2009, leading the researchers to conclude that out-
patient observation status was becoming a substitute 
for inpatient admission. The same study also docu-
mented increases in long-stay outpatient status, in-
cluding an 88-percent increase in observation stays 
exceeding 72 hours. 
(4) To health care providers, care provided dur-
ing observation is indistinguishable from the care 
provided to inpatients and all medically necessary 
care is provided, regardless of patient status. Bene-
ficiaries are generally not informed of their inpatient 
or outpatient status and assume that they are inpa-
tients when they are placed in a hospital bed, only 
to find out that such care was not counted for pur-
poses of satisfying eligibility requirements for medi-
cally prescribed Medicare coverage of post-hospital 
care in a skilled nursing facility. 
(5) Older Americans and people with disabilities 
who are hospitalized but do not meet the 3-day inpa-
tient hospital stay requirement simply because they 
were placed in ‘‘outpatient observation status’’ for 
some or all of their hospital stay (even when their 
total actual stay exceeds three days in the hospital) 
can face a significant and unexpected financial bur-
den, which can amount to thousands of dollars, for 
VerDate Sep 11 2014 
23:20 Mar 31, 2015
Jkt 049200
PO 00000
Frm 00003
Fmt 6652
Sfmt 6201
E:\BILLS\H1571.IH
H1571
SSpencer on DSK4SPTVN1PROD with BILLS
skilled nursing facility care. Among beneficiaries 
who received care in a skilled nursing facility that 
Medicare did not cover, the average out-of-pocket 
charges were more than $10,000, according to the 
Office of Inspector General of the Department of 
Health and Human Services. 
(6) The Centers for Medicare & Medicaid Serv-
ices (CMS) attempted to provide hospitals with clar-
ity on which patients should be categorized as inpa-
tients in the inpatient hospital payment rule for fis-
cal year 2014. However, this rule fails Medicare 
beneficiaries because it does not address the problem 
and explicitly states that days spent in observation 
status do not count for purposes of satisfying the 3- 
day inpatient stay requirement. 
(7) Because of CMS’ policy which indicates 
days under observation do not count towards the 3- 
day inpatient stay requirement, some patients under 
observation and their families will continue to face 
a significant, often insurmountable financial burden 
if they need skilled nursing care after their hospital 
stay. 
(8) This Act updates Medicare policy by deem-
ing patients under observation as inpatients for the 
purposes of satisfying the Medicare 3-day inpatient 
VerDate Sep 11 2014 
01:07 Mar 31, 2015
Jkt 049200
PO 00000
Frm 00004
Fmt 6652
Sfmt 6201
E:\BILLS\H1571.IH
H1571
SSpencer on DSK4SPTVN1PROD with BILLS
stay requirement. This Act does not repeal the 3-day 
inpatient stay requirement; rather it simply expands 
the Secretary’s administrative definition of ‘‘inpa-
tient’’ for purposes of the 3-day stay requirement to 
include time spent under observation. As such, it is 
not a reprise of the Medicare Catastrophic Coverage 
Act of 1988, which repealed the 3-day requirement. 
This Act simply restores the original objective of the 
3-day rule, which was to ensure Medicare coverage 
of skilled nursing facility stays following hospital 
care for patients who stayed in the hospital for 3 
days. 
(9) It is the intent of this Congress, through 
this Act, to allow access to skilled nursing care for 
the population of beneficiaries who meet medical ne-
cessity requirements for such care, but who do not 
satisfy the 3-day inpatient stay requirement simply 
because some or all of their time in the acute care 
hospital is characterized as ‘‘outpatient observation 
status’’ for billing purposes. 
(10) It is the understanding of Congress that 
the Secretary of Health and Human Services will 
monitor patterns of behavior to ensure that pro-
viders deliver appropriate and needed levels of care. 
VerDate Sep 11 2014 
01:07 Mar 31, 2015
Jkt 049200
PO 00000
Frm 00005
Fmt 6652
Sfmt 6201
E:\BILLS\H1571.IH
H1571
SSpencer on DSK4SPTVN1PROD with BILLS
(11) The Office of the Inspector General of the 
Department of Health and Human Services is sup-
portive of counting hospital observation days to-
wards the 3-day inpatient stay requirement. In addi-
tion, in September 2013, the Congressionally estab-
lished 
Commission 
on 
Long-Term 
Care 
rec-
ommended that CMS count time spent in observa-
tion status toward meeting Medicare’s 3-day stay re-
quirement. 
SEC. 3. COUNTING A PERIOD OF RECEIPT OF OUTPATIENT 
OBSERVATION SERVICES IN A HOSPITAL TO-
WARD THE 3-DAY INPATIENT HOSPITAL STAY 
REQUIREMENT FOR COVERAGE OF SKILLED 
NURSING FACILITY SERVICES UNDER MEDI-
CARE. 
(a) IN GENERAL.—Section 1861(i) of the Social Se-
curity Act (42 U.S.C. 1395x(i)) is amended by adding at 
the end the following: ‘‘For purposes of this subsection, 
an individual receiving outpatient observation services 
shall be deemed to be an inpatient during such period, 
and the date such individual ceases receiving such services 
shall be deemed the hospital discharge date (unless such 
individual is admitted as a hospital inpatient at the end 
of such period).’’. 
VerDate Sep 11 2014 
01:07 Mar 31, 2015
Jkt 049200
PO 00000
Frm 00006
Fmt 6652
Sfmt 6201
E:\BILLS\H1571.IH
H1571
SSpencer on DSK4SPTVN1PROD with BILLS
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply to receipt of outpatient observa-
tion services beginning on or after January 1, 2015, but 
applies to a period of post-hospital extended care services 
that was completed before the date of the enactment of 
this Act only if an administrative appeal is or has been 
made with respect to such services not later than 90 days 
after the date of the enactment of this Act. Notwith-
standing any other provision of law, the Secretary of 
Health and Human Services may implement such amend-
ment through an interim final regulation, program in-
struction, or otherwise. 
Æ 
VerDate Sep 11 2014 
01:07 Mar 31, 2015
Jkt 049200
PO 00000
Frm 00007
Fmt 6652
Sfmt 6301
E:\BILLS\H1571.IH
H1571
SSpencer on DSK4SPTVN1PROD with BILLS