iProtean—Many Hospitals Fined for Excess Readmissions

Medicare has announced that this October more than 2,000 hospitals will have payments reduced because of high readmission rates. The program that began last October had up to a one percent penalty during its first year; year two beginning October 1 will have a maximum penalty of two percent. Medicare estimates the fines will amount to $227 million over the year and will affect hospitals in every state but one.


Last October CMS began its readmission rate program whereby it took up to one percent from Medicare payments to hospitals with high rates of readmission within 30 days of discharge for patients with heart attacks, heart failure and pneumonia.  Penalties will gradually rise to three percent of Medicare payments and additional treatments/conditions will be added. (“Two Pay-for-Performance Programs Now in Effect,” iProtean Newsletter, October 3, 2012)


The readmission rate penalty program is viewed by many as one of the “toughest of Medicare’s efforts” to pay hospitals for the quality of their performance rather than only volume of activity. “Unlike other new programs created by the federal health law, the readmissions program offers hospitals no rewards for improvements or the opportunity to opt out.” (Rau, “Armed With Bigger Fines, Medicare To Punish 2,225 Hospitals For Excess Readmissions,” Kaiser Health News, August 2, 2013.)


In the past, patients returning to the hospital within 30 days of discharge had minimal, if any, adverse consequences for the hospital; in fact, hospitals actually earned more money because of the second visit. However, in general, readmissions are not viewed as “quality” patient care and they rack up additional expenses for Medicare. The Medicare Payment Advisory Commission estimates that eliminating one out of every 10 readmissions could save Medicare $1 billion annually.


Federal records released last week and a Kaiser Health News analysis showed the following:


  • 2,225 hospitals will have payments reduced for a year starting October 1.
  • 18 hospitals will lose two percent, the maximum possible and double the current top penalty.
  • 154 will lose one percent or more of every payment for a patient stay.
  • Hospitals that treated large numbers of low-income patients were more likely to be penalized than those treating the fewest low-income people.
  • 1,371 hospitals are receiving a lower fine than last year.
  • Penalties are increasing for 1,074 hospitals.
  • 283 hospitals not fined in the current year, including Stanford Hospital in California and Johns Hopkins’ Sibley Memorial Hospital in Washington, D.C., will be penalized in the new round.
  • October penalties will be applied on at least four out of five hospitals in Alabama, Arkansas, Florida, Kentucky, Illinois, Massachusetts, New York, New Jersey, Tennessee, West Virginia and the District of Columbia.
  • Nationally, the average fine decreased from 0.42 percent in the first year of the program to 0.38 percent.
  • Medicare determined that 1,154 hospitals kept their readmissions numbers low enough to escape fines.
  • 141 hospitals that in the first year were given the maximum penalty will get a lower punishment starting in October.


It’s difficult for individual hospitals to estimate what their fines will be because the penalties apply to every payment for a patient stay. However, the amount for some large hospitals could be as high as $1 million (using last year as a guide).


A spokesman from a mid-western hospital noted that more hospitals are taking readmissions seriously, in part because of the penalties. However, others note that if hospitals succeed in reducing readmissions they may actually end up with less revenue by forgoing those second patient admissions.


For hospitals treating low-income patients, it typically is more difficult to ensure post-discharge compliance with treatment and medication recommendations. For example, specialty diets may be too expensive; some medications may be prohibitively expensive. And some hospitals credit their low mortality rates in part to their aggressive recall of patients who are not healing.


Others note that hospitals can hardly dictate patient behavior and health after patients leave the hospital. And steps taken to intervene after discharge are not accompanied by extra payments from CMS for that care; for example, sending nurses to check in on patients at their homes, giving low-income patients free medications at discharge.


On the Horizon

Starting October 2014, Medicare will increase the final maximum penalty for high readmission rates to a three percent payment reduction for all patient stays. Also that year, Medicare plans to consider readmissions for more conditions, including chronic lung disease and elective hip and knee replacements. Health experts have also designed a way to measure all of a hospital’s readmissions, and that may ultimately be used for the penalties.


(Rau, “Armed With Bigger Fines, Medicare To Punish 2,225 Hospitals For Excess Readmissions,” Kaiser Health News, August 2, 2013)


For a refresher on both readmission rates and value-based purchasing, check out Value-Based Purchasing & Accountable Care Organizations, an advanced Finance course featuring Dan Grauman, Nate Kaufman and Monte Dube.




For a complete list of iProtean courses, click here.



iProtean Symposium & Workshop

Mark the Date!! October 2 – 4, 2013 at The Lodge at Torrey Pines, La Jolla, CA. Faculty: Michael Irwin (Citigroup), Todd Sagin, M.D., J.D. (Sagin Healthcare Consulting), Dan Grauman (DGA Partners), Pam Knecht (ACCORD LIMITED), Barry Bader (Bader & Associates), Ed Kazemek (ACCORD LIMITED).  For more information, click here.


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