Without a three day hospital stay as an inpatient, Medicare will not cover long term care costs. Many patients are admitted under observation status, without their knowledge (Medicare does not require notification) making them ineligible for their subsequent nursing home costs to be covered. There is no difference in the level of care one receives as an inpatient or observation patient. Unless told, one would have no idea of their status. The status can change during the admission - back and forth between inpatient and observation without one's knowledge. Should a patient require rehabilitation in a long term care facility, after surgery or stroke, for instance, those costs are not covered. Many hospitals utilize a tool created by McKesson Health Services, called InerQual, to determine who is eligible for inpatient admission. The company claims the tool is proprietary, a trade secret. All of this is tied to reimbursement. As Medicare tightens its budget and performing recovery audits which are retroactive, facilities are looking to minimize costs. For more information: The Washington Post