"Rather than rely on the three-night stay to identify appropriate patients for skilled nursing and rehabilitative services, the Centers for Medicare and Medicaid Services (CMS) could implement specific functional criteria … such as acute decline in mobility, impairment of activities of daily living or presence of delirium, and use the savings from reduced hospitalizations to provide appropriate payments for home-based or nursing home-based treatments," writes Lewis Lipsitz, MD, Chief of Gerontology at Beth Israel Deaconess Medical Center and Director of the Institute for Aging Research and a Professor of Medicine at Harvard Medical School in a JAMA "Viewpoint ."

This could be paired with a shared-savings model like the current move to quality contracts and accountable care organizations that, when used in conjunction with efficient case management and quality controls, can provide appropriate saving incentives.

The three-night stay rule was established in 1965, when it typically took three days for a Medicare patient to be admitted and evaluated, have a care plan developed and be discharged. The process now takes only a day or two.

Over the years, waivers of the rule were allowed. Studies suggested the waiver had little effect on the quality of patient care and that small financial savings could be achieved.

However a review after passage of the short-lived Medicare Catastrophic Care Act of 1988 found a 243 percent increase in Medicare spending attributed to an increase in volume in skilled nursing facility (SNF) care.

"Without the three-night stay requirement, nursing homes may have triggered the SNF benefit for changes in condition that were previously managed with customary nursing home services," notes Lipsitz.

The rule was reinstated after the law's 1989 repeal and has generated continued debate. Former CMS Administrator Donald Berwick recently called for the rule's elimination as one way to clarify confusion surrounding the classification of "inpatient" versus "observation" patients.

Lipsitz notes the current rule "may create incentives to hospitalize patients unnecessarily." And while he acknowledges "there is little empirical evidence that elimination of the three-night stay rule will improve patient care without increasing Medicare costs, there is justifiable concern that this rule contributes to suboptimal care and increased costs attributable to avoidable hospitalizations.

For example, he cites hypothetical cases where a patient who needs rehabilitation after a fall at home is admitted to a hospital to be eligible for skilled nursing care -- or where a patient is transferred from a nursing home to a hospital to relieve an overburdened licensed practical nurse -- at a significantly higher cost.

While agreeing with the "imperative to reduce excessive use of hospitals and provide appropriate care in less expensive venues, (t)his national priority should be consistent with an effort to eliminate the three-night stay requirement and provide enhanced care for older patients wherever they live -- in the community or in a nursing home," Lipsitz writes.