Readmission Reductions to Hit 2,200 Hospitals

As CMS begins implementation of the hospital readmission reduction program (RRP) on October 1, 2012, the first day of federal fiscal year (FFY) 2013, 2,211 hospitals face reductions to their reimbursement because of “excess readmissions,” an inordinate number of patients who return to an acute care hospital within 30 days of discharge. The percentage of Medicare patients who return to the hospital within 30 days of discharge has consistently hovered around 20 percent. CMS believes that these readmissions increase Medicare costs unnecessarily and could be avoided with better post-discharge planning, communication among patients’ treating providers and patient education. Therefore, Congress required the agency to institute the penalty for readmissions in sections 3025 and 10309 of the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148), which added subsection (q) to Soc. Sec. Act sec. 1886. The statute applies to most acute care inpatient hospitals paid under the inpatient prospective payment system (IPPS). Cancer centers, long-term care, and psychiatric hospitals are excluded, as are hospitals in Puerto Rico and Maryland.

Under the RRP, the base operating diagnosis-related groups (DRG) amount, the payment that normally would have applied for the discharge, is multiplied by an “adjustment factor.” Disproportionate share hospital (DSH) adjustments, outlier payments, indirect costs of graduate medical education, and payments to low-volume hospitals are excluded from the base operating DRG. The adjustment factor is calculated by dividing the aggregate payments for excess readmissions by the aggregate payments for all discharges. The adjustment factor is subject to a floor, which is 0.99 for FY 2013. The  adjustment factor for each hospital will be calculated with respect to each of the three conditions.

For the first year, the measure of readmissions will be limited to three primary diagnoses: heart failure, acute myocardial infarction, and pneumonia. HHS selected these conditions in the Final rule for the 2012 inpatient hospital prospective payment system update.Using data from claims for all services to Medicare beneficiaries and patients in Veterans Administration (VA) hospitals, CMS compared the diagnoses for other services to the primary diagnosis for each hospitalization. The agency calculated each hospital’s readmission rate over the three-year period from July 1, 2008, through June 30, 2011. All unplanned readmissions were counted regardless of the diagnosis. An individual admitted more than once in the 30 days following the first discharge was counted only once, however.

CMS reviewed the readmission rates of 3,367 hospitals and imposed penalties on 2,211, about 2/3 of them. Among the hospitals receiving any penalty, 278, about 1/8, received the maximum 1 percent reduction.

The Kaiser foundation has listed the hospitals that were penalized for FFY 2013 by name and noted that some very highly regarded hospitals received the maximum penalty of 1 percent.  Using CMS’ classifications of hospitals for purposes of eligibility for supplemental disproportionate share hospital (DSH) payments Kaiser analyzed the penalties imposed on each hospital by percentage of low-income patients. Kaiser found that the hospitals in the quartile with the highest percentage of low-income patients were more likely to receive the maximum penalty, or any penalty at all;100 of them received the maximum penalty of 1 percent, and only 204, just under 25 percent, received no penalty at all. In contrast, 47, or about 6 percent of the hospitals in the quartile serving the fewest poor patients, received the maximum penalty, while 379, about 46 percent, received no penalty.

Poor people are more likely than other patients to be readmitted, and the reasons often are out of the control of the hospital. For example, they may be unable to afford medication or other follow-up care. Yet hospitals serving the highest percentage of poor patients rely more on Medicare and Medicaid and have inadequate funds to begin with. In response to the proposed rule, some people argued that readmissions to these hospitals should be treated differently. However, CMS rejected that approach in the Final rule on the ground that such a measure would increase existing health disparities.