Medicare Hospital Readmissions Reduction Program

The health reform law, the Affordable Care Act of 2010, was a massive piece of federal legislation. As many of its provisions are now being implemented, their effects are becoming visible. One of the health reform law’s provisions (section 3025) is called the Hospital Readmissions Reduction Program, which requires the Medicare program to reduce payments to hospitals which have excess readmissions, beginning with hospital discharges on and after Oct. 1, 2012. The objective of this readmission reduction program is to provide hospitals with financial incentives to implement strategies to reduce the number of costly and unnecessary hospital readmissions. The financial incentives are financial penalties that decrease a hospital’s payments from all of its Medicare cases. In 2012, the Centers for Medicare and Medicaid Services (CMS) issued regulations implementing this program. CMS adopted new readmission measures for the three included health conditions: acute myocardial infarction (AMI), heart failure (HF) and pneumonia 
(PN). CMS calculates for each included hospital its excess readmission ratio which includes 
adjustments for factors that are clinically relevant, such as patient demographic characteristics, comorbidities and patient frailty. Under this program, CMS has defined a readmission as “an admission to…a hospital within 30 days of a discharge from the same or another…hospital.” Affected hospitals include inpatient acute care hospitals, excluding critical access, psychiatric, rehabilitation, long-term care and both children’s and cancer hospitals. According to CMS, before the program was implemented about 20 percent of Medicare patients were readmitted to a hospital within one month of discharge. CMS believes this number is excessive, and expects this program to provide an incentive for hospitals to decrease readmissions by coordinating transitions of care and increasing the quality of care provided to Medicare beneficiaries. This program is part of CMS’s goal to transition to value-based purchasing—paying for care based on quality and not just quantity. Further, the purpose of this program is to improve quality and lower costs for Medicare patients. It is meant to help ensure that hospitals discharge patients when they are fully prepared and safe for continued care at home or at a lower acuity setting. This program affects payments to hospitals. The payment penalty beginning October 2012 was up to one percent of every Medicare payment for a hospital that was determined to have excessive readmissions for the three health conditions. CMS estimated that 2,217 hospitals would be affected. In October 2013, the financial penalty increased to two percent, and in October 2014 it will go to three percent. In 2015, additional health care conditions for the initial inpatient admission will be added to the current list of three, and are expected to include COPD, CABG and PTCA procedures and other vascular procedures. In the first year of the program, CMS charged 2,213 hospitals about $280 million in readmission penalties, about $10 million less than CMS originally estimated. In year two, 2,225 hospitals in 49 states (all but Maryland) will lose $227 million of their Medicare reimbursement as a result of this readmission penalty program. Year two saw the dollar amount of the penalties decrease, perhaps because hospitals were paying more attention to patient care. According to CMS data, about two-thirds of hospitals will be penalized to some degree. This hospital readmission penalty program is being implemented along with many other Accountable Care Act programs that are designed to ensure that all health care providers offer better quality and coordinated care.