Editor's note: This story was updated on Nov. 5

Medicare recently released data showing the latest payment adjustments to hospitals under the Hospital Readmissions Reduction Program (HRRP), and more than 2,500 hospitals will face penalties for fiscal year (FY) 2021, according to a Kaiser Health News analysis.

How HRRP works

Under the HRRP, 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; and
• Pneumonia.

Historically, hospitals received a penalty if their observed readmissions for any one of these conditions exceeded a national standard. However, in response to criticism, CMS in 2019 scraped the national standard comparison standard, and now compares hospitals' performance with that of other hospitals serving a similar population of low-income patients.

Under the current methodology, CMS has categorized all participating hospitals into quintiles according to the proportion of dual eligible patients (patients eligible for Medicare and Medicaid) each hospital serves. Now, each hospital is compared with the median readmissions performance of its cohort and hospitals with higher-than-cohort-median performance are penalized.

The program does not apply to veterans hospitals, children's hospitals, psychiatric hospitals, or hospitals in Maryland, which has a federal waiver for how it distributes Medicare funding. In addition, hospitals are not evaluated under the program if they do not treat enough cases of the conditions evaluated.

Details on this year's cuts

CMS evaluated 3,080 hospitals under HRRP for FY 2021, while 2,142 hospitals were exempted by Medicare from the program. The penalties, which will apply to each affected hospital's Medicare payments between Oct. 1, 2020, and Sept. 30, 2021, are based upon readmissions between July 1, 2016, to June 30, 2019. As KHN reports, "[b]ecause the penalties are applied to new admission payments, the total dollar amount each hospital will lose will not be known until after the [FY] ends."

Overall, 2,545—or 83%—will face penalties under HRRP in FY 2021, according to KHN. The average penalty this year is 0.69%, which is down from FY 2020's average 0.71% penalty.

KHN reports that "[t]he 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." According to KHN, 613 hospitals received a penalty of at least 1%.

Discussion

HRRP long has been a topic of controversy in health care policy, and the program's payment reductions have come under even more scrutiny amid America's coronavirus epidemic, KHN reports.

Michael Millenson, a health quality consultant who focuses on patient safety, told KHN, "Every industry complains the penalties are too harsh."

And Akin Demehin, director of policy at the American Hospital Association, told KHN, "It's unfortunate that hospitals will face readmission penalties in [FY] 2021. Given the financial strain that hospitals are under, every dollar counts, and the impact of any penalty is significant."

According to KHN, CMS in September announced that it might suspend the HRRP penalties in the future, if America's coronavirus epidemic makes it too hard for the agency to assess hospitals' performance (Rau, Kaiser Health News, 11/2).