Since Medicare was enacted in 1965, the statute has limited coverage in a skilled nursing facility (SNF) to beneficiaries who first spent at least three consecutive days in an acute care hospital. The requirement has increasingly become both irrelevant and a limitation on SNF coverage for beneficiaries in the traditional Medicare program. Beginning January 1, 2026 and running through December 31, 2030, the Centers for Medicare & Medicaid Services (CMS) is implementing a demonstration waiving the three-day rule for beneficiaries who have one of five surgical procedures. The Center for Medicare Advocacy (“Center”) repeats its recommendation that the statutory requirement for a three-day inpatient hospital stay be totally repealed.
Transforming Episode Accountability Model (TEAM)
CMS is implementing a “mandatory, episode-based payment model” called “Transforming Episode Accountability Model [TEAM][1]: Skilled Nursing Facility 3-Day Rule Waiver.” As described by MLNMatters No. MM14098 (Aug. 15, 2025), “CMS will allow acute care hospitals who participate in the model to discharge patients without a 3-day hospital stay to a qualified SNF or swing bed provider, including a CAH [critical access hospital]” and Medicare will pay for the SNF stay. The TEAM model is available for 5 surgical procedures: lower extremity joint replacement; surgical hip femur fracture treatment; spinal fusion; coronary artery bypass graft; major bowel procedure.
Reasons to repeal the three-day hospital requirement
The Center has twice before suggested that it was time to repeal the three-day inpatient hospital requirement that is necessary for Part A coverage of care in a skilled nursing facility in the traditional Medicare program, first, in 2021[2] and then in 2022.[3] The TEAM project’s waiver of the 3-day stay for certain procedures and beneficiaries and the Second Circuit decision in Barrows v. Becerra,[4] which holds that Medicare beneficiaries have a Constitutional right to appeal when their status is changed from inpatient to observation, have 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.[5] 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,[6] 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 60 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 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.[7]
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[8] and most do. At present, approximately 54 percent of Medicare beneficiaries receive their health care through MA plans,[9] either because MA is the only option offered by their former employers or unions as retiree health[10] or because they choose MA.
In addition, beneficiaries in traditional Medicare who are “aligned” to Accountable Care Organizations (ACOs) may also benefit from ACOs’ waiver of the three-day inpatient hospital requirement. As of January 2025, 53.4% of beneficiaries in traditional Medicare received their health care through ACOs.[11]
At present, more than 70 percent of all Medicare beneficiaries receive coverage through programs that generally waive, or are permitted to 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.[12]
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,”[13] establishing time-based criteria to clarify when hospitals should either admit patients as inpatients or classify patients as outpatients. The rule provides that if a physician believes a patient will require at least two midnights in the hospital, the physician should admit the patient to inpatient status. CMS 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.[14]
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.[15] 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[16] 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.
Research in 2020 found 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.[17] The study also found that if these beneficiaries receive care in a SNF following hospitalization, they were less likely to return to an acute care hospital. The coronavirus pandemic 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.[18] 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 medically necessary health care. Repealing the three-day inpatient requirement would eliminate surprise bills for Medicare beneficiaries needing SNF care.
7. Waiver of the three-day inpatient hospitalization requirement during the coronavirus pandemic did not result in a significant change in admissions to SNFs.
CMS waived the three-day requirement during the COVID-19 public health emergency.[19] In April 2021, in the preamble to the proposed annual update to Medicare Part A payments to SNFs, CMS reported 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.”[20]
Conclusion
The three-day inpatient stay requirement is an anachronism. Both medical care and the Medicare program have dramatically changed in the last 60 years. More than 70 percent of all Medicare beneficiaries receive coverage through Medicare programs that waive, or are authorized to waive, the three-day inpatient requirement. The Second Circuit decision in Barrows, and the federal regulations that were issued as a result,[21] mean 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 did not result 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!
September 18, 2025 – T. Edelman
[1] CMS, “Medicare and Medicaid Programs and the Children’s Health Insurance Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the LongTerm Care Hospital Prospective Payment System and Policy Changes and Fiscal Year 2025 Rates; Quality Programs Requirements; and Other Policy Changes,” 89 Fed. Reg. 35934, 36381-35487 (May 3, 2024); 42 C.F.R. §§512.500-.598.
[2] Center, “It’s Time to Repeal the 3-Day Inpatient Hospital Requirement for Medicare Skilled Nursing Facility Coverage” (CMA Alert, Feb. 11, 2021).
[3] “It’s Time: Repeal the 3-Day Inpatient Hospital Requirement for Medicare Skilled Nursing Facility Coverage” (CMA Alert, Feb. 10, 2022).
[4] 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).
[5] 42 U.S.C. §1395x(i); 42 C.F.R. §409.30(a)(1).
[6] 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).
[7] 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
[8] 42 U.S.C. §1395d(f)
[9] Nancy Ochieng, Meredith Freed, Jeannie Fuglesten Biniek, Anthony Damico, and Tricia Neuman, Medicare Advantage in 2025: Enrollment Update and Key Trends(Jul. 28, 2025).
[10] Id. Seventeen percent of MA enrollees, about 5.7 million people, “are in a group plan offered to retirees by an employer or union.”
[11] CMS, “CMS Moves Closer to Accountable Care Goals with 2025 ACO Initiatives” (Fact Sheet, Jan. 15, 2025).
[12] Office of Inspector General, Vulnerabilities Remain Under Medicare’s 2-Midnight Hospital Policy, OEI-02-15-00020 (Dec. 2016).
[13] 78 Fed. Reg. 50506 (Aug. 19, 2013).
[14] Office of Inspector General, Vulnerabilities Remain Under Medicare’s 2-Midnight Hospital Policy, OEI-02-15-00020 (Dec. 2016).
[15] Pub. L. 114-42, signed Aug. 6, 2015. The NOTICE Act adds (Y) to 42 U.S.C. §1395cc(a)(1)(Y).
[16] 42 C.F.R. §405.926(u).
[17] Ann Sheehy, W. Ryan Powell, Farah Kaiksow…”Thirty-Day Re-observation, Chronic Re-observation, and Neighborhood Disadvantage” (Dec. 1, 2020); “‘Observation Status’ May Disproportionately Burden Medicare Beneficiaries in the Most Vulnerable Neighborhoods” (CMA Alert, Dec. 17, 2020).
[18] 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
[19] CMS, “COVID-19 Emergency Declaration Blanket Waivers for Health Care Providers,” p. 15 updated Dec. 1, 2020).
[20] 71 Fed. Reg. 19954, 19986 (Apr. 15, 2021), https://www.govinfo.gov/content/pkg/FR-2021-04-15/pdf/2021-07556.pdf
[21] CMS, “Medicare Program: Appeal Rights for Certain Changes in Patient Status,” 89 Fed. Reg. 83240 (Oct. 15, 2024), discussed in CMA, “Medicare Publishes Final Rule for Hospital Observation Status Appeals” (CMA Alert, Oct. 17, 2024). See also “New Observation Status Appeal Resource” (CMA Alert, Mar. 20, 2025), “Observation Status Appeal Resources” (CMA, Mar. 20, 2025), “Recorded Webinar: New Observation Status Appeals” (Dec. 18, 2024).