Knowledge Base Article

Reprinted from Kaiser Health News (CC BY-NC-ND 4.0)

Jordan Rau, Kaiser Health News  November 2, 2020

Nearly half the nation’s hospitals, many of which are still wrestling with the financial fallout of the unexpected coronavirus, will get lower payments for all Medicare patients because of their history of readmitting patients, federal records show.

The penalties are the ninth annual round of the Hospital Readmissions Reduction Program created as part of the Affordable Care Act’s broader effort to improve quality and lower costs. The latest penalties are calculated using each hospital case history between July 2016 and June 2019, so the flood of coronavirus patients that have swamped hospitals this year were not included.

The Centers for Medicare & Medicaid Services announced in September it may suspend the penalty program in the future if the chaos surrounding the pandemic, including the spring’s moratorium on elective surgeries, makes it too difficult to assess hospital performance.

For this year, the penalties remain in effect. Retroactive to the federal fiscal year that began Oct. 1, Medicare will lower a year’s worth of payments to 2,545 hospitals, the data show. The average reduction is 0.69%, with 613 hospitals receiving a penalty of 1% or more.

Out of 5,267 hospitals in the country, Congress has exempted 2,176 from the threat of penalties, either because they are critical access hospitals — defined as the only inpatient facility in an area — or hospitals that specialize in psychiatric patients, children, veterans, rehabilitation or long-term care. Of the 3,080 hospitals CMS evaluated, 83% received a penalty.

The number and severity of penalties were comparable to those of recent years, although the number of hospitals receiving the maximum penalty of 3% dropped from 56 to 39. Because the penalties are applied to new admission payments, the total dollar amount each hospital will lose will not be known until after the fiscal year ends on July 30.

“It’s unfortunate that hospitals will face readmission penalties in fiscal year 2021,” said Akin Demehin, director of policy at the American Hospital Association. “Given the financial strain that hospitals are under, every dollar counts, and the impact of any penalty is significant.”

The penalties are based on readmissions of Medicare patients who initially came to the hospital with diagnoses of congestive heart failure, heart attack, pneumonia, chronic obstructive pulmonary disease, hip or knee replacement or coronary artery bypass graft surgery. Medicare counts as a readmission any of those patients who ended up back in any hospital within 30 days of discharge, except for planned returns like a second phase of surgery.

A hospital will be penalized if its readmission rate is higher than expected given the national trends in any one of those categories.

The industry has disapproved of the program since its inception, complaining the measures aren’t precise and it unfairly punishes hospitals that treat low-income patients, who often don’t have the resources to ensure their recoveries are successful.

Michael Millenson, a health quality consultant who focuses on patient safety, said the penalties are a useful but imperfect mechanism to push hospitals to improve their care. The designers of the penalty system envisioned it as a way to neutralize the economic benefit hospitals get from readmitted patients under Medicare’s fee-for-service payment model, as they are otherwise paid for two stays instead of just one.

“Every industry complains the penalties are too harsh,” he said. “if you’re going to tell me we don’t need any economic incentives to do the right thing because we’re always doing the right thing — that’s not true.”

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