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One of the ongoing problems that Medicare beneficiaries face is so-called “outpatient” hospital observation status. When a hospital classifies a patient as an outpatient, rather than as an inpatient, the result is that the patient is ineligible for Medicare Part A coverage of the post-hospital stay in a skilled nursing facility (SNF) (because the Medicare statute requires a three-day inpatient hospital stay[1]).

Federal law authorizes waiver of the three-day inpatient requirement under various circumstances, including participation in an Accountable Care Organization (ACO). However, neither federal law nor federal regulations require ACOs to give beneficiaries sufficient information on how to use and benefit from the waiver. Telling beneficiaries that nothing changes for them when they are in an ACO is inaccurate and misleading.

Moreover, ACOs benefit financially if they do not inform beneficiaries of the waiver and how to benefit from it. Since a beneficiary who goes to a SNF without a prior three-day inpatient hospital stay does not have his or her SNF stay covered by Medicare, the cost of the SNF stay (paid out-of-pocket by the beneficiary) is not attributable to the ACO.

Although this problem in ACOs’ information for beneficiaries needs to be corrected, beneficiaries in ACO’s can still try to use the waiver of the inpatient hospital stay. Knowing what to ask, and of whom, may enable patients in ACOs to qualify for coverage in a SNF, even with an “outpatient” observation stay or without any inpatient stay at all.

Shared Savings Programs, Including ACOs

The Affordable Care Act established Shared Savings Programs to encourage accountability and coordination of patient care for beneficiaries in the traditional Medicare program.[2]  ACOs are a type of Shared Savings Program, now serving nearly a quarter of beneficiaries in traditional Medicare. The theory behind ACOs is that physicians, hospitals, SNFs, and other health care providers come together in a group to provide coordinated care to Medicare beneficiaries. The goal is better care at lower cost.[3]

Pioneer ACOs is the name given to original ACOs, which ended December 31, 2016;[4] Next Generation ACOs is the current iteration of the program.[5] Some ACOs – those in “Track 3” – accept two-sided risk (that is, they can benefit or lose financially, depending on Medicare billings for beneficiaries in the ACO) and may waive the three-day inpatient hospital requirement.

A Medicare beneficiary does not choose to be in an ACO. CMS “aligns” beneficiaries to ACOs – that is, it “assigns” beneficiaries to ACOs – based on claims for the beneficiaries that are submitted by a primary care physician (PCP) who participates in the ACO.

PCPs may send letters to their Medicare beneficiaries, informing them that they are in an ACO.

CMS Information to Beneficiaries about ACOs

CMS’s website gives limited information to beneficiaries about what being in an ACO means.[6]  The website informs beneficiaries that they can continue to get care from any hospital or physician that accepts Medicare. Another CMS site informs beneficiaries that a Next Generation ACO is required to maintain a website that identifies SNFs in its network and that the physician may admit the beneficiary to an approved SNF without a prior three-day inpatient stay.[7]

More detail is provided in yet another CMS document, which discusses how and when Next Generation ACOs may waive the three-day inpatient hospital stay requirement if the patient goes to a “preferred” SNF in the ACO’s network. (A “preferred” SNF in the ACO network must have an overall rating of three or more stars for at least seven of the past 12 months in CMS’s Five-Star Quality Rating System.) This CMS document, entitled “Next Generation ACO Model; Skilled Nursing Facility (SNF) Three-Day Rule Waiver” (Apr. 2019), answers 15 Frequently Asked Questions about the waiver.[8]

Question 10 and its answer are:

Q10: Can a patient be admitted to a SNF from an observation stay?

A: Yes, that would be considered a SNF-waiver admission since there was no preceding three-day hospital stay.

  CMS also confirms in this document that

  • If a beneficiary is admitted directly to a SNF (that is, without any prior hospital stay) or with an inpatient hospital stay of fewer than three days, CMS will cover the stay in the SNF (Question 1).
  • If a beneficiary is admitted to a SNF under the three-day waiver and the beneficiary later moves to a SNF that is not an eligible SNF, CMS will cover the stay in the second SNF (Question 8).
  • If a beneficiary is admitted to a SNF under the three-day waiver, is discharged home, and returns to a non-eligible SNF within 30 days of leaving the first SNF, CMS will cover the stay in the second SNF (Question 9).

This benefit in ACO alignment is real, but how are beneficiaries to know about it? CMS’s focus on not allowing ACOs to steer beneficiaries to particular SNFs[9] and the primary importance given to beneficiaries’ free choice of provider mean that ACOs do not give beneficiaries all the information that would be useful to them.

Homepages of ACOs that the Center has reviewed reiterate that beneficiaries aligned with ACOs may choose to receive care from any Medicare provider, but they provide little information to beneficiaries about how to get covered care in a preferred SNF, with or without a prior three-day inpatient hospital stay.

For example, OneCare Vermont is an all-payer ACO in Vermont that works with Medicare, Medicaid, commercial, and self-funded insurance programs.[10] OneCare Vermont’s Patient Information page says that “your health benefits will not change in any way.”[11]  The website includes a list of provider participants for 2019, which separately lists hospitals and then “Other Participants.”[12] The alphabetical listing of “Other Participants” identifies SNFs participating in the waiver program with two asterisks (**); 17 of the SNFs listed as Other Participants have two asterisks. A beneficiary who goes to one of the six other SNFs in the network (that is, a SNF that does not have two asterisks) will not benefit from the waiver.

However, the Patient Information pages – in sections entitled “How will OneCare Vermont benefit me?,” “If my doctor is in an ACO, will my health insurance benefits change?”[13] and “Beneficiary Rights and Responsibilities”[14] – do not explain how beneficiaries can get their SNF stay covered without a three-day inpatient stay.

Integra, an ACO in Rhode Island, identifies SNFs in its preferred network, but does not include in its description any discussion of the inpatient hospital waiver.[15]  Moreover, even going to one of the SNFs does not necessarily mean that Medicare will pay for the SNF stay. Integra has three separate categories of members; the beneficiary must go a PCP, hospital, and surgeon in the specific ACO category in order to get Medicare coverage of a SNF stay.

What Should Beneficiaries Do?

Federal regulations do not require ACOs, physicians, hospitals, or SNFs to inform beneficiaries that they may not need a three-day inpatient hospital stay if they go to a preferred SNF in an ACO network. ACO websites give limited information. As a result, the burden appears to be on the beneficiary to inquire, to let it be known that he/she wants to go to a preferred SNF in the ACO network, and to choose a SNF in the network.

Steps to Take

  1. The first step is to find out whether a beneficiary is in an ACO. If the PCP informs the beneficiary, that step is completed.  If a beneficiary has not been informed by the PCP, he or she should call 1-800-MEDICARE to find out if he or she has been aligned with an ACO.[16]. When a beneficiary confirms that he/she is in an ACO, the beneficiary should go to the ACO’s website.
  2. The beneficiary should find out as much information as possible about whether the ACO waives the inpatient hospital requirement and, if so, which hospitals and physicians are in the ACO and which SNFs are preferred providers in the ACO’s network. Check the SNFs on the federal website Nursing Home Compare[17] to find other information about network SNFs.  Pay particular attention to staffing levels.
  3. If the beneficiary is in the hospital, tell the hospital discharge planner (or whoever is talking to the beneficiary and family about post-hospital care) that the patient wants to go to a preferred SNF in the ACO’s network that is eligible for the waiver of the three-day inpatient hospital requirement.


Being aligned to an ACO potentially gives beneficiaries the right to get care in a SNF without having a three-day inpatient hospital stay.  Until CMS and ACOs more fully and more accurately explain beneficiaries’ rights to them, however, the burden is on beneficiaries to ask questions and to be persistent.

January 30, 2019 – T. Edelman


[1] Medicare requires a three-day consecutive inpatient hospital stay in order to qualify for coverage of a post-hospital SNF stay.  42 U.S.C. §1395x(i); 42 C.F.R. §49.30(a)(1).
[2] Social Security Act, §1899, 42 U.S.C. §1395jjj.
[3] CMS, Accountable Care Organizations (ACOs): General Information,
[6] CMS, For Beneficiaries, Medicare Shared Savings Program,
[7] CMS, “Three-day Inpatient Hospital Stay Requirement for Care in a Skilled Nursing Facility Admission Waiver,”
[8] CMS, “Next Generation ACO Model; Skilled Nursing Facility (SNF) Three-Day Rule Waiver (Apr. 2019),
[9] 42 C.F.R. §425.305(b)(2).
[16] CMS, “Three-Day Inpatient Hospital Stay Requirement for Care in a Skilled Nursing Facility; Admission Waiver,”

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