Federal Medicare law requires that a Medicare beneficiary be admitted as an in-patient in a hospital for at least three consecutive days, not counting the day of discharge, in order for Medicare Part A to pay for a subsequent skilled nursing facility (SNF) stay (called the “3-day rule”). On February 14, 2019, the U.S. Department of Health and Human Service’s Office of Inspector General (OIG) confirmed that compliance with the 3-day rule is still challenging for the Centers for Medicare and Medicaid Services (CMS) and the SNFs that bill Medicare for Part A stays. Based upon extrapolation from a sample, the OIG determined that CMS overpaid approximately $84 million for non-compliant SNF stays during 2013 through 2015. See OIG Audit A-05-16-00043.

The OIG attributed these overpayments to several causes—some involving hospital and SNF communication practices and some involving CMS internal claims processing procedures. It 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. It also 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. It also determined that the SNFs used a combination of inpatient and non-inpatient hospital days to determine whether the 3-day rule was met. The OIG also noted that CMS allowed SNF claims to bypass the Common Working File’s qualifying stay edit, thereby permitting erroneous claims to slip through the payment system.

The OIG recommended two main solutions to the 3-day rule problem. First, it recommended that CMS reactivate the Common Working File qualifying stay edit, and CMS readily agreed with that recommendation. It also recommended that hospitals and SNFs communicate more clearly with each other and with beneficiaries about the beneficiary’s admission status. The OIG even suggested that they complete specific forms addressing this information, which it wants CMS to adopt. CMS did not concur in this recommendation, but the OIG remains committed to this solution and claims that the actions that CMS agreed to are insufficient to solve the problem.

Since 2000, the OIG published 27 reports dealing with overpayments to SNFs due to non-compliance with the 3-day rule. Accordingly, this topic is of high importance to the OIG, and should, therefore, be a high priority for SNF compliance plans. Medicare SNF payments that are not supported by a qualifying 3-day hospital stay may be deemed to be overpayments that the SNF must repay in order to avoid being subject to penalties for a reverse false claim. Furthermore, knowingly submitting claims for Part A stays without a qualifying 3-day hospital admission could be determined to be fraud. SNFs, therefore, need to be proactive and vigilant about determining whether a beneficiary has a qualifying 3-day hospital stay. It is incumbent upon the SNF to clarify information supplied by the discharging hospital, including whether any days are observation days or days spent in an ER—which do not count towards the qualifying 3 days. A clear understanding of Medicare’s Advance Beneficiary Notice rules will also help SNFs communicate clearly with beneficiaries about Medicare SNF coverage. Given the OIG’s continued scrutiny of compliance with the 3-day rule, it is important for SNFs to establish clear internal controls regarding this aspect of coverage eligibility.