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Count Observation Days Toward Skilled Nursing

Full Title:
Improving Access to Medicare Coverage Act of 2025

Summary#

This bill would treat time a Medicare patient spends under outpatient observation in a hospital as if they were an inpatient for the purpose of qualifying for Medicare-covered skilled nursing facility (SNF) care. The main change is that outpatient observation days would count toward the 3-day inpatient hospital stay requirement that Medicare currently requires before it will pay for SNF services. The goal is to improve access to Medicare-paid post-hospital skilled nursing care for people who were placed in observation status.

  • Main change: Outpatient observation services in a hospital would be deemed inpatient time for meeting the 3-day inpatient-stay rule that opens Medicare coverage of SNF services.
  • Effective date: Applies to observation care received on or after January 1, 2026.
  • Limited retroactivity: For SNF stays completed before the bill is enacted, the change applies only if an administrative appeal about those services is filed within 90 days after enactment.
  • Implementation: The Health and Human Services Secretary may implement the change by interim rule, program instruction, or other means.

What it means for you#

  • Medicare beneficiaries who need SNF care: This could mean more people who were in observation status during a hospital stay become eligible for Medicare-paid skilled nursing care after discharge. That may lower out-of-pocket costs for those beneficiaries who would otherwise pay for SNF care themselves.
  • Patients in observation status: The hospital discharge date for counting toward the 3-day rule would be the date observation services end, unless the patient is admitted as an inpatient at that time.
  • Hospitals and clinicians: Hospitals may need to update how they record and report observation services and discharge dates to make sure those days count toward the 3-day requirement.
  • Skilled nursing facilities (SNFs): SNFs could see more patients whose SNF stay is covered by Medicare.
  • Families and caregivers: More families may no longer need to pay privately for post-hospital skilled care for beneficiaries who had observation stays.
  • Government program administration: CMS (the agency that runs Medicare) will need to change billing guidance, systems, and communications to implement the new counting rule.

Expenses#

No publicly available information.

  • This bill could increase Medicare spending because more observation-stay days would count toward the 3-day rule, likely raising the number of SNF stays paid by Medicare.
  • It could reduce out-of-pocket costs for some beneficiaries who otherwise would have paid for SNF care.
  • There may be administrative costs for CMS, hospitals, and SNFs to update billing systems, instructions, and staff training.
  • The limited retroactivity (appeals within 90 days) reduces but does not eliminate potential back payment or adjustment costs for earlier cases.

Proponents' View#

  • The bill appears intended to fix a gap where patients placed in observation status were blocked from Medicare-covered SNF care because observation days did not count toward the 3-day inpatient requirement.
  • Supporters may argue this improves fairness by aligning coverage with clinical care rather than an administrative label (inpatient vs. observation).
  • The bill could reduce unexpected or large out-of-pocket bills for people discharged from observation who need skilled nursing care.
  • Allowing HHS to use interim rules or instructions may speed implementation so beneficiaries get the benefit sooner.

Opponents' View#

  • One concern is the bill could increase Medicare spending by expanding eligibility for Medicare-paid SNF care.
  • The bill does not include a fiscal estimate or detailed budgeting information, so the size of any cost increase is unclear.
  • It may create more billing and administrative work for CMS, hospitals, and SNFs to change record-keeping and claims processes.
  • The law’s wording does not define all terms (for example, what exactly counts as observation services in every setting), so questions may remain about how to apply the rule in specific cases.
  • The limited retroactivity (only cases with appeals filed within 90 days after enactment) may leave some earlier patients without relief.