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Counts time a patient spends in a hospital under outpatient observation toward Medicare’s 3‑day inpatient stay requirement so they can qualify for Medicare coverage of skilled nursing facility (SNF) care. The patient’s observation end date is treated as the hospital discharge date for this purpose unless the patient is admitted as an inpatient. The rule applies to observation services provided on or after 2026-01-01. For earlier observation periods to count, beneficiaries may request an administrative appeal within 90 days after the law is enacted.
Amends Section 1861(i) of the Social Security Act to provide that an individual receiving outpatient observation services shall be deemed an inpatient during that period, and the date the individual ceases receiving such services shall be deemed the hospital discharge date (unless the individual is admitted as a hospital inpatient at the end of that period).
The amendment applies to receipt of outpatient observation services beginning on or after 2026-01-01.
For periods of post-hospital extended care services that were completed before the date of enactment, the amendment applies only if an administrative appeal is or has been made with respect to such services not later than 90 days after the date of enactment of this Act.
Authorizes the Secretary of Health and Human Services to implement the amendment through an interim final regulation, program instruction, or otherwise, notwithstanding any other provision of law.
Who is affected and how:
Medicare beneficiaries: Individuals who receive hospital outpatient observation and subsequently need skilled nursing facility (SNF) care are most directly affected. More beneficiaries may meet the 3‑day requirement and receive Medicare coverage for SNF stays without needing a formal inpatient admission.
Skilled nursing facilities (SNFs): SNFs may see more patients qualify for Medicare coverage, reducing reliance on private pay or Medicaid for initial days and increasing admissions covered by Medicare.
Hospitals and clinical/billing staff: Hospitals will need to ensure accurate, consistent documentation of observation start/end times and discharge status so that observation days can be used when determining SNF eligibility. This may require training and billing-system updates.
Medicare claims processors and contractors: Administrative systems, edits, and guidance will need updates to count observation days toward the 3‑day inpatient requirement and to treat observation end as discharge when applicable. Appeals processes may see a short-term surge due to retroactive claims.
Fiscal and program impacts: The change likely increases Medicare liability for SNF services because more beneficiaries will qualify for coverage; the size of that increase depends on utilization patterns. Administrative costs for providers and contractors will rise during implementation.
Timeline and retroactivity: The rule applies prospectively to observation services on or after 2026‑01‑01. For observation services before that date, beneficiaries can only get the benefit by filing an administrative appeal within 90 days after enactment, limiting retroactive relief and focusing most effects on future cases.
Overall, the legislation simplifies eligibility for SNF coverage for patients who received observation care and shifts some administrative burden to hospitals and Medicare processors while improving access for affected beneficiaries.
Last progress June 12, 2025 (8 months ago)
Introduced on June 12, 2025 by Joe Courtney
Referred to the Committee on Ways and Means, and in addition to the Committee on Energy and Commerce, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.