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The Burning Platform Has Arrived: The Readmissions Reduction Mandate Is Now

October 8, 2012
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A recent MedPAC report underscores the challenges facing hospitals nationwide under Medicare’s mandatory readmissions reduction program


A report published last month by the Medicare Payment Advisory Commission, or MedPAC, provides strong analysis that should make every hospital executive in the country sit up at take notice. Examining the avoidable readmissions reduction program that went into effect Oct. 1 under the terms of the Affordable Care Act (ACA), analysts at MedPAC found that 67 percent of hospitals that receive Medicare reimbursement will see a financial penalty in 2013, averaging $125,000 in the first year. That average amount will be based on the levying of up to a 1 percent penalty under Medicare, with MedPAC’s analysts see penalties totaling in aggregate 0.24 percent of Medicare revenues in 2013. Meanwhile, up to 2 percent of Medicare reimbursement will be put at risk in 2014 under that program.

The white paper, titled “Refining the Hospital readmissions Reduction Program,” and authored by David Glass, Craig Lisk, and Jeff Stensland, is a very thoughtful, well-researched document, and offers both detailed analysis and recommendations.

The authors find slight variations in the types of penalties to be expected to be levied, based on their preliminary analysis. They find that rural hospitals will see a higher penalty as a percentage of their overall Medicare payment, versus urban hospitals (0.29 percent versus 0.24 percent). On the other hand, they see major teaching hospitals seeing a higher penalty than non-teaching hospitals (0.29 percent versus 0.24 percent).

Meanwhile, the report’s authors also call for refining the Medicare program’s readmissions policy, including the following recommendations: maintain or crease average hospitals’ incentive to reduce readmissions; increase the share of hospitals that have an incentive to reduce readmissions; make penalties a consistent multiple of the costs of readmissions; and “be at least budget-neutral to current policy, with a preference for lower readmission rates rather than higher penalties.”

On a more detailed level, the authors of the report argue that the computation of the penalty multiplier needs to be adjusted for fairness and effectiveness. And they note that, at the present time, it is “difficult to distinguish between random variation and true performance improvement for hospitals with [a] small number of cases.”

All of these seem to be highly reasonable judgments and elements of analysis. And they support a very reasoned, carefully calibrated perspective on the issues at hand. What’s clear, though, is that the readmissions juggernaut has launched, and is only going to become a more irresistible force over time.

Is your organization ready? Our publication has long urged healthcare IT leaders to sit down with clinician and administrative leaders in their organizations and move forward with alacrity to analyze and make progress on avoidable readmissions. Some healthcare leaders were, understandably, hedging their bets earlier this year, as they waited to see what would happen to the ACA in the Supreme Court. But it was always very clear that if the nation’s high court were to affirm the ACA’s constitutionality—as it ultimately did in late June—the terms of the major mandatory performance improvement programs under Medicare would very rapidly become active. And that is exactly what has happened.

So the burning platform is clearly here when it comes to readmissions work. And if your organization has not yet laid a strong foundation for the analytics required to succeed under the avoidable readmissions reduction program, the time is absolutely now to get moving, because there’s simply no longer any excuse not to do so. And it will take time for hospitals to get good at this, since until now, they’ve not been incented to do so. In short, when it comes to readmissions reduction work, the future is already here. And it’s time to get into the future—now.