Readmissions are no new occurrence in hospitals and with 20 percent of Medicare patients readmitted a year, they also are not uncommon. Medcap reported that readmissions within 30 days accounts for 15 billion dollars of Medicare spending. New legislation signed into law by President Obama will penalize those hospitals that have high preventable readmission rates.
Why the penalty for readmissions? Beyond the exorbitant cost to Medicare each year, readmissions often mean poor quality of care. Research shows that patients who were readmitted were 55 percent more likely to have had a quality of care problem.
But, with the current Medicare fee for service are hospitals really incentivized to decrease their readmissions? Hospitals are paid per discharge, not by the amount of time a patient is in their care, or the quality of care they provide. A hospital with poor discharge instructions (more likely to readmit) receives the same fee as a hospital with top quality discharge instructions. So, is it really surprising hospitals are having high readmission rates?
What do these penalties look like? The Center for Medicare and Medicaid finalized the calculation of a hospital’s excessive readmission ratio for Acute Myocardial Infraction, Heart Failure and Pneumonia. The ratio compares a hospital’s readmission rate to the national average. CMS will use the risk adjustment methodology (endorsed by the National Quality forum), which takes into account factors such as demographic characteristics, comorbidities, and patient frailty.
The result is this ratio:
Excess readmission ratio (finalized in FY 2012 IPPS/ LTCH PPS rule) = risk-adjusted predicted readmissions/ risk-adjusted expected readmissions
The penalties will be in effect beginning FY 2014 and will result in a one to three percent pay reduction.
Are these reductions enough to encourage hospitals to invest in changes to reduce readmissions? Since other payers are behind Medicare in their ability to penalize, hospitals may be giving up revenue from other payers by reducing readmissions. If a hospital avoids a readmission can they replace that admission with patients waiting for a bed? If the bed remains empty how much variable cost can the hospital avoid?
These are factors that hospitals must consider in building a complete picture of the financial impact of readmission strategies.