A Medicare skilled nursing facility (SNF) claim generally qualifies for reimbursement only if the SNF stay was preceded by an inpatient hospital stay of at least 3 days and the hospital discharge was within 30 days of the SNF admission. This final report estimates, based on a statistical sample, that Medicare inappropriately paid Illinois providers $900,000 for SNF services during calendar year 1996 because the 3-day hospital stay requirement was not met. This occurred primarily because the fiscal intermediary (FI) did not cross check SNF claims against hospital claims. The fiscal intermediaries involved in our sample reviewed the medical records and data for the sampled claims and concurred that the SNF stays were ineligible for Medicare reimbursement and indicated they would request refunds for each incorrect payment identified. We recommended that the Health Care Financing Administration monitor the FIs' recovery actions identified in Illinois and report the results through the normal audit resolution process, issue a program memorandum to advise all FIs and SNFs of the results of our review, and consider having the FIs perform a review of the 3-day hospital stay requirement as part of their payment safeguard activities. The HCFA concurred with our recommendations.