’s holistic needs (e.g. what are their needs after the surgery),” said Fallon.

She said it’s “unclear” what effect the IPO list phase-out will have on beneficiaries and noted that CMS suggested “existing medical review activities and complaint reporting” will generate enough data to determine whether patients are being harmed or helped by the policy.

But CMS also is encouraging stakeholders to share evidence of how the IPO list elimination affects quality of care.

“We think this is a positive and have encouraged our members to monitor impacts they observe to see what effect the elimination of 285 musculoskeletal procedures will have on their admissions, and whether beneficiaries need to access these services [by] paying out of pocket,” she said.