Medicare Rules for Nursing Home Care

Understanding the Three-Day Inpatient Rule

Senior woman in hospital bed
Medicare requires you to be in the hospital for three days before it will pay for nursing home care.. Portra Images/Taxi/Getty Images

Staying in a hospital is expensive. An inpatient hospital stay averages $1,628 - $2,088 per day. A stay in a skilled nursing facility costs $233 - $253 per day depending on whether you stay in a double occupancy or private room. Transferring to a skilled nursing facility sooner, where you can continue to get the services you need, will cut costs. Despite this, Medicare has rules in place that could keep you in the hospital longer.

The Two-Midnight Rule

The Two-Midnight Rule has been in effect since October 2013. This rule defines how your stay will be billed at the hospital. If your evaluation is expected to span a period of at least two midnights, you would be considered appropriate for inpatient status. Shorter stays will likely be labeled as "under observation".

The Two-Midnight Rule has implications for your wallet. Inpatient stays are covered under Medicare Part A, observation stays under Medicare Part B. Generally speaking, you will pay more for an observation stay than an inpatient stay based on how coinsurance and deductibles work for these Medicare parts. Hospitals face financial risks as well. They could be audited and fined by Medicare if they do not properly assign patients.

The Three-Day Inpatient Rule

The Three-Day Inpatient Rule existed long before the Two-Midnight Rule, as far back as the 1960s. This rule says that you have to be admitted as an inpatient for at least three days in order for Medicare to pay for subsequent care at a skilled nursing facility.

A sneaky little detail is that the day you are transferred to the skilled nursing facility does not count towards those three days. Essentially, you need to be in the hospital at least four calendar days. 

This is where the Two-Midnight Rule complicates things. The day you are first seen, the hospital has to make a decision.

Are you an inpatient or an outpatient, i.e. "under observation"? Hospitals may be afraid to classify you as an inpatient if they are not sure you will need care in the hospital long enough to meet Medicare's criteria. They may label you as "under observation".

If you stay longer than two midnights, your admission may be changed to inpatient status. Because Medicare does not allow the hospital to retroactively change the order, the preceding days will still count as outpatient status. If you need skilled nursing care, now you will need three more days in the hospital!

The unfortunate reality is that many patients stay in the hospital longer than is medically necessary just so Medicare will pay for their rehabilitation stay at the nursing facility.

How Medicare Could Save Money

A study in Health Affairs looked closely at inpatient admissions for Medicare Advantage beneficiaries. While Medicare Advantage plans cover everything that Original Medicare does, they have the option of waiving the Three-Day Inpatient Rule. Hospital stays were 10 percent shorter with the Medicare Advantage plans that waived the three-day requirement, saving on average $1,500 per Medicare Advantage beneficiary. More importantly, the quality of care for these patients remained unchanged.

They did not have longer stays in the skilled nursing facilities even though they left the hospital sooner.

Medicine is different than it was in the 1960s. With medical advancements making shorter hospital stays possible, it may be time for Medicare to change its policy.


Becker's Hospital Review. Average cost per inpatient day across 50 states. Published August 4, 2014.

Grebla RC, Keohane L, Lee Y, Lipsitz LA, Rahman M, Truvedi AN. Waiving The Three-Day Rule: Admissions And Length-Of-Stay At Hospitals And Skilled Nursing Facilities Did Not Increase. Health Affairs. August 2015, 34(8): 1324-1330. doi: 10.1377/hlthaff.2015.0054

Skilled Nursing Facilities. Nursing Home Costs by State. Accessed August 8, 2015.

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