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Readmissions Penalties Get Very, Very Real

August 23, 2015
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As the readmissions reduction program under Medicare ramps up, hospital leaders need to ramp up with it—or face dire consequences

It was quite bracing to read the August 3 Kaiser Health News report entitled “Half of Nation’s Hospitals Fail Again to Escape Medicare’s Readmission Penalties.” As Jordan Rau wrote in the article, “Once again, the majority of the nation’s hospitals are being penalized by Medicare for having patients frequently return within a month of discharge—this time losing a combined $420 million, government records show. In the fourth year of federal readmission penalties,” Rau reported, “2,592 hospitals will receive lower payments for every Medicare patient that stays in the hospital—readmitted or not –starting in October. The Hospital Readmissions Reduction Program, created by the Affordable Care Act, was designed to make hospitals pay closer attention to what happens to their patients after they get discharged. Since the fines began,” he added, “national readmission rates have dropped, but roughly one of every five Medicare patients sent to the hospital ends up returning within a month.”

What’s more, Rau noted, “Some hospitals view the punishments as unfair because they can lose money even if they had fewer readmissions than they did in previous years. All but 209 of the hospitals penalized in this round were also punished last year, a Kaiser Health News analysis of the records found.”

As hospital executives already know, the fines for failure to meet the criteria of the Centers for Medicare & Medicaid Services (CMS) focus on five conditions: heart attack, congestive heart failure, pneumonia, chronic obstructive pulmonary disease (COPD), as well as elective hip and knee replacements, and are based on readmissions between July 2011 and June 2014.

And these reimbursement cuts are everywhere—indeed, the penalties will be assessed on hospitals in every state except for Maryland, as that state has a special payment arrangement with Medicare. And the cuts will affect three-quarters or more of hospitals in the following states: Alabama, Connecticut, Florida, Massachusetts, New Jersey, New York, Rhode Island, South Carolina, Virginia, and the District of Columbia.

What’s more, the readmissions-driven reimbursement cuts are hitting hospitals on top of cuts coming out of the mandatory value-based purchasing program and the mandatory healthcare-acquired conditions (mostly hospital-acquired infections) program.

 Meanwhile, the average penalties by state are being found to vary tremendously. Nationwide, 54 percent of hospitals (2,592 organizations) are being penalized, with an average Medicare pay cut of 0.61 percent. But those nationwide averages encompass huge variations. On one end of the spectrum, in North Dakota, where only three hospitals, or seven percent of the state’s hospital organizations, are being penalized this year, the average penalty is just 0.14 percent of Medicare payments. But in Kentucky, where 62 organizations, representing 65 percent of the state’s hospitals, are being penalized, the average penalty amounts to a full 1.19 percent of Medicare revenues—that’s an 850-percent spread.

And as everyone knows, many not-for-profit community hospitals in the U.S. are surviving on operating margins of between 1 and 3 percent; and for those with a majority of their revenues coming from Medicare reimbursement, a penalty of more than 1 percent could potentially be devastating.

Five years ago when the U.S. Congress passed he Affordable Care Act, and President Obama signed it, I predicted that the mandatory readmissions program would be one of the healthcare system reform provisions in the ACA that would be one of its most impactful; and it already has been. As we all know, ten years ago, if you were talk walk into the office of the average CFO in the average inpatient hospital in the U.S. and were to ask that CFO what her/his hospital’s average 30-day readmissions rates were for patients with documented congestive heart failure, diabetes, or COPD (chronic obstructive pulmonary disease), s/he could likely not have told you. Now, that CFO needs to know that number—and needs to be working with all levels and disciplines of leadership in her/his hospital to reduce that number.

What’s more, private health insurers are absolutely moving forward to implement similar programs in their hospital contracts, since, as is nearly always the case with such things, once the Medicare program, the U.S. healthcare system’s proverbial 800-pound gorilla, moves forward in an area, all the major private health insurers quickly follow Medicare’s lead and design their own versions of the same initiative.

Industry experts have long noted that many, if not most, readmissions that occur within 30 days are relatively easily predicted. Research, and the experiences of pioneering hospital organizations, have found that the key gaps in this area have to do with care management on multiple levels—ensuring effective discharge planning, including really robust patient and family member education; and then, very importantly, case manager/care manager nurse follow-up with the discharged patient in a day or two at most following discharge, via phone communication, which must involve the scheduling of a follow-up primary care physician appointment; and then of course, that follow-up PCP visit, along with further coaching, education, and care management.