CMA Alert | February 10, 2022

It’s Time: Repeal the 3-Day Inpatient Hospital Requirement for Medicare Skilled Nursing Facility Coverage

Last year, the Center for Medicare Advocacy suggested that it was time to repeal the three-day inpatient hospital requirement that is necessary for Part A coverage in the traditional Medicare program.[1] The recent Second Circuit decision in Barrows v. Becerra,[2] which holds that Medicare beneficiaries have a Constitutional right to appeal when their status is changed from inpatient to observation, has renewed focus on the statutory three-day stay requirement.

When Medicare was enacted in 1965, it limited coverage in a skilled nursing facility (SNF) under Part A to beneficiaries who had been inpatients in an acute care hospital for at least three consecutive days before their discharge to a SNF.[3] The benefit, called extended care, was viewed, literally, as a limited extension of a hospital stay. Since the average length of stay in an acute care hospital for a patient age 65 or older in 1965 was more than 13 days,[4] most hospitalized Medicare beneficiaries had no difficulty satisfying the three-day inpatient requirement. Times have changed.

Congress should repeal the three-day inpatient requirement for multiple reasons.

1. Medical care has changed in the past 55 years.

Many medical procedures, including surgeries, that required inpatient hospital stays for multiple days or weeks in 1965 now require limited hospital stays or may even be done on an outpatient basis.  Following these procedures, patients may nevertheless need the skilled nursing or skilled rehabilitation services that a SNF provides. As the Centers for Medicare & Medicaid Services (CMS) acknowledged in 2014, in proposed rules for Accountable Care Organizations (ACOs),

Because of changes in medical care over the half century since enactment of the original Medicare legislation, it may now be medically appropriate for some patients to receive skilled nursing care and or rehabilitation services provided by SNFs without a prior inpatient hospitalization, or with an inpatient hospital length of stay of less than 3 days. It may be medically appropriate for patients to go to SNFs earlier, due to changes in medical care, given that hospital lengths of stay are shorter than they were decades ago, and the types of patients that were staying 3 days in an inpatient hospital in 1965 are no longer staying 3 days in an inpatient hospital now. Because of this, over time, we have repeatedly expressed interest in testing alternatives to the SNF 3-day rule.[5]

Repealing the three-day inpatient hospital requirement reflects the realities of modern medicine.

2.  Traditional Medicare and Medicare Advantage need to be aligned.

While the traditional Medicare program retains the three-day requirement, Medicare Advantage (MA) plans are permitted by law to waive the three-day requirement[6] and most do. At present, approximately 42 percent of Medicare beneficiaries receive their health care through MA plans,[7] either because MA is the only option offered by their former employers or unions as retiree health[8] or because they choose MA. 

In addition, beneficiaries in traditional Medicare who are “aligned” to ACOs may also benefit from ACOs’ waiver of the three-day inpatient hospital requirement. In 2018, more than 20 percent of Medicare beneficiaries received their health care through ACOs.[9]   

More than 60 percent of all Medicare beneficiaries receive coverage through programs that generally waive the three-day requirement. All Medicare beneficiaries should receive comparable care and services, regardless of how they participate in Medicare.

3. Observation status in hospitals deprives beneficiaries of Medicare SNF benefits and necessary care.

Over the last 20 years, under pressure from CMS, acute care hospitals have increasingly described patients as receiving care in observation stays, covered by Medicare Part B rather than by Part A. What CMS labels “observation services” are provided to patients in “outpatient” status, which does not qualify patients for Part A SNF coverage, even though the care and services that observation patients receive may be indistinguishable from the care and services received by inpatients and even when observation patients have been hospitalized for three days or more. The HHS Office of Inspector General has identified the unfair and uneven impact of observation status on beneficiaries across the country and, in December 2016, called for ensuring that all Medicare beneficiaries have the same access to post-hospital care in a SNF, regardless of how their hospital stays are classified.[10] 

4. Neither a 2013 regulation (the two-midnight rule) nor a 2015 law (the NOTICE Act) has resolved the problem of observation status.

Administrative and legislative actions have not resolved the problems with observation status. In October 2013, CMS promulgated the “two-midnight rule,”[11] establishing time-based criteria to clarify when hospitals should either admit patients as inpatients or classify patients as outpatients. CMS also intended to reduce the numbers of long outpatient stays and short inpatient admissions. The HHS Office of Inspector General reported in 2016 that the two-midnight rule had not achieved those goals.[12] 

The Notice of Observation Treatment and Implication for Care Eligibility (NOTICE) Act, enacted in 2015, requires hospitals to inform patients of their outpatient observation status when they are outpatients for more than 24 hours.[13] Since March 2017, hospitals have been required to use the written Medicare Outpatient Observation Notice (MOON) and provide patients in observation status with an oral explanation of their status and its consequences. The MOON does not give patients hearing rights[14] and does not count the time in the hospital for purposes of SNF coverage. 

Both the regulation and the law retained the three-day inpatient requirement. Neither resolved problems for beneficiaries resulting from the statutory provision.

5. Health equity requires elimination of observation stays.

Recent research finds that the poorest Medicare beneficiaries nationwide are more likely both to have their repeated hospital stays classified as observation and not to receive SNF care as a result.[15] The study also finds that if these beneficiaries receive care in a SNF following hospitalization, they are less likely to return to an acute care hospital. The coronavirus pandemic has highlighted racial and economic disparities in health care (and elsewhere). Eliminating the three-day inpatient requirement would further health equity.

6. Observation status is a surprise medical bill.

Congress addressed surprise medical bills in the No Surprises Act, part of the Consolidated Appropriations Act, 2021.[16] The essence of surprise medical bills is that a patient receives a bill for medical care that the patient had no way of knowing about or anticipating or agreeing to in advance. Although the new federal legislation addresses surprise medical bills only in private insurance, Congressman Joseph Courtney (D-CT) has described observation status for Medicare beneficiaries as “surprise medical bills on steroids.” The consequences for patients are the same in observation status – patients have no way to protect themselves from large bills for necessary health care. Repealing the three-day inpatient requirement would eliminate surprise bills for beneficiaries needing SNF care.

7. Waiver of the three-day inpatient hospitalization requirement during the coronavirus pandemic has not resulted in a significant change in admissions to SNFs.

Since March 2020, CMS has waived the three-day requirement due to the public health emergency.[17] In the preamble to the proposed annual update to Medicare Part A payments to SNFs, CMS reported in April 2021 that the waiver of the three-day inpatient hospitalization requirement during the coronavirus pandemic had not dramatically changed which residents receive Part A coverage for their SNF stays.   CMS wrote, “[T]he overwhelming majority of SNF beneficiaries entered into Part A SNF stays in FY 2020 as they would have in any other year; that is, without using a PHE-related waiver, with a prior hospitalization, and without a COVID-19 diagnosis.[18]

Conclusion

The three-day inpatient stay requirement is an anachronism. Both medical care and the Medicare program have dramatically changed in the last 55 years. Nearly two-thirds of all Medicare beneficiaries receive coverage through Medicare programs that waive the three-day inpatient requirement. If the recent Second Circuit decision in Barrows stands, it means that additional beneficiaries in traditional Medicare will have their SNF stays covered by Medicare as they successfully appeal their observation status. 

Patients classified as outpatients receiving observation services, rather than as inpatients, are deprived of necessary SNF care or incur surprise costs for SNF stays. Observation status has a disparate impact on the poorest Americans. Waiver of the three-day requirement during the public health emergency has not resulted in a significant change in Part A admissions to SNFs.

Congress needs to repeal the 1965 statutory provision that limits Medicare Part A coverage in a SNF to beneficiaries who have been hospitalized as inpatients for at least three consecutive days. It is time to simplify and modernize Medicare – and eliminate the 3-day inpatient hospital requirement!

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[1] Center, “It’s Time to Repeal the 3-Day Inpatient Hospital Requirement for Medicare Skilled Nursing Facility Coverage” (CMA Alert, Feb. 11, 2021),  https://medicareadvocacy.org/end-medicares-3-day-hospital-requirement/ 
[2] No. 20-1642-cv, 2022 WL 211089 (2d Cir. Jan. 25, 2022), https://medicareadvocacy.org/wp-content/uploads/2022/01/Barrows-Opinion-1-25-2022.pdf.  See “Court Upholds Right to Appeal for Certain Medicare Patients on ‘Observation Status’” (Jan. 26, 2022), https://medicareadvocacy.org/observation-appeal-rights-upheld/  
[3] 42 U.S.C. §1395x(i); 42 C.F.R. §409.30(a)(1). 
[4] Center for Disease Control and Prevention, Patients Discharged From Short-Stay Hospitals by size and type of ownership United States-1965, p. 19, Table 10 (Dec. 1968), https://www.cdc.gov/nchs/data/series/sr_13/sr13_004acc.pdf 
[5] 79 Fed. Reg. 72760, 72818, CMS-1461-P (Dec. 8, 2014), https://www.govinfo.gov/content/pkg/FR-2014-12-08/pdf/2014-28388.pdf 
[6] 42 U.S.C. §1395d(f) 
[7] Meredith Freed, Jeannie Fuglesten Biniek, Anthony Damico, and Tricia Neuman, Medicare Advantage in 2021: Enrollment Update and Key Trends (Jun. 21, 2021), https://www.kff.org/medicare/issue-brief/medicare-advantage-in-2021-enrollment-update-and-key-trends/#:~:text=In%202021%2C%20more%20than%2026,spending%20(net%20of%20premiums). 
[8] Id. Nineteen percent of MA enrollees “are in group plans offered to retirees by employers and unions in 2021.” 
[9] National Association of ACOs, NAACOS Overview of the 2018 Medicare ACO Class, https://www.naacos.com/assets/docs/pdf/Overivew2018MedicareACOCohortFinal043018.pdf  
[10] Office of Inspector General, Vulnerabilities Remain Under Medicare’s 2-Midnight Hospital Policy, OEI-02-15-00020 (Dec. 2016), https://oig.hhs.gov/oei/reports/oei-02-15-00020.pdf 
[11] 78 Fed. Reg. 50506 (Aug. 19, 2013). 
[12] Office of Inspector General, Vulnerabilities Remain Under Medicare’s 2-Midnight Hospital Policy, OEI-02-15-00020 (Dec. 2016), https://oig.hhs.gov/oei/reports/oei-02-15-00020.pdf 
[13] Pub. L. 114-42, signed Aug. 6, 2015.  The NOTICE Act adds (Y) to 42 U.S.C. §1395cc(a)(1)(Y) 
[14] 42 C.F.R. §405.926(u) 
[15] Ann Sheehy, W. Ryan Powell, Farah Kaiksow…”Thirty-Day Re-observation, Chronic Re-observation, and Neighborhood Disadvantage” (Dec. 1, 2020), https://www.mayoclinicproceedings.org/article/S0025-6196(20)30858-2/pdf; “‘Observation Status’ May Disproportionately Burden Medicare Beneficiaries in the Most Vulnerable Neighborhoods” (CMA Alert) (Dec. 17, 2020), https://medicareadvocacy.org/observation-status-may-disproportionately-burden-medicare-beneficiaries-in-the-most-vulnerable-neighborhoods/ 
[16] Public Law 116-260, pp. 1629-1700 (Dec. 21, 2020), https://rules.house.gov/sites/democrats.rules.house.gov/files/BILLS-116HR133SA-RCP-116-68.pdf  
[17] CMS, “COVID-19 Emergency Declaration Blanket Waivers for Health Care Providers,” p. 15 (updated Dec. 1, 2020), https://www.cms.gov/files/document/summary-covid-19-emergency-declaration-waivers.pdf 
[18] 71 Fed. Reg. 19954, 19986 (Apr. 15, 2021), https://www.govinfo.gov/content/pkg/FR-2021-04-15/pdf/2021-07556.pdf

Black History Month 2022: Black Health and Wellness

Since 1976, every American president has designated February as Black History Month with a specific theme. The 2022 theme is “Black Health and Wellness,” which presents a perfect opportunity to remind people of the impact Medicare had on desegregating American Hospitals.

The Civil Rights Act of 1964, stated that “No person in the United States shall, on the ground of race, color, or national origin, be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any program or activity receiving Federal financial assistance.”  Thus, Medicare created an important financial and social change tool toward the integration of hospitals when it began in 1965.As a Federal program affecting every hospital in the country, Medicare offered immense financial leverage. Any hospital that wished to be reimbursed by Medicare for the usually-uncompensated care for their oldest, and sickest patients was suddenly subject to the Civil Rights Act.

According to former Center for Medicare Advocacy Senior Policy Attorney Alfred Chiplin, the administration used this leverage particularly effectively in opening the door to hospital privileges for African-American physicians, in addition to its being a major tool in creating access to basic hospital and other health care services for African-American citizens throughout the nation, particularly in Southern states.

For more information, see the National Institutes of Health Study “The Federal Government’s Use of Title VI and Medicare to Racially Integrate Hospitals in the United States, 1963 Through 1967,” by P. Preston Reynolds, MD, PhD.  See also, The Power to Heal, a film by BLBFilmProductions, which tells the story through the voices of the men and women who experienced, and fought, the disparities of segregation.

What’s Happening in the Nursing Home Industry?

In 2014, the Ostego County-owned nursing facility, Ostego Manor, was losing $5-6 million a year and was sold, “despite strong local opposition,” to the Focus Family of Companies for $18.5 million.[1]  Focus renamed the New York State facility Focus Rehabilitation and Nursing Center. 

The Daily Star reported that Focus’ owners cut staff from 298 to 225, care problems soared, and in 2016, the facility was designated one of the worst in the state and fined $18,000.[2] 

In December 2016, the Centers for Medicare & Medicaid Services placed Focus Otsego on the Special Focus Facility list,[3] a designation now identifying approximately 88 facilities in the country with a record of extremely poor care over multiple years.

In May 2018, the New York State Attorney General filed criminal charges against the entity that held the facility license, the 99% owner of the facility, and the owner’s business partner, charging them with felonies and misdemeanors for endangering residents and neglect.[4] 

In September 2018, the corporation pleaded guilty to a felony and both the owner and manager pleaded guilty to misdemeanor endangerment and were voluntarily excluded from Medicaid and from operating health care businesses in New York State for five years.[5]  As described in the Attorney General’s Press Release, the state’s investigation found that the owner and director “cut staff payroll and other necessary services and supplies needed to provide safe and adequate care and sufficient staffing levels to the approximately 174 residents” from October 2014 through December 2017.[6]  As described by the Attorney General, Administrators and Directors of Nursing told the owner that staffing levels were low “and that supervisors could not find sufficient numbers of willing staff to work shifts due to pay cuts and double-shift requirements imposed by defendants.”[7]  Over a 41-hour period, from 1:00 p.m. May 28, 2016 until 6:30 a.m. May 30, 2016, staff left a 94-year old resident in a recliner “and failed to provide timely, consistent, safe, adequate, and appropriate services, treatment, and care.”[8]

The owner sold the facility to Centers Health Care, “the largest post-acute health care continuum in the Northeast, with 42 nursing and rehab facilities across New York, New Jersey and Rhode Island,”[9]  The facility was renamed Cooperstown Center for Rehabilitation and Nursing. 

In January 2021, New York State Attorney General Letitia James described the Focus facility in an Appendix to her nursing home report as illustrating “the too prevalent ‘low staffing for profit’ model of exploitation through insufficient staffing, lack of transparency, and financial incentives.”[10]  The Attorney General reports that in the three-year period between October 2014 and December 2017, the facility diverted payments to the owner and related parties totaling more than $14 million.

Cooperstown Center for Rehabilitation and Nursing is a plaintiff in a nursing home lawsuit, filed in December 2021, challenging the New York State law requiring nursing facilities to spend 70% of their revenues on care (including 40% on “resident-facing staff”) and limiting their profits to 5%.[11]  The facility alleges that if the new State law had been in effect in 2019, it would have had to remit $764,192 to the State for failure to comply with the new transparency and accountability provisions.[12] 

As of February 1, 2022, Cooperstown Center for Rehabilitation and Nursing has an overall rating of one star on the federal website Care Compare, the lowest rating on a five-point scale.  The federal website reports that the facility has not had any civil money penalties imposed in the prior three years.

This facility illustrates what is happening in the nursing home industry.

1. County-owned facilities are being privatized and sold to private for-profit owners.[13]
2. Related party transactions are taking money out of facilities that should be spent on care for residents.
3. Sales of facilities frequently involve a change of name, making it difficult for the public to trace a facility’s history.
4. Large corporate owners are buying nursing facilities.
5. The Special Focus Facility program has not been effective in bringing about sustained improvement in facilities providing exceptionally poor care. 
6. The enforcement system is overly tolerant of poor care; facilities with the lowest ratings (one-star on Care Compare) are not sanctioned with financial penalties. 
7. New York facilities that are suing the state calculate that they would have had to remit hundreds of millions of dollars under a new state law requiring transparency and accountability. 

A 2018 Editorial in the Cooperstown Crier described Focus Otsego as “a sad song that goes on and on.”[14] Unfortunately, the sad story continues to this day for residents. 

___________________

[1] Erin Jerome, “Ex-Otsego Manor nursing home gets new owner,” The Daily Star (Jan. 25, 2019), https://www.thedailystar.com/news/local_news/ex-otsego-manor-nursing-home-gets-new-owner/article_6c84fadc-2664-5c7b-a1b5-833a8f63d1ae.html 
[2] Id. 
[3] Denise Richardson, “Feds place Focus Otsego on probation,” The Daily Star (Jan. 9, 2017), https://www.coopercrier.com/news/local_news/feds-place-focus-otsego-on-probation/article_b6b2a805-68bc-5ea9-ad89-2ee529d7db1e.html 
[4] New York State Office of the Attorney General Letitia James, Nursing Home Response to COVID-19 Pandemic, Appendix B, p. 65, ‘ Anthony Borrelli, “Former Otsego County nursing home owner, manager face endangering charges,” Press Connects (Jun. 12, 2018), https://www.pressconnects.com/story/news/public-safety/2018/06/12/otsego-focus-rehabilitation-nursing-center-charges-neglect/694427002/ 
[5] New York State Attorney General, “A.G. Underwood Announces Guilty Pleas Of Former Focus Otsego Nursing Home Operators For Endangering Resident” (Press Release, Sep. 12, 2018), https://ag.ny.gov/press-release/2018/ag-underwood-announces-guilty-pleas-former-focus-otsego-nursing-home-operators 
[6] Id. 
[7] Id. 
[8] Id. 
[9] Erin Jerome, “Ex-Otsego Manor nursing home gets new owner,” The Daily Star (Jan. 25, 2019), https://www.thedailystar.com/news/local_news/ex-otsego-manor-nursing-home-gets-new-owner/article_6c84fadc-2664-5c7b-a1b5-833a8f63d1ae.html 
[10] New York State Office of the Attorney General Letitia James, Nursing Home Response to COVID-19 Pandemic, Appendix B, p. 63, https://ag.ny.gov/sites/default/files/2021-nursinghomesreport.pdf 
[11] The Complaint is available at https://medicareadvocacy.org/wp-content/uploads/2022/01/Nursing-homes-NY-nh-case-21-cv-1384-BKS-CFH-complaint-U.S.-District-Court-NYND-2.pdf 
[12] Id. ¶167. 
[13] CMA, Privatization of County-Owned Nursing Facilities is Not Good for Residents, Staff, or States (CMA Report, Oct. 25, 2021), https://medicareadvocacy.org/wp-content/uploads/2021/10/CMA-Report-SNF-Privatization-10-2022.pdf 
[14] “In Our Opinion: Focus Otsego is a sad story that goes on and on,” Cooperstown Crier (Jun. 21, 2018), https://www.coopercrier.com/opinion/in-our-opinion-focus-otsego-is-a-sad-story-that-goes-on-and-on/article_4577702b-4481-5a51-b7c7-e722edb1399f.html

Second State Report Recommends Barring Medicaid Payments to Chronically Poor-Performing Nursing Facilities

In a new report, New Jersey’s Acting State Comptroller identifies the 15 consistently lowest-performing nursing facilities in the state and recommends implementing changes to the Medicaid program that would require these facilities, in a phased enforcement approach, to improve or be barred from receiving Medicaid reimbursement.[1]  The report is similar to a legislatively-mandated task force report in Massachusetts that, in 2020, recommended that the Department of Public Health be given “more explicit statutory authority to revoke the licenses of chronic underperformers in quality and occupancy.”[2]  Advocates for residents agree with both the New Jersey Comptroller General and the Massachusetts Task Force that facilities that repeatedly fail and deliberately refuse to provide good care to residents should be excluded from public funding.  Owners and operators of chronically poor quality facilities should be barred from owning and operating facilities.  Residents deserve better care than they are receiving.

The New Jersey State Comptroller defines the 15 lowest quality nursing facility as facilities that had one-star ratings in the first quarter of each month in six of the last eight quarters in 2020 and 2021.  These 15 facilities provide care to approximately 1,850 Medicaid beneficiaries, 6.5% of the Medicaid beneficiaries in New Jersey nursing facilities, and receive an average of $103 million from the Medicaid program for the care they provide.  The State Comptroller finds that 14 of the 15 poorest-performing facilities are operated on a for-profit basis and that their owners/managers/third-party administrators are connected with multiple facilities that are the poorest performing and a total of 39 New Jersey nursing facilities.  The Comptroller General recommends that “The New Jersey Medicaid program should use its authority to protect current and future residents of LTCs by linking eligibility in the Medicaid program to improvements in ratings.” 

The Massachusetts Task Force found that 18 facilities (5% of Massachusetts’ total) were both chronically low quality (1 or 2 stars or Special Focus Facilities) and had unsustainably low occupancy rates (less than 80% in 2019).  The Task Force found that “rates and market forces are not enough to preserve quality nursing homes” and that the Department of Public Health should strengthen its licensing process for reviewing the suitability of applicants.

The Center for Medicare Advocacy agrees with the Comptroller’s and Task Force’s recommendations that facilities (and, we would add, owners, managers, and related parties) that fail or refuse to provide acceptable levels of care to residents should be barred from receiving public funding. 

___________________

[1] New Jersey Office of the State Comptroller, “An Examination of the Lowest-Rated Long Term Care Facilities Participating in New Jersey’s Medicaid Program, Medicaid Fraud Division” (Feb. 2, 2022), https://nj.gov/comptroller/library/reports/LTCs/LTCs%20Report%20FINAL.pdf 
[2] Nursing Home Task Force (Jan. 31, 2020), https://www.mass.gov/doc/nursing-facility-task-force-final-report/download

New Resource | Home Health FAQs

Do you need practical information and resources on Medicare’s home health benefit? The Center for Medicare Advocacy is pleased to share the following Home Health Frequently Asked Questions based on inquiries we have received about this often-misunderstood benefit. This information should be useful for Medicare beneficiaries in need of home health care, as well as for their advocates. In addition to these questions and answers, recordings of two webinars on Medicare coverage of home health services, presented January 12 and 19, 2022, are available here.

FREE WEBINAR | Medicare Home Health and DME Update

Thursday, April 28, 2022 @ 1 – 2:30 PM EST

Sponsored by California Health Advocates

Presented by Center for Medicare Advocacy Executive Director, attorney Judith Stein, and Associate Director, attorney Kathleen Holt, the presentation includes a 30-minute live question & answer session.

Register Now: https://attendee.gotowebinar.com/register/1457421769888387854