Medicare Fix: Observation Time Will Count Toward 3-Day SNF Stay Starting January 2026

The Improving Access to Medicare Coverage Act of 2025 is a major win for anyone who has ever been stuck in the Medicare observation status nightmare. This bill tackles a technicality that has cost beneficiaries thousands of dollars by fixing the rule that determines eligibility for Skilled Nursing Facility (SNF) care.

The Observation Trap, Explained

For years, Medicare has required a patient to have a qualifying 3-day inpatient hospital stay before it would cover their subsequent care in a skilled nursing facility. The problem? Hospitals often classify patients who seem stable but need monitoring as receiving “outpatient observation services.” Even if you were in a hospital bed for five days, if you were labeled ‘observation,’ that time didn’t count toward the required three days. When you needed rehab or short-term nursing care afterward, Medicare denied coverage, leaving you or your family footing the entire SNF bill—which can run into the tens of thousands.

What the Bill Changes

This new legislation essentially eliminates the difference between observation time and inpatient time for the purpose of SNF eligibility. Specifically, Section 2 dictates that if you receive outpatient observation services in a hospital, that time must now be treated as if you were a formal inpatient for the purpose of meeting the 3-day stay requirement. The day you stop receiving those observation services will also be treated as your official hospital discharge date.

This is a massive change. For example, if your parent spent 48 hours under observation followed by one day as a formal inpatient, that 72-hour combined period would now qualify them for SNF coverage. Before this bill, that same stay would have been denied.

When the Clock Starts Ticking

This new rule applies to observation services received starting on or after January 1, 2026. However, the bill does offer a crucial lifeline for people who have already been burned by the old rule. If you had a post-hospital SNF stay before this law was signed and were denied coverage because of the observation rule, you now have a 90-day window after the law’s enactment to file an administrative appeal regarding those services. If you or a loved one had to pay out-of-pocket for an SNF stay in the past few years, this is the time to check your records and consider that appeal process.

To get this change implemented quickly, the Secretary of Health and Human Services has the authority to put the amendment into practice immediately using interim final regulations or program instructions, overriding the usual, slower rulemaking process. While this speed is great for getting the benefit to patients faster, it does mean the change will roll out without the typical, lengthy public comment period.