Medicare Rule Requiring 3-Day Inpatient Stay as Condition for Skilled Nursing Care Dates to 1965

Medicare recipients who are being denied coverage for skilled nursing care because they were under “Observation Status” during a recent hospital stay should blame a nearly 50-year-old Medicare rule – not their doctors or the hospital.

The rule in question requires Medicare recipients to have had at least a 3-day inpatient hospital stay in order to qualify for skilled nursing. The rule dates to 1965, when inpatient hospital stays dominated healthcare and it took that long to admit and evaluate a patient. 

It goes without saying that today’s healthcare environment has changed radically from 1965. The Medicare rule is an instance in which federal policymaking has far outpaced federal rules concerning reimbursement, which are usually adopted by commercial payers as well.

The healthcare community today is increasingly united behind the goal of moving patients to better quality, less costly outpatient care settings. For hospitals, this means taking more advantage of options like Observation Care. At this point, the incentives for hospitals to use Observation Care should outweigh the incentives to hospitals to admit patients just for the sake of providing additional billable services.

Patients should know however that the incentives to put them into Observation Status have nothing to do with either the hospital or the government “trying to screw seniors,” (as has been implied by several news outlets) and everything to do with a best-guess as to whether the patient’s insurance provider is more likely to cover the service as an inpatient or as an outpatient. There are significant financial penalties from multiple directions if the hospital makes the wrong choice.

In some ways, this is good and right. We don’t want hospitals admitting patients whose conditions don’t warrant the full on cost of hospital admissions.

The real problem is that both Medicare and the commercial insurance companies (which usually imitate Medicare rules) have yet to catch up to the fact that federal policy makers, hospital systems, physicians groups, and in most cases patients themselves are all united in figuring out ways to move healthcare out of the inpatient hospital setting.

Yes, you read that right: the federal government on the one hand is penalizing hospitals which incorrectly admit patients whose conditions don’t warrant admission, and on the other hand is denying coverage to seniors because their hospital didn’t judge their condition serious enough to admit them.

Of course, it’s not the first time the government was providing mixed signals to the people it’s supposed to serve.

The quickest way to fix this state of affairs is probably to pass legislation the makes Observation Care stays count toward the three-day threshold. Organizations such LeadingAge are advocating for proposed legislation that does it exactly that.

Director of Government Affairs Barbara Gay said in a recent phone interview that the bill was “a fiscally responsible way of essentially making sure that people get the coverage they’re supposed to have.”

Until the government gets its house in order though, news organization who have been all too ready to frame this story as that of big bad hospitals trying to cheat senior citizens (we’re talking about you, NBC News) would do well to remember the real culprit: a 50-year-old Medicare rule that no one thinks is still a good idea.