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Readmissions: The Numbers Are In, and They Are Dramatic for Hospitals

October 4, 2014
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This past week’s Kaiser Health News report on readmissions penalties should be a wake-up call for hospital organization leaders nationwide

The folks at the Kaiser Health News service have done a phenomenal job in examining what’s going on with Medicare readmissions penalties on hospitals, and the numbers are in—and they are dramatic for hospital leaders nationwide.

On Oct. 2, Kaiser Health News reported, based on a study of Medicare data,  that 2,610 U.S. hospitals, or fully three-quarters of those subject to the Hospital readmissions Reduction Program under the terms of the Affordable Care Act (ACA) are being penalized this year, meaning that they will receive lower Medicare payments for every Medicare patient stay from October 1 of this year through September 30, 2015, not just for the patients who are readmitted. Across that period of time, the fines will total $428 million.

The 2,610 hospitals being penalized are being fined based on readmissions from July 2010 through June 2013 that Medicare program officials believe were avoidable. Even more dramatically, a majority of hospitals in 29 states, including a majority in the top 12 states by population—California, Texas, New York, Florida, Illinois, Pennsylvania, Ohio, Georgia, Michigan, North Carolina, New Jersey, and Virginia—are being penalized. In New Jersey, in fact, every hospital in that state but one, is being penalized—for the highest proportion in the nation being docked—98 percent.

Of course, it is important to put this into perspective: total hospital spending by all healthcare purchasers (Medicare, Medicaid, and private health insurers) on hospital care totaled $882.3 billion in 2012. In that context, $428 million almost—almost—sounds like pocket change.

But the fact that the readmissions penalties are continuing, are solidifying, and are in fact growing in size and severity, is something for all hospital and physician leaders to consider carefully. This is the third round of readmissions penalties, and the levels of penalization are increasing year after year.

Jordan Rau, who authored the Kaiser Health News story, put it this way: “The federal government’s penalties, which begin their third year this month, are intended to jolt hospitals to pay attention to what happens to their patients after they leave. Around the country,” he noted, “many hospitals are replacing perfunctory discharge plans—such as giving patients paper instructions—with more active efforts, such as ensuring that outside doctors monitor their recoveries and giving supplies of medication to patients who may not be able to afford them. Others are still struggling to meet the new expectations. Before the program, some hospitals resisted such efforts because they weren’t paid for the services, and, in fact, benefited financially when a patient returned.”

Rau added that, “Last year, nearly 18 percent of Medicare patients who had been hospitalized were readmitted within a month. While that is lower than past years, roughly 2 million patients return a year, costing Medicare $26 billion. Officials estimate $17 billion of that comes from potentially avoidable readmissions.”

And here’s the thing: $17 billion—officials’ estimate of potentially avoidable readmissions costs to the Medicare program—and $26 billion—officials’ estimate of all readmissions costs, including unavoidable ones—are big numbers.

What’s more, the combination of three mandatory programs under Medicare—the avoidable readmissions reduction program, the value-based purchasing program, and the healthcare-acquired conditions reduction program—is significant. Over the next few years, hospitals that do poorly under all three mandates could potentially lose up to 9 percent of their Medicare reimbursement, if they fall into the lowest-performing categories under all three programs. For hospitals operating on 1- and 2-percent operating margins, and which are dependent on the Medicare program for more than 50 percent of their total reimbursement, losing 9 percent of their annual Medicare payment could ultimately be fatal.

And this is where CMIOs and other clinical informaticists leaders come in. It is only through highly rigorous analytic work that teams of hospital leaders can figure out how well their organizations are performing and will be performing in the coming months and years. The reality is that, until the ACA was passed, there was little incentive to do the analytical work now needed around avoidable readmissions, or around the various value-based purchasing or healthcare-acquired conditions reduction, either, for that matter.

But things are changing, and they are changing quickly. As the old congressional quip goes, “A billion here, a billion there, and pretty soon it begins to add up.” The Kaiser Health News report from this past week was important and very much worth reading, analyzing, and taking action around. And data analytics will be a critical component in hospital leaders’ response to the intensifying mandates in the readmissions reduction arena. Put bluntly, if your hospital organization is one of the more heavily fined this year, there’s no time to waste in turning things around, before the penalties become crushing. Now—not two or three years from now—is the key moment in this critical area.