S-4641-119
Read twice and referred to the Committee on Finance.
Sponsored by Susan Collins (R-ME)
What it does
This bill would change how Medicare counts time spent in a hospital for purposes of qualifying for skilled nursing facility (SNF) coverage. Currently, Medicare requires a patient to have been formally admitted as an inpatient for at least three consecutive days before Medicare will cover a SNF stay. Time spent under "observation status" — where a hospital monitors a patient without formally admitting them — does not count toward that three-day requirement. This bill would count observation-status time the same as formal inpatient time when determining SNF eligibility.
Who benefits
Medicare beneficiaries (primarily seniors and people with disabilities) who are placed under observation status rather than formally admitted, and who subsequently need skilled nursing facility care. Patients who currently receive large unexpected bills for SNF care because their observation time did not qualify them for Medicare coverage. Skilled nursing facilities, which may see increased Medicare-covered admissions. Patient advocacy organizations that have long pushed for this change. Family members and caregivers of affected patients who currently bear financial responsibility for uncovered SNF costs.
Who is hurt
The federal government and Medicare trust funds, which would face higher spending as more SNF stays become Medicare-covered. Medicare Advantage insurers, who may face increased claims. Taxpayers who fund Medicare, who could see indirect cost increases. Hospitals face no direct harm but may face administrative adjustments in how they classify and document observation stays. Potentially, other Medicare beneficiaries if increased SNF spending leads to future benefit adjustments or premium increases.
Supporters argue
Supporters argue that observation status is a billing classification invisible to patients — seniors often have no idea they are not formally "admitted" and are blindsided by thousands of dollars in uncovered SNF costs after discharge. They contend this creates an arbitrary and unfair outcome where two patients with identical medical needs receive different Medicare coverage based solely on a hospital's internal paperwork decision, not the patient's actual condition or length of stay.
Opponents argue
Opponents argue that eliminating the distinction between observation status and inpatient admission would increase Medicare spending without a corresponding improvement in care quality, adding fiscal pressure to an already strained program. They contend that observation status serves a legitimate clinical and administrative purpose — it allows hospitals to monitor patients before committing to a full admission — and that blurring this line could incentivize longer, costlier observation stays or reduce hospitals' flexibility in managing patient flow.
Constitutional context
This bill modifies an existing Medicare program, which Congress established under the Taxing and Spending Clause (Art. I, §8, cl. 1). No significant constitutional tension is present; Congress has broad, well-established authority to set eligibility rules for federal spending programs, as affirmed in NFIB v. Sebelius (2012).
Checks and balances
Congress gains authority to redefine SNF eligibility criteria; the Centers for Medicare and Medicaid Services (CMS) would implement the change through rulemaking, subject to post-Loper Bright independent judicial review if challenged.
Historical precedent
The NOTICE Act (2015) required hospitals to notify patients of their observation status within 36 hours, acknowledging the problem legislatively, but stopped short of counting observation time toward the three-day inpatient requirement as this bill would do.