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Should Hospital Leaders See CMS’s Readmissions Penalties as an Operational Emergency Now?

August 6, 2016
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The news regarding the readmissions reductions penalties last week was startling in its implications

As reported by Kaiser Health News and noted here this past Thursday, U.S. hospitals have hit a new high now—in terms of the payment penalties being levied against them for rehospitalizations that officials at the Centers for Medicare & Medicaid Services (CMS) are judging to be avoidable.

As Managing Editor Rajiv Leventhal noted in a news report yesterday, “The federal government’s penalties on hospitals for failing to lower their rehospitalization rates will hit a new high as Medicare will withhold approximately $528 million—about $108 million more than last year—according to an August 2 Kaiser Health News report.”

That report, based on a Kaiser Health News analysis, found that “The government will punish more than half of the nation’s hospitals — a total of 2,597 — having more patients than expected return within a month. While that is about the same number penalized last year, the average penalty will increase by a fifth.”

Under the provisions of the Affordable Care Act (ACA), the Hospital Readmissions Reduction Program was designed to make hospitals pay closer attention to what happens to their patients after they get discharged. The fines for failure to meet CMS’s avoidable readmissions reduction criteria focus on six conditions: heart attack, congestive heart failure, pneumonia, chronic obstructive pulmonary disease (COPD), elective hip and knee replacements, and for the first time this year—coronary artery bypass graft surgery—and are based on readmissions between July 2012 through June 2015. The fines this year will be levied in October.

As the Kaiser Health News report noted, “The payment cuts apply to all Medicare patients, not just those with one of the six conditions Medicare measured. The maximum reduction for any hospital is 3 percent, and it does not affect special Medicare payments for hospitals that treat large numbers of low-income patients or train residents. Forty-nine hospitals received the maximum fine. The average penalty was 0.73 percent of each Medicare payment, up from 0.61 percent last year and higher than in any other year, according to the KHN analysis. Under the Affordable Care Act, which created the penalties, a variety of hospitals are excluded, including those serving veterans, children and psychiatric patients. Maryland hospitals are exempted as well because Congress has given that state extra leeway in how it distributes Medicare money. Critical access hospitals, which Medicare also pays differently because they are the only hospitals in their areas, are also exempt. As a result, more than 1,400 hospitals were automatically exempt from the penalties. Other hospitals did not have enough cases for Medicare to evaluate accurately and were not penalized.  Of the hospitals that Medicare did evaluate, four out of five were penalized. The KHN analysis found that 1,621 hospitals have been penalized in each of the five years of the program.”

The key significance of all this is not only the number of hospitals being penalized for avoidable readmissions, but the fact that a total of $528 million in Medicare reimbursement, $108 million more than last year, is being withheld. Why is that important?

It is important in itself, and also as part of a bigger whole. First, it is important because of its scale.  $528 million is now a significant percentage of reimbursement being held from Medicare-participating hospitals nationwide. Not only is the number of hospitals involved—2,597—more than half of all Medicare-participating hospitals; the highest level of penalty is 3 percent, which is quite high. The average penalty this year was 0.73 percent, up from 0.61 percent last year, and higher than in any previous year, according to the Kaiser Health news analysis.

Also, it’s important to consider this: more than 1,400 hospitals were automatically exempted from readmission reduction program penalties. Given that there are 3,414 hospitals covered by the readmissions reduction mandate, 2,597 hospitals being penalized this year actually represents fully 76 percent—more than three-quarters of hospitals—seeing pay cuts as a result of readmissions deemed avoidable by CMS officials.