Medicare Again Penalizes Half of U.S. Hospitals for Too Many Readmissions

Nov. 2, 2020
The fines do not include COVID-19 hospitalizations, and while they remain in effect for this year, the pandemic has put the future of the penalty program in doubt

Almost half of the nation’s hospitals will be getting penalized for failing to lower the rate at which patients got readmitted during a three-year period between 2016 and 2019, according to a Nov. 2 report from Kaiser Health News.

According to KHN’s Jordan Rau, the penalties imposed by the Centers for Medicare & Medicaid Services (CMS) “have been 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 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 fines for failure to meet the criteria set forth by CMS focus on six conditions: heart attack, congestive heart failure, pneumonia, chronic obstructive pulmonary disease (COPD), elective hip and knee replacements, and artery bypass graft surgery—and are based on readmissions between July 2016 through June 2019.

For each applicable hospital, the government calculates how many readmissions it expected, given national rates and the health of each hospital’s patients. Hospitals with more unplanned readmissions than expected will receive a reduction in each Medicare case reimbursement for the upcoming fiscal year. CMS calculates the payment reduction and component results for each hospital based on its performance during a rolling three-year performance period.

Although CMS said in September that 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 according to KHN. 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 shows. The average reduction is 0.69 percent, with 613 hospitals receiving a penalty of 1 percent or more.

Notably, out of more than 5,200 U.S. hospitals, Congress has excused 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. So overall, of the 3,080 hospitals CMS evaluated, 83 percent received a penalty, KHN reported. 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.

KHN further noted that the number and severity of penalties are comparable to recent years, although the number of hospitals receiving the maximum 3 percent penalty did drop 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, according to the report.

Last month, a study published in JAMA Cardiology found that, after examining 2014 to 2017 data from CMS' Hospital Compare website, penalties for up to 31 percent of hospitals in the Hospital Readmissions Reduction Program  were misclassified last year. Researchers specifically found the percentage of hospitals that should have been penalized but weren't was 21 percent for heart attacks, 13.5 percent for heart failure and 13 percent for pneumonia. Conversely, 10 percent were incorrectly penalized for heart attack, 11 percent for heart failure and 12 percent for pneumonia, according to the research.

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

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