Medicare Hospital “Observation Stay” and the SNF Benefit

Medicare’s Hospital “Observation Stay” precludes using the SNF Benefit

  • Opportunities for NGNA member action on Observation Stays:
  • Educate patients and the public in your community and workplace about Observation stays
  • Collect and share Observation Stay examples
  • Find Republican and Democratic Senate and House co-sponsors for Improving the Medicare Access Act of 2017

Why is Observation Stay a concern for elders?

NGNA members, no matter where they work must educate patients and families that the physician and hospital may admit them as an Observation (outpatient) stay, rather than as inpatients. An observation stay disqualifies such a patient from using Medicare’s Skilled nursing facility (SNF) benefit, which requires a three day inpatient hospital stay. Geriatric patients are impacted negatively by the hospital practice as they are the most frequent users of the SNF benefit.

The Coalition of Geriatric Nursing Organizations (CGNO) is part of a 32 member National Observation Stays Coalition (NOSC), including consumer, professional, and nursing home organizations, that meet with members of Congress to find a solution to the vexing and seemingly intractable problem. Observation stays cause elders to pay privately for SNF care, neglect care or sometimes remain in the hospital. The most effective advocacy centers around patient/family stories from many states.  A couple of examples collected by NOSC illustrate the effect on patients.

  • Oregon: Diana went to the emergency room for urgent medical care. After three days on observation stay, she was discharged to an SNF. She was stunned and confused when she received a bill for over $107,000. 
  • Ohio: A 94 year old woman living alone went to the hospital for a repair or her broken ankle. Physical therapy recommended recovery in an SNF. The family agreed until they found she had not been admitted as an inpatient, but was on Observation Stay. Unable to pay the SNF bill the patient returned home.

NGNA members should listen for the stories and pass them on to Toby Edelman at the Center for Medicare Advocacy the repository for NOSC stories.

The patients receive the same services on Observation or outpatient as an inpatient no matter how long they stay. The hospital is at risk for returning Medicare reimbursement should CMS contracted recovery auditors (RACs) find an inpatient stay is incorrectly classified. The RAC program has been required in all 50 states since 2010.

Inadequate regulatory/legislative fixes

CMS acknowledges the negative effect on SNF stays, and put the “Two-Midnight Rule” in place in 2013 to guide and assure physicians that inpatient admission would not be questioned. A subsequent Office of the Inspector General (OIG) report in Dec 2016 found the two midnight rule increased outpatient stays and decreased inpatient stays. Multiple OIG reports, Medicare Payment Advisory Commission (Medpac), and the Congressionally mandated Long Term Care Commission all recommend that observation stay count as an SNF three-day stay. NOSC is working with Congress to find a regulatory fix.

The results of Observation are so detrimental to patient rights that Congress passed the NOTICE Act requiring hospitals to give written and oral notice of an observation stay to patients by March 2017. This notice Medicare Outpatient Observation Notice (MOON) increases paperwork, but does little to solve the problem. 

Co-sponsors needed for the Improving Access to Medicare Coverage Act

Action: For the second year, bi-partisan, bi cameral legislation has been introduced, The Improving Access to Medicare Coverage Act of 2017 (S568/H.R. 1421) creates a permanent solution by counting observation stay toward meeting the SNF three day stay. NGNA members should contact your Senators and representative to co-sponsor this legislation. This is an opportunity to escape the partisan wrangling and make a difference for elders who need an SNF stay. Don’t wait for someone else, act now.



Sarah Greene Burger, RN, MPH, FAAN

Senior Advisor, Hartford Institute for Geriatric Nursing

Chair Emeritus Coalition of Geriatric Nursing Organizations

NYU Rory Meyers College of Nursing