For skilled nursing facilities, the Medicare SNF 3-day rule can make it difficult to place the right patients in the right setting at the right time. The 3-day rule requires that a Medicare beneficiary spend three nights in a hospital as an inpatient — observation stays do not count — before becoming eligible for Medicare-covered SNF care. This rule creates a challenge for SNFs as hospital lengths of stay decline for many of the conditions that SNFs treat.

However, some Medicare demonstrations are exploring how to pay for an episode of care that can span care settings, rather than keeping the current payment silos in place. These demos, under which the 3-day rule can be waived, create an opportunity for SNFs to show that they can be successful partners in driving down the costs of an entire episode of care, in part by providing care for patients that would not normally qualify for a SNF stay, but for whom a SNF stay is most beneficial.

During Congressional hearings on May 20 and May 21, CMS and MedPAC officials acknowledged that the 3-day rule is not always appropriate but defended it as necessary to prevent overutilization — in 1988, Congress repealed the rule for a one-year period and saw a 243% increase in spending largely associated with increased SNF admissions. Despite their reluctance to recommend a complete removal of the rule, CMS is investigating options for lessening the burden associated with the rule, and adding other ways to become eligible for SNF coverage, such as including observation stays in the three-day calculation. But that’s in the future. Right now, two of Medicare demonstrations are allowing participants to waive the 3-day rule. Under the Pioneer Accountable Care Organization program, CMS has signaled an openness to allow participants to receive a waiver that would allow direct admissions to SNFs. Under the Bundled Payment for Care Improvement program, Model 2 BPCI participants may seek a waiver allowing them to admit beneficiaries to a SNF after a hospital stay of less than three days. SNFs should take note that Medicare is testing the waters in demonstrations where participants take on upside and downside risk, because those participants have a financial incentive to ensure that the SNF setting is only used where appropriate.

So what does this mean for you as a SNF? If you have ACO or BPCI participants in your local markets, your value proposition as a referral partner can center around how you can help reduce the overall cost of an episode – by shortening the initial hospital stay and treating potentially higher-acuity patients.

  • Know your market — Do you have any BPCI model 2 participants or Pioneer ACOs? You can check these maps on the CMS website: and
  • Assess your capabilities — The best argument you have for waiving this rule in negotiations with ACOs and BPCI participants is similar to the one you have with managed care companies that are looking at sending patients to you following a shorter hospital stay.
  • Can you reduce the overall cost of a year’s care to a patient by decreasing the use of higher-cost settings? How?
  • Can you substantially improve outcomes for patients currently receiving a lower level of care? If so, for what group of patients?
  • Target your outreach to be narrow — Focus on specific patient characteristics to improve the receptiveness of your pitch with demonstration participants. The goal is to become a strategic partner, which means showing that you are focused on patients and conditions for which you know you can improve outcomes and drive down episode costs.

BPCI model 2 participants and Pioneer ACOs can already apply for this waiver. Do not be left out of the coordinated care network with an inflexible approach. Reach out to the key players in your market now to discuss how both organizations can benefit from ensuring that the right care is being delivered in the right setting. In some markets, we see managed care plans admitting patients to SNFs who would not be eligible under traditional Medicare. Position your organization to play a similar role within your partners’ ACO and BPCI demonstrations.

Jeff Terkowitz, senior manager, oversees the design, maintenance, and ongoing enhancement of Avalere‘s Vantage Care Positioning System™ (CPS).