Hospitals Treating Dual Eligibles May Receive Higher Penalty for Readmissions

Hospitals that serve a higher portion of individuals who are eligible for both Medicaid and Medicare are more likely to have higher readmission rates, according to a study by KNG Health Consulting, Inc. This higher rate of readmissions may result in hospitals that treat dual eligible individuals to have their reimbursement reduced under the Hospital Readmissions Reduction Program (HRRP). KNG determined that the higher rate of readmissions amongst dual eligible individuals is due to community factors and not the quality of care provided at the hospital.


Beginning with admission on or after October 1, 2012, hospitals could have their reimbursements reduced by 1 percent if their rate of readmission was too high. For admissions after October 1, 2013, this reduction could be as high as 2 percent and beginning with admission after October 1, 2014, the reduction could be as high as 3 percent. CMS uses a formula to determine if a hospital’s readmission rate is too high and how much the hospital’s reimbursement will be reduced.

Kaiser Health News reports that beginning on October 1, 2013, 2,225 hospitals are having their reimbursements reduced for having too high of a readmission rate. Of those 2,225 only 18 are receiving the full 2 percent reduction and another 154 will be receiving a 1 percent reduction. The majority of hospitals that are receiving a reduction in 2014 will be receiving a reduction of less than 1 percent. Kaiser said that the total reduction will result in a loss of $227 million.

Higher Readmission Rates

KNG reported that dual eligibles individual have a readmission rate that is 5.6 percent higher for patients who had a heart attack, 3.7 for heart failure, and 2.8 percent for pneumonia, the three conditions which CMS is currently tracking for rates of readmission. CMS will start measuring readmission rates for elective hip and knee replacements and chronic obstructive pulmonary disease in 2015.

These increased rates of readmission for dual eligibles are more likely to be the result of community characteristics such as income and availability of primary care not at a hospital site. KNG examined other factors to see if the quality of care at hospitals that treat more dual eligibles is not as good as the quality of care at hospitals that treat less dual eligibles. There was no difference among the variables they examined. The only difference was the number of dual eligibles treated. This leads to the conclusion that the number of dually eligible patients a hospital treats is an indicator of higher readmission rate. KNG concluded that hospitals that treat a higher proportion of dual eligible patients are going to loss reimbursement for factors outside of their control.

In addition this reduction in rates will occur in hospitals which do not generate enough income to offset expenses. KNG found that half of the hospitals in the top quartile for treating the most dual eligible patients had more expenses than revenues in 2008 and 2009 while only 20 percent of hospitals had more expenses than revenues that where in the lowest quartile of the number of dual eligibles treated.


Two different ways of measuring readmissions and assessing reimbursement reductions were made by KNG. One would be to provide the regular payment for the first episode of care, but to provide a lower payment for any readmissions within a fixed time period. This proposal would incentivize the hospital to reduce readmissions as the hospital would essentially be competing against itself. The second approach would be to stratify quality measures so that there would be different rates of readmission for hospitals that treat a higher percentage of dual eligible individuals and those that do not. Under this proposal, hospitals that treat a higher percentage of dual eligible individuals would be compared against each other.