CMS Begins Penalizing Hospitals for Readmissions

Section 3025 of the Affordable Care Act (ACA) added section 1886(q) to the Social Security Act establishing the Hospital Readmissions Reduction Program, which requires the Centers for Medicare & Medicaid Services (CMS) to reduce payments to Inpatient Prospective Payment System (IPPS) hospitals with excess readmissions, effective for discharges beginning on October 1, 2012.   

CMS defined readmission as an admission to a subsection (d) hospital within 30 days of a discharge from the same or another subsection (d) hospital.   

“Almost one in five Medicare beneficiaries that leave a hospital end up being readmitted within 30 days,” said Janet Corrigan, PhD, MBA, president and CEO of NQF. “Those readmissions cost about $15 billion annually, and many have the potential to be prevented. These new measures help push us as a nation to address this serious problem.”  

Consequently, Kaiser Health News recently reported that starting in October, more than 2,000 hospitals — including some nationally recognized ones — will be penalized by CMS because many of their patients are readmitted soon after discharge.  “Together, these hospitals will forfeit about $280 million in Medicare funds over the next year as the government begins a wide-ranging push to start paying health care providers based on the quality of care they provide.” 

The significant penalties levied on hospitals underscore the need for more hospitals and health care providers to receive continuing medical education (CME) to improve their patient outcomes and reduce readmissions.  

Background 

In the FY 2012 IPPS final rule, CMS finalized the readmission measures for Acute Myocardial Infarction, (AMI) Heart Failure (HF) and Pneumonia (PN) and the calculation of the excess readmission ratio, which will then be used, in part, to calculate the readmission payment adjustment under the Hospital Readmissions Reduction Program.   

CMS finalized the calculation of a hospital’s excess readmission ratio for AMI, HF and PN, which is a measure of a hospital’s readmission performance compared to the national average for the hospital’s set of patients with that applicable condition.  As an example, if a hospital received the maximum penalty of 1 percent and it submitted a claim for $20,000 for a stay, Medicare would reimburse it $19,800. 

CMS established a policy of using the risk adjustment methodology endorsed by the National Quality Forum (NQF) for the readmissions measures for AMI, HF and PN to calculate the excess readmission ratios.  CMS did not take into account patients’ racial or socio-economic background. 

The excess readmission ratio includes adjustment for factors that are clinically relevant including patient demographic characteristics, comorbidities, and patient frailty.  Finally, CMS established a policy of using three years of discharge data and a minimum of 25 cases to calculate a hospital’s excess readmission ratio of each applicable condition.  For FY 2013, the excess readmission ratio is based on discharges occurring during the 3-year period of July 1, 2008 to June 30, 2011. 

Hospital Penalties 

The penalties will fall heaviest on hospitals in New Jersey, New York, the District of Columbia, Arkansas, Kentucky, Mississippi, Illinois and Massachusetts, a Kaiser Health News analysis of the records shows.  Hospitals that treat the most low-income patients will be hit particularly hard. 

A total of 278 hospitals nationally will lose the maximum amount allowed under the health care law: 1 percent of their base Medicare reimbursements. Several of those are top-ranked institutions, including Hackensack University Medical Center in New Jersey, North Shore University Hospital in Manhasset, N.Y. and Beth Israel Deaconess Medical Center in Boston, a teaching hospital of Harvard Medical School.  

According to Medicare records, 1,933 hospitals will receive penalties less than 1 percent; the total number of hospitals receiving penalties is 2,211. Massachusetts General Hospital in Boston, which U.S. News last month ranked as the best hospital in the country, will lose 0.5 percent of its Medicare payments because of its readmission rates, the records show.  The smallest penalties are one hundredth of a percent, which 50 hospitals will receive. 

Gundersen Lutheran Health System in La Crosse, Wis., and Intermountain Medical Center in Murray, Utah, were among 1,156 hospitals where Medicare determined the readmission rates were acceptable. Those hospitals will not lose any money.  On average, the readmissions penalties were lightest on hospitals in Utah, South Dakota, Vermont, Wyoming and New Mexico, the analysis shows. Idaho was the only state where Medicare did not penalize any hospital.  

One of the problems with readmissions is that “hospitals have had little financial incentive to ensure patients get the care they need once they leave, and in fact they benefit financially when patients don’t recover and return for more treatment.”

Nearly 2 million Medicare beneficiaries are readmitted within 30 days of release each year, costing Medicare $17.5 billion in additional hospital bills.  CMS noted that readmissions alone cost $26 billion in a decade. The national average readmission rate has remained steady at slightly above 19 percent for several years, even as many hospitals have worked harder to lower theirs.   

CMS has been trying to help hospitals and community organizations by giving grants to help them coordinate patients’ care after they’re discharged.  Leaders at many hospitals say they are devoting increased attention to readmissions in concert with other changes created by the health law. 

Hospitals That Serve Poor Are Hit Harder than Others 

The penalties have been intensely debated.  Studies have found that African-Americans are more likely to be readmitted than other patients, leading some experts to be concerned that hospitals that treat many blacks will end up being unfairly punished. 

Some safety-net hospitals that treat large numbers of low-income patients tend to have higher readmission rates, which the hospitals attribute to the lack of access to doctors and medication these patients often experience after discharge.  

Kaiser’s analysis of the penalties shows that 76 percent of the hospitals that have a lot of low-income patients will lose Medicare funds in the fiscal year starting in October. Only 55 percent of the hospitals treating few poor patients are going to be penalized, the analysis shows.  The hospital industry has emphasized that poor patients are more likely to be readmitted, as they have a tougher time affording medications, often don’t have access to doctors for check-ups and can have difficulty securing transportation to get follow-up care.  Hospitals also have complained that many safety-net hospitals operate on tight margins. 

One hundred hospitals in the group with the most poor patients –12 percent – will receive the maximum penalty from CMS: a 1 percent decrease in their reimbursements starting in October. By contrast, only 47 hospitals, or 6 percent, in the group with the fewest poor patients will receive the maximum penalty, the data show.  Dr. John Lynch, chief medical officer at Barnes-Jewish Hospital in St. Louis, which is receiving the maximum penalty, noted that “Some of the hospitals that are going to pay penalties are not going to be able to afford these types of interventions,” who estimated the penalty would cost Barnes-Jewish $1 million. 

Kaiser’s analysis of the data show that 204 safety net hospitals overcame their patients’ challenges to minimize readmissions to a level that Medicare determined did not warrant any penalty. Among the hospitals with the fewest low-income patients, 379 avoided any penalty.  

Atul Grover, chief public policy officer for the Association of American Medical Colleges, called Medicare’s new penalties “a total disregard for underserved patients and the hospitals that care for them.”  Blair Childs, an executive at the Premier healthcare alliance of hospitals, said: “It’s really ironic that you penalize the hospitals that need the funds to manage a particularly difficult population.” 

Medicare disagreed, writing that “many safety-net providers and teaching hospitals do as well or better on the measures than hospitals without substantial numbers of patients of low socioeconomic status.”  Safety-net hospitals that are not being penalized include the University of Mississippi Medical Center in Jackson and Denver Health Medical Center in Colorado.  “We do not want to hold hospitals to different standards for the outcomes of their patients of low socioeconomic status,” CMS wrote in a regulation issued earlier this month.  The agency added:”"We do not want to mask potential disparities or minimize incentives to improve the outcomes of disadvantaged populations.” 

However, there are a number of aspects at Denver Health that are hard to replicate everywhere. Denver Health, Colorado’s biggest safety net system, includes a 477-bed hospital and eight community primary care clinics.  About a third of its patients are uninsured, another third are on Medicaid. The integrated system and low reimbursement rates create both a financial incentive and an opportunity to provide as much care as possible in the lower cost outpatient settings. 

“We also are a hospital that is often at full capacity,” Dr. Thomas MacKenzie of Denver Health says, “so we certainly have an incentive when we’re busting at the seams…to make sure patients aren’t readmitted unnecessarily.”  Denver Health was also an early adopter of electronic medical records. MacKenzie says easy sharing of patient information between the hospital and clinics effectively keeps admissions down. It also helps those recently discharged get priority in scheduling follow-up appointments, putting them at the head of what can be long wait lists at community clinics. 

But experts say some hospitalizations are simply unavoidable.  “My view is that in the current state of the American health-care system, a 30-day readmission is not a hospital metric, a 30-day readmission rate is a health system metric,” said Dr. P.J. Brennan.

Brennan, the chief medical officer for the University of Pennsylvania Health System, said hospitals are trying to keep their arms around patients after discharge, but a patient’s personal finances, health literacy and access to primary care are beyond the control of any individual institution. 

“No patient should be readmitted within seven days. Seven days is something that every hospital ought to be able to take care of,” Brennan said. “At some point, other factors begin to impact.” 

Moving Forward 

The maximum penalty for readmissions will increase after this year, to 2 percent of regular payments starting in October 2013 and then to 3 percent the following year. This year, the $280 million in penalties comprise about 0.3 percent of the total amount hospitals are paid by Medicare.  CMS will also soon penalize or reward hospitals based on how well they adhere to basic standards of care and how patients rated their experiences.  Overall, Medicare has decided to penalize around two-thirds of the hospitals whose readmission rates it evaluated. 

The implementation of penalties for hospital readmissions underscores the need for additional training and education of healthcare providers at hospitals.  Continuing medical education (CME) can address many of these issues and help healthcare providers attain their goals in ensuring patients with the measured conditions are not readmitted.