Deeper Than the Headlines: Skilled Nursing Facility Three-Day Inpatient

For a Medicare patient to be eligible for coverage of post-hospital extended care services, they must be an inpatient in a hospital for not less than 3 consecutive calendar days before being discharged from the hospital. Most compliance professionals working with skilled nursing facilities (SNF) know this as the 3-day rule.

Well, the OIG’s most recent report took a hard look at this 3-day rule and determined that CMS improperly paid over $84 Million for SNF services that did not meet the 3-day rule during Calendar Years (CYs) 2013 through 2015.


SNFs are specially qualified facilities that provide extended care services, such as skilled nursing care, rehabilitation services, and other services to Medicare beneficiaries who meet certain conditions. Prior OIG reviews estimated that CMS paid $169 million for SNF services in calendar years (CYs) 1996 through 2001 when the 3-day rule was not met. Though the Medicare contractors generally agreed with our findings, CMS told them not to recover improper payments because CMS could not determine whether SNFs were “at fault” for not meeting the 3-day rule, which meant that the Medicare beneficiaries would have become responsible for the payment. Rather than pursuing recoupment, CMS issued instructions to providers regarding the importance of complying with the applicable requirements.

The 3-day rule may be met by inpatient stays totaling 3 consecutive days in one or more hospitals. Time spent in observation status or in the emergency room before (or in lieu of) an inpatient admission to the hospital does not count toward the 3-day rule. In addition, the beneficiary must be admitted to the SNF and receive the needed care within 30 calendar days (unless the posthospital SNF care would not be medically appropriate within 30 days) after the date of discharge from a hospital. SNF services must be ordered by a physician and provided by, or under the direct supervision of, skilled nursing or rehabilitation professionals and be for a condition previously treated at a hospital.


In CYs 2013 through 2015, CMS paid $86 billion for more than 5 million Medicare beneficiaries to receive SNF services. OIG’s review covered $134,860,811 in Medicare payments for 22,052 SNF claims for services provided from January 1, 2013, through December 31, 2015 (audit period), to beneficiaries who had preceding acute-care inpatient hospital stays of less than 3 consecutive calendar days, not counting the date of discharge.

The OIG then selected for review a stratified random sample of 100 SNF claims with payments totaling $779,419. They did not review one sampled claim totaling $11,886 because it was part of an open OIG investigation. For each of the remaining 99 sampled claims, the OIG reviewed medical records obtained from the SNFs and associated hospitals.


The OIG concluded that CMS improperly paid 65 of the 99 SNF claims they sampled when the 3-day rule was not met. Improper payments associated with these 65 claims totaled $481,034. Based on their sample results, the OIG estimated that CMS improperly paid $84,202,593 for SNF services that did not meet the 3-day rule during CYs 2013 through 2015.

The OIG attributed the improper payments to the absence of a coordinated notification mechanism among the hospitals, beneficiaries, and SNFs to ensure compliance with the 3-day rule. OIG noted that hospitals did not always provide correct inpatient stay information to SNFs, and SNFs knowingly or unknowingly reported erroneous hospital stay information on their Medicare claims to meet the 3-day rule. They determined that the SNFs used a combination of inpatient and non-inpatient hospital days to determine whether the 3-day rule was met.

Because CMS allowed SNF claims to bypass the common working file (CWF) qualifying stay edit during our audit period, these SNF claims were not matched with the associated hospital claims that reported inpatient stays of less than 3 days. Without a coordinated notification mechanism, CMS does not have sufficient documentary evidence to prevent SNFs from submitting erroneous claims that result in improper payments and to determine whether SNFs were at fault for the improper payments. The “at fault” consideration affects the determination of whether the SNF or beneficiary would be financially liable for the overpayment.

Example 1

A beneficiary was treated in the hospital emergency room on January 21. The beneficiary was admitted as an inpatient on January 22 and discharged on January 24. The hospital claim reported the inpatient dates as January 22 through 24. However, the inpatient hospital stay was only 2 days because the date of discharge did not count. The associated SNF claim reported the qualifying inpatient hospital dates as January 21 through 24, claiming the inpatient hospital stay as 3 days, not counting the date of discharge. CMS paid for the SNF services that did not meet the 3-day rule.

Example 2

A beneficiary was treated as an outpatient at a hospital on April 17 and 18 and, per the hospital’s records, was admitted as an inpatient from April 19 through 21. Because the date of discharge is not included within the count of inpatient days, the beneficiary had only 2 documented inpatient days of care, thereby disqualifying subsequent SNF care from Medicare reimbursement. However, the discharge information that the hospital provided to a SNF erroneously showed that the beneficiary was admitted as an inpatient on April 17, which incorrectly indicated that the beneficiary had 3 days of inpatient care that would qualify the subsequent SNF care for Medicare reimbursement. The hospital could not explain why it had provided erroneous hospital stay information to the SNF.

OIG Recommendations

The OIG made the following recommendations to CMS, which could have saved an estimated $84,202,593 during the audit period:

  • Ensure that when SNF claims are being processed for payment, the CWF qualifying inpatient hospital stay edit for SNF claims is enabled and operating properly to identify SNF claims ineligible for Medicare reimbursement.
  • Require hospitals to provide written notification to beneficiaries whose discharge plans include posthospital SNF care, clearly stating how many inpatient days of care the hospital provided and whether the 3-day rule for Medicare coverage of SNF stays has been met. If necessary, CMS should seek statutory authority to do so.
  • Require SNFs to obtain from the hospital or beneficiary, at the time of admission, a copy of the hospital’s written notification to the beneficiary and retain it in the beneficiary’s medical record. (See the second recommendation.) If necessary, CMS should seek statutory authority to do so. Require SNFs to provide written notice to beneficiaries if Medicare is expected to deny payment for the SNF stay when the 3-day rule is not met. If necessary, CMS should seek statutory authority to do so.
  • Educate hospitals about the importance of explicitly communicating the correct number of inpatient days to beneficiaries and whether the inpatient days qualify subsequent SNF care for Medicare reimbursement so that beneficiaries understand their potential financial liability related to SNF care.
  • Educate SNFs about their responsibility to submit accurate and valid claims for payment that are supported with documentation that clearly shows that the SNF services qualify for reimbursement.

Questions or Comments?