Hospitals Face Financial Penalties with Readmissions

A recent New York Times article describes the pinch hospitals are feeling from the Centers for Medicare and Medicaid Services in regards to readmissions. Last month CMS began levying financial penalties against 2,217 hospitals considered to have too many readmissions in the Medicare program. Of those hospitals, 307 will receive the maximum punishment under the Hospital Readmissions Reduction Program, a 1 percent reduction in Medicare’s regular payments for every patient over the next year.

With nearly one in five Medicare patients returning to the hospital within a month — estimated to be around two million patients a year — readmissions will cost the government more than $17 billion this year.

Established by the Patient Protection and Affordable Care Act, the focus on readmissions is part of health care reform’s effort to eliminate unnecessary care and curb Medicare’s growing spending, which reached $556 billion in 2012. According to the Congressional Budget Office, hospital inpatient costs make up a quarter of that spending and are projected to grow by more than 4 percent annually in coming years.

Although the penalties will recoup about $300 million this year, the goal of the readmission reduction program is to pressure hospitals to pay attention to what happens to their patients after they walk out the door.

Prior to the establishment of the readmissions reduction program, hospitals were not incentivized to address the issue of readmissions partly because of Medicare’s payment system. Under Medicare, a hospital is generally paid a set fee for a patient’s stay; the shorter the visit, the more revenue a hospital can keep. Hospitals also get paid when patients return. Thus, until the new penalties kicked in, hospitals had no incentive to make sure patients were not readmitted.

The maximum penalty will increase to 2 percent next October and then reach 3 percent of reimbursements in October 2015. Currently, CMS only evaluates readmissions of heart attack, heart failure and pneumonia patients, counting every rebound, even ones not related to the original reason for hospitalization. The penalties are based on readmission rates in the past and applied to future payments for all Medicare patients.  That will change as CMS adds more conditions to the list over the next few years.

It remains to be seen whether the pressure on patient readmissions will cause some facilities to focus more on this matter and not address other concerns such as quality of care within the facility.