A Fifty-Year Old Policy in Need of an Overhaul

In 1965 when a patient was moved to a hospital bed outside of an emergency room, they were receiving inpatient services and were considered a hospital admission. Fast forward fifty years when staying overnight in a hospital doesn’t always mean you are an inpatient. Now, even though a patient is kept overnight, often multiple days and nights, in a hospital bed, receiving nursing and medical care, meals, prescriptions, diagnostic testing, treatments, and therapy, they can be classified by the hospital as an outpatient. More and more, hospitals are utilizing Observation Status, a billing status, that supports outpatient care received in a hospital bed. The consequence of this is that the patient is ineligible for Medicare coverage of a skilled nursing facility (SNF) stay because of the Medicare limits requiring a minimum of a three-day inpatient hospital stay or three midnights. In truth, the system is denying benefits for which Medicare Part A insured persons are entitled.

In addition to the barrier to Medicare coverage of an SNF stay caused by Observation Status, the three-day inpatient stay stems from an era when hospital stays routinely were averaging 14 days long in 1965 compared to an average of 5 days long in 2017 (Sheehy & Courtney, 2017). 50 years ago, three days of hospital care out of an average 14-day length stay seemed reasonable and prudent. Whereas the original intent in the Medicare law was for the gatekeeping of SNF benefits, it simply is no longer prudent or reasonable. Contemporary health is vastly different than when Medicare became law, and hospital stays have become more efficient and costlier resulting in earlier discharges. However, these hospitalizations are often not necessarily less invasive or less perilous, especially to our elders. According to Gorman (2016), a contributor for Kaiser Health News, “about one-third of patients over 70 years old and more than half of patients over 85 leave the hospital more disabled than when they arrived” (para. 5).

Along the same premise as Gorman (2016) in her summation that elders are being discharged sicker than when they arrived, we know elders are most susceptible to relocation stress syndrome or transfer trauma. Transfer trauma is documented to cause psychosocial harm and is potentially avoidable stress on patients and the health system. For nursing home elders who stay in a hospital receiving services that their home is certified to deliver are best treated in that nursing facility with familiar staff, routines, and environment. An unnecessary and undesired inpatient hospital stay done solely to qualify an institutionalized elder for an SNF stay and subsequent rehabilitation and skilled nursing care covered by Medicare Part A can cause undue stress on elders especially those who have dementia. “This long-standing policy implemented to discourage premature discharges from hospitals, might now be inappropriately lengthening hospital stays for patients who could be transferred sooner” (Grebla, Keohane, Lee, Lipsitz…Trivedi, 2015, p. 1324).

Whereas the Observation Status addresses the financial perspective and denial of entitled benefits, research demonstrates we are discharging elders too soon to return home safely, herein, transfer trauma, lies another reason lawmakers should evaluate the sustainability, value, and alternatives to a 3-day inpatient hospital stay before qualifying for an SNF stay under Medicare law.

History of the 3-Day Hospital Stay

“The SNF 3-day prior inpatient hospitalization has been a requirement for Medicare coverage of SNF services since Medicare was established in 1965. The requirement served to limit the use of scarce skilled nursing beds and ensure patients received appropriate medical care. In 1965, three days was the amount of time generally needed to admit, evaluate, and establish a plan of care for a patient” (L & M Policy Research, 2016, p. 34). Talaga (2016) summarized the history of the 3-day stay in his report to Congress: The SNF benefit was included in Medicare Part A to provide skilled nursing care for residents who were recently hospitalized but no longer needed the intensive treatments of an acute-care hospital. Under Part A, Medicare provides for 100 days of skilled nursing care, therapy services, medical social services, drugs/biologicals, durable medical equipment, and bed and board per spell of illness. Upon enactment, Congress placed some restrictions on the SNF benefit. In addition to limiting SNF coverage to 100 days per spell of illness, Congress required a daily co-payment for days 21-100. As a prerequisite for SNF coverage, Congress also required that beneficiaries had a least a three-day hospital inpatient stay within 14 days prior to an SNF admission (later modified to 30 days). The House Committee on Ways and Means included this three-day inpatient requirement to help limit the payment of the extended care benefits to persons for whom such care may reasonably be presumed to be required in connection with continued treatment following hospital inpatient care and makes less likely unduly long hospital stays (pp. 1-2).

“Medicare does not require a qualifying three-day stay for other forms of post-acute care, including home health visits or a stay in an inpatient rehabilitation facility” (Grebla et al., 2015, p. 1324). Before the Omnibus Budget Reconciliation Act (OBRA) of 1980, the three-day hospital inpatient stay requirement also applied to the Medicare Part A home health benefit. However, OBRA ’80 deleted this prerequisite allowing greater access to home health services. Medicare does not require a hospital-stay for hospice benefits, either. Medicare Part A covers hospice care either in the home or an SNF. Hospice can bill Part A for hospice care including room and board which the hospice then pays the SNF under a contractual agreement. There exists a great deal of duplication of services between SNF and hospice care, and ultimately, the SNF is responsible for the overall quality of care provided to the hospice patient according to CMS. Ironically, the accountability for care is on the SNF, not the hospice provider receiving Part A reimbursement for the delivery of the specialized care.

Other attempts at modifying the three-day stay have been enacted but not sustained. “A demonstration project in Oregon and Massachusetts in 1978–80 found that waiving the requirement had negligible effects on Medicare Part A spending for hospital and skilled nursing facility care. In contrast, under the ill-fated Medicare Catastrophic Coverage Act of 1988, which eliminated the three-day hospital stay requirement for one year until the act was repealed, relatively small reductions in the use of hospital care were accompanied by substantial increases in skilled nursing facility days. More recent studies are lacking” (Grebla et al., 2015, p. 1325). Of importance is that in 1988 when the three-day stay was eliminated and unsuccessful, neither PPS or RUGS were part of the SNF landscape. In my opinion, the results would be significantly different today should a change be made in the 3-day stay requirement.

Time for Change?

As stated in the introduction, there are three current reasons why the 3-day rule should be evaluated and modified. These include financial, clinical, and psychosocial reasons where our care of elders can be better managed and streamlined to fit with current standards of care. “Given Medicare’s original intent to improve health care access for seniors, the case for change seems clear” (Sheehy & Courtney, 2017, p. 199). Further, “Part A, the Hospital Insurance (HI) portion of Medicare is a true entitlement program. Throughout their working lives, people contribute to Medicare through special payroll taxes. Hence, they are entitled to Part A benefits regardless of the amount of income and assets they may have” (Shi & Singh, 2015, p. 214).

CMS needs to reconcile the financial advantages of Observation Status and the consequential loss of Medicare SNF benefits and out of pocket expense to those caught in the unfriendly and unhealthy system. In trying to fix one problem, the system has created another. “A fundamental problem for older people...is the fact that acute and long-term care remain two separate, fragmented systems, with relatively distinct providers, treatment settings, financing structures, and goals” (Hooyman & Kiyak, 2011, p. 734). According to research by Sheehy & Courtney (2017), “fewer than 20% of previously community-dwelling hospitalist patients followed the recommendation for post-acute facility stay after observation hospitalization, and more than 40% cited financial concerns as the reason for declining. Patients recommended for SNF [but declined] also were more likely to be re-hospitalized in the subsequent 30 days after discharge, confirming this as a vulnerable patient population…the plight of patients hospitalized under observation is having negative financial and overall detrimental health impacts” (p. 199).

With an emphasis today being placed on patient-centered care, one would hope that lawmakers, CMS, and HCFA could focus more on the individual care needs, the physician’s recommendations, the patient’s wishes, and the quality and availability of services offered outside an acute setting. Frankly, having the hospital as the gatekeeper of whether someone is eligible for SNF care is rudimentary and doesn’t acknowledge the value that skilled nursing facilities have added in the 21st century to the rehabilitation, skilled nursing care, and chronic disease management of elders unable to remain in their home. With the inception of PPS & RUGS in 1998, the financial landscape of SNFs changed dramatically. Also, since MDS data is monitored by state agencies there currently exist systemic gatekeeping methods. “The 66-group RUG-IV model includes an administrative presumption under which beneficiaries who are correctly assigned to one of the upper 52 RUG-IV groups on the initial 5-day, Medicare-required assessment are automatically classified as meeting the SNF level of care definition up to and including the assessment reference date (ARD) on the 5-day Medicare-required assessment. CMS designates the upper 52 RUG-IV groups for purposes of this administrative presumption, consisting of all groups encompassed by the following RUG-IV categories: Rehabilitation plus Extensive Services; Ultra High Rehabilitation; Very High Rehabilitation; High Rehabilitation; Medium Rehabilitation; Low Rehabilitation; Extensive Services; Special Care High; Special Care Low; and Clinically Complex” (CMS.gov, 2017b).

Recognizing Observation Status as part of the qualifier for skilled care, alleviating the hospital as a gatekeeper, and holding SNFs accountable for quality, safety, and fiduciary responsibility for reasonable care and services is a change that would make skilled care under Medicare Part A in the absence of the 3-day inpatient rule a feasible option. Holding providers liable under the False Claims Act which states those “who knowingly make false or fraudulent claims to the government are fined $5,500 to $11,000 per claim plus up to three times the amount of the damages caused to the federal program. Those doing business with the government are obligated to make at least limited inquiries as to the accuracy of the claims they submit” (Cleverley & Cleverley, 2018, pp. 112-113).

Another reason to consider change is the increasing number of seniors projected in the future compared to the dwindling number of caregivers. “The population age 65 and over has increased from 36.6 million in 2005 to 47.8 in 2015 (a 30% increase) and is projected to more than double to 98 million in 2060. By 2040, there will be about 82.3 million older persons, twice their number in 2000. People 65+ represented 14.9% of the population in the year 2015 but are expected to grow to be 21.7% of the population by 2040. The 85+ population is projected to more than double from 6.3 in 2015 to 14.6 million in 2040” (Administration on Aging, 2016, p. 3).

Most often, the burden of straddling the hospital discharge status back to baseline functional status befalls onto the at-home caregivers or family. “The need for caregiving increases with age. In January-June 2016, older adults aged 85 and over were more than twice as likely (20%) as adults age 75-84 (7%) to need help with personal care from other persons, and adults age 85 and over were more than six times as likely as adults age 65-74 (3%) to need help with personal care from other persons” (Administration on Aging, 2016, p. 15). Goyer (2015) poignantly reports that “in 2010, there were seven potential caregivers between the age of 45 and 65 to care for one person 80 or older. By 2030, that ratio will decline sharply to 4:1 and by 2050, 3:1” (p.xix).

The future projections of the burgeoning populous of seniors is a siren alarming the current health system that change must happen to provide adequate and quality care to our population of advancing age. SNFs will become both essential and palatable in the continuum of care providing elders with a step-down from acute care or a step-up following an acute change in condition that prohibits their return to home safely. Also, a change in SNF eligibility can have potential cost savings to Medicare versus hospitalizations, emergency room visits, and readmissions during a spell of illness.

Trending Solutions

Observation Status as Part of the 3-Day Stay

One current solution involves including Observation Status in the hospital, or any midnight spent in the hospital, towards the 3-day stay requirement. This is the focus of the Medicare Payment Advisory Commission (Sheehy & Courtney, 2017). Sheehy and Courtney (2017) caution, however, that merely including Observation Status in the 3-day requirement may be “an improvement over current law, [but] this proposal would not help the majority of beneficiaries who are exclusively hospitalized under observation status” (p. 200). “Growth in hospital-based observation care begs for modernization of the statutory 3-inpatient midnight rule. Counting all midnights towards the 3-midnight requirement, whether those midnights are outpatient observation or inpatient, is the first right step” (Sheehy & Courtney, 2017, p. 200). Thus far, Congress has recognized the dilemma of Observation Status but has only passed the NOTICE Act in 2015. Beginning August 6, 2016, this act requires hospitals to inform Medicare beneficiaries hospitalized under observation for more than 24 hours (Sheehy & Courtney, 2017, p. 200). “The Improving Access to Medicare Coverage Act of 2015 would count any midnight spent in the hospital...and is the logical next step in this arena” (Sheehy & Courtney, 2017, p. 200).

In the meantime, “Observation Status continues to grow as a significant problem facing Medicare beneficiaries and their families. Pending litigation brought by the Center for Medicare Advocacy, Bagnall v Sebelius, challenges the use of Observation Status as violating the Medicare Act, the Freedom of Information Act, the Administrative Procedure Act, and the Due Process Clause of the Fifth Amendment to the Constitution” (Center for Medicare Advocacy, n.d., p. 2). To compound the problem is that there is not an appeals system in place to challenge an Observation Status designation (Center for Medicare Advocacy, n.d., p. 1).

Waiver of the 3-Day Stay Programs

Another evolving solution is a waiver program. “CMMI within CMS is currently testing alternative payment models (e.g., Accountable Care Organizations, or ACOs) that may allow participating providers to waive the three-day inpatient stay requirement for SNF coverage” (Talaga, 2016, p. 4). CMMI has approved pilot waiver programs that do not require a prior hospitalization to the Pioneer ACO Model (PACO) and the Next Generation ACO (NGACO) model. Whereas, CMI has awarded the Model 2 of the Bundled Payments for Care Improvement Initiative and the Comprehensive Joint Replacement Model a waiver that requires a prior inpatient hospital stay for any duration (Talaga, 2016, p. 4). In the NGAGO pilot model, “patients whose doctors participate in the NGACO Model [can] be admitted to an SNF directly from their home, a doctor’s office, or if they have fewer than three consecutive inpatient days in the hospital” (CMS.gov, 2018a). “You are eligible to use this benefit if you do not reside in a nursing home or SNF for long-term care at the time of admission to the SNF and you meet all other CMS criteria for SNF admission, including: • being medically stable; • having confirmed diagnoses; • not requiring an inpatient hospital evaluation or treatment; and • having an identified skilled nursing or rehabilitation need that cannot be provided on an outpatient basis or through home health services” (CMS.gov, 2018a).

In all the pilot wavier programs there “involve certain requirements, including that the admitting SNFs under the waiver have earned at least a three-star rating on the Nursing Home Compare Five-Star Rating System. [And,] although these waivers add flexibility to Medicare’s requirement for covered SNF care, under such alternative payment models, CMMI includes aggregate financial controls on total Medicare spending to prevent increased costs to the Medicare program” (Talega, 2016, p. 4).

CMMI is basing the success of the pilot waiver programs on both Medicare cost reduction and improved patient care. In a final report prepared for CMS by L & M Policy Research (2016), they state, “we calculated two expenditure variables. The first spanned the period 30 days prior to SNF admission through 30 days after SNF discharge, regardless of length of stay in the SNF. Not surprising, patients with a fewer than 3-day prior inpatient hospitalization spend more on average than direct waiver patients ($29,249 versus $23,752). A second expenditure measure covered the expenditures incurred during the 30- day period following SNF discharge. These expenditures were slightly lower for fewer than 3-day patients compared with direct patients ($4,920 versus $5,174), but this difference was not statistically significant” (p. 18). In summary, “compared to non-waiver SNF patients, waiver patients had shorter SNF stays, and lower Medicare expenditures since waiver patients have no (or shorter) hospitalizations prior to SNF admission” (L & M Policy Research, 2016, p. 33).

“In terms of outcomes of SNF 3-day waiver stays, the average length of stay in the SNF for waiver patients was 20.9 days. Eighty percent of waiver patients were discharged from the SNF to the community; 91.2 percent of patients had improved or had the same overall functional status from SNF admission to discharge, as measured by a long-form Activities of Daily Living (ADL) score” (L & M Policy Research, 2016, p. 19). In summary, “three-day inpatient stay waivers currently available under CMMI payment models suggest that administrative flexibility with respect to the 3-day requirement may improve care and reduce the cost for certain beneficiaries. These models and the financial safeguards they place on Medicare spending may provide insights to Congress on balancing concerns of increased Medicare expenditures and expanding access to necessary SNF care” (Talaga, 2016, p. 7).

Rescinding the 3-Day Stay

The final solution is to rescind the 3-day stay requirement in its entirety and develop a new model of SNF access and qualifiers. Grebla et al. (2016) reported in their study:

To assess the implications of eliminating the three-day qualifying stay requirement, we compared hospital and post-acute skilled nursing facility utilization among Medicare Advantage enrollees in matched plans that did or did not eliminate that requirement in 2006–10. Among hospitalized enrollees with a skilled nursing facility admission, the mean hospital length-of-stay declined from 6.9 days to 6.7 days for those no longer subject to the qualifying stay but increased from 6.1 to 6.6 days among those still subject to it, for a net decline of 0.7 days when the three-day stay requirement was eliminated. The elimination was not associated with more hospital or skilled nursing facility admissions or with longer lengths-of-stay in a skilled nursing facility. These findings suggest that eliminating the three-day stay requirement conferred savings on Medicare Advantage plans and that study of the requirement in traditional Medicare plans is warranted (p. 1324).

Grebla et al. (2016) caution however that “these cost savings are unlikely to be generalizable to the traditional Medicare program. Because Medicare pays hospitals prospectively for each admission, savings from reductions in hospital length-of-stay would accrue to hospitals instead of to the Medicare program. Traditional Medicare would realize savings only if eliminating the three-day stay policy led to some acute hospitalizations being avoided entirely, without generating offsetting increases in spending on skilled nursing facility care” (p. 1325).

Also, Grebla et al. (2016) indicated “it is unclear whether our findings related to Medicare Advantage plans could be extended to accountable care organizations (ACOs). ACOs are groups of providers that elect to be accountable for the spending on and quality of care of the Medicare fee-for-service beneficiaries attributed to them, even if those beneficiaries receive care from non-ACO providers. Future studies should also characterize the impacts of eliminating the three-day stay policy on long-term nursing home residents' use of hospital and post-acute care.” (p. 1330).

An Opinion & Conclusion

As witnessed in the backlash of implementing a new billing code, Observation Status, to save Medicare Part A expenses to hospital systems, policymakers must consider the domino effect when implementing changes to the Medicare Hospital Insurance benefit system. Congress cannot go from Point A to Point C without evaluating the merits of Point B. In this case, Point B, in my opinion, is a hybrid system involving a waiver program combined with the inclusion of time spent in observation status and the emergency room as part of a qualifying hospital visit for SNF eligibility. New guidelines will have to be developed by CMS and monitored by CMS and HCFA. Patient-centered care will have to be the overall goal of the new program requirements.

Although the future is uncertain for the direction that CMS and Congress move in updating the 50-year old Medicare Part A three-day inpatient stay, what is both acknowledged and pressing to policymakers, health care providers, and older adults and their advocates, is that we exist in a system that can do better for our elders. Due to recent changes in the hospital financial schematics mandated by HHS, Observation Status, has denied eligible Medicare beneficiaries of their entitled rights of SNF care. Also, hospital length of stays has reduced by 65% since 1965 to 2015. While hospitals used to take three days to produce an individual’s care plan, they are now able to do the same in less than 24 hours and sometimes within the emergency room visit. Finally, the adverse effects that a hospital stay has on frail elders, including the risk of co-morbidity, death, transfer trauma, and secondary infections, is reason alone to reconsider the merits and value of a three-day hospital stay. Our health system is on the verge of a population explosion for the over 65-year old adults. The time is now to plan and develop innovative programs, coordinated care, and preserve the sustainability of Medicare in the wake of a diminishing employee base to continue to fund the entitlement benefits.

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