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April 18, 2019

Teaching, rural hospitals faced reduced readmission penalties after CMS update, study shows

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    Read Advisory Board's take: Why the playing field may still not be level in HRRP

    Teaching hospitals, rural hospitals, and others that serve a high proportion of dual-eligible patients faced lower penalties under Medicare's Hospital Readmissions Reduction Program (HRRP) in 2019 after CMS updated how the program calculates penalties, according to a study published Monday in JAMA Internal Medicine.

    Changes to HRRP

    Under HRRP, which launched in FY 2013, CMS withholds up to 3% of regular reimbursements for hospitals if they have a higher-than-expected number of 30-day readmissions for any of six conditions:

    • Chronic lung disease;
    • Coronary artery bypass graft surgery;
    • Heart attacks;
    • Heart failure;
    • Hip and knee replacements;
    • Pneumonia.

    Historically, hospitals received a penalty if their observed readmissions for any one of these conditions exceeded a national standard. However, critics of the program argued that because patients with comorbidities or complicating lifestyle factors are more likely to be readmitted, the national standard resulted in disproportionate penalizing of "safety-net" hospitals which care for the highest proportion of low-income patients.

    In response to the pushback, CMS for FY 2019 implemented a new penalty determination methodology that does away with the nation standard, and instead compares hospitals' performance to that of other hospitals serving a similar population of low-income patients.

    Map: See your hospital's readmissions penalty

    Study details

    For the study, researchers sought to determine the effects of those HRRP methodology changes. To do so, they used data on hospital penalties, characteristics, and readmission rates to perform a cross-sectional analysis on the 3,049 hospitals that participated in HRRP in FYs 2018 and 2019.

    What the changes meant for readmissions penalties

    Overall, the researcher found teaching hospitals, rural hospitals, and hospitals with patients from the most disadvantaged neighborhoods were most likely to see reductions in penalties in FY 2019, while hospitals with opposite characteristics were more likely to see an increase in penalties. 

    About 44% of teaching hospitals and rural hospitals had lower readmissions penalties in FY 2019 compared with FY 2018, according to the study. The average penalties for teaching hospitals declined from $287,268 in FY 2018 to an estimated $283,461 in FY 2019, and average penalties for rural hospitals declined from $55,268 in FY 2018 to an estimated $53,633 in FY 2019.

    More broadly, the researchers estimated hospitals with the largest proportion of dual-eligible patients will see an estimated $22.4 million decrease in penalties in FY 2019, while hospitals in the group with the smallest proportion of dual-eligible patients will see an estimated $12.3 million increase in penalties in FY 2019.


    Karen Joynt Maddox, assistant professor of medicine at Washington University School of Medicine and lead author of the study, said the results indicated that CMS' changes to the program had their desired effect, calling the reduction in penalties "a reasonable start."

    "Although for many hospitals the absolute dollar change was quite small, there were hospitals for which the change was large and likely financially meaningful," the researchers wrote in the study.

    The researchers added that there are "pros and cons" to the stratification approach. For instance, they note since the new methodology judges hospitals "against the median performance in their own peer group, hospitals in the highest stratum of dual enrollment are held to a different benchmark than are hospitals in lower strata."

    Moving forward, the researchers write that lawmakers should use the results of the study to continue to "monitor the association of this change with trends in readmission rates … as the policy is fully implemented" (Owens, "Vitals," Axios, 4/16; Castellucci, "Transformation Hub," Modern Healthcare, 4/15; Maddox et al., JAMA Internal Medicine, 4/15).

    Advisory Board's take

    Eric Fontana, Managing Director, Data and Analytics Group and Kenna Hawes, Senior Data Analyst, Data and Analytics Group

    These findings align with Advisory Board's conclusions after analyzing the final FY 2019 Readmissions program (HRRP) results in Fall 2018. CMS' change to HRRP methodology seems to have lifted some of the penalty burden from hospitals that serve the neediest populations. However, we still have concerns about the mechanics of the agency's adjustments to the program. These concerns are validated by the study's finding that that hospitals in states with higher Medicaid eligibility cutoffs saw more penalty relief than hospitals in states with less expansive Medicaid eligibility policies.

    Beginning in FY 2019, CMS now compares hospitals' 30-day readmissions performance to other hospitals that serve similar proportions of low-income Medicare patients, and then penalizes those hospitals who perform worse than their peers. However, CMS is really only considering one group of patients when it's determining which hospitals to compare: "full dual eligible" patients, who can receive both full Medicare and full Medicaid benefits. In states with less expansive Medicaid eligibility policies, fewer low-income patients are eligible for these full Medicaid benefits. This could have artificially deflated the number of low-income inpatient stays that CMS counts for these hospitals—and resulted in them being compared to hospitals that actually see lower volumes of Medicare patients (potentially resulting in higher penalties).

    Therefore, it appears there is more CMS could do to level the playing field in HRRP, by adopting an adjustment methodology that accounts more broadly for under-resourced patients and is not impacted by state-specific policies which can vary widely.

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