Observation Status Deprives Medicare Beneficiaries of their Skilled Nursing Facility Benefit. Period.

The facts are in: The ever-increasing use of observation status deprives many Medicare beneficiaries of care and coverage in skilled nursing facilities (SNFs). 

In 2018, research by Avalere Health confirmed that the use of SNFs by beneficiaries in the traditional Medicare program declined each year between 2009 and 2016. Avalere identified the cause as “fewer hospital inpatient admissions and more frequent observation stays.”[1] In 2009, there were, per capita, 1,808 SNF days per 1,000 beneficiaries; in 2016, per capita SNF days declined to 1,539 days per 1,000 beneficiaries.[2] Avalere data showed that the 17% decline in per capita hospital discharges occurred while observation stays dramatically increased.[3]

Last month, the Medicare Payment Advisory Commission (MedPAC) confirmed these findings.  Its March 2019 Report to the Congress: Medicare Payment Policy documents, “From 2012 through 2017, the volume of observation care increased spending by 19.7 percent.”[4] Between 2007 and 2017, inpatient discharges declined by 20.4% while outpatient visits per beneficiary increased by 43.5%.[5]

These reports document that large and increasing numbers of beneficiaries in traditional Medicare are classified as outpatients in observation when they are receiving medically necessary care in the hospital. However, Medicare Part A does not cover beneficiaries’ stays in SNFs unless the beneficiaries have had a three-day qualifying inpatient hospital stay.[6] These reports by Avalere and MedPAC document that fewer beneficiaries are receiving post-hospital care in SNFs.

For many years, the Center for Medicare Advocacy has heard from beneficiaries across the country who were in the hospital for three or more midnights, but who did not qualify for Part A coverage of their SNF stays because some or all of their midnights in the hospital were classified as outpatient observation.

The Improving Access to Medicare Coverage Act, H.R. 1682/S. 735, which counts all the time in the hospital for purposes of satisfying the three-day inpatient requirement, would help many Medicare beneficiaries get Medicare Part A coverage for their SNF stays.

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[1] Avalere Health, “Medicare Patients Are Using Fewer Skilled Nursing Services,” p.1 (Mar. 15, 2018), https://avalere.com/press-releases/medicare-patients-are-using-fewer-skilled-nursing-services.
[2] Id., Figure 1, “Per Capita SNF Days Have Decreased Every Year Since 2009.”
[3] Id. 2, Figure 2, “Frequency of Hospital Admissions Has Fallen, in Part Due to Increases in Observation Stays.”
[4] Medicare Payment Advisory Commission (MedPAC), Report to the Congress: Medicare Payment Policy, 74-75 (Mar. 2019).  During the six-year period, total spending for observation care under OPPS [outpatient prospective payment system] rose 263 percent, largely attributable to the inclusion, in 2016, of certain ancillary services in the payment rate for observation status. Id. 74.
[5] Id. 73, 72, Figure 3-2.
[6] 42 C.F.R. §409.30(a)(1).