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October 14, 2022

The drop in hospital readmission penalties, charted

Daily Briefing

    Preliminary data from CMS reveals that one in four hospitals will not face readmissions penalties in 2023, and facilities that have not met Medicare standards in previous years will face lower reimbursement cuts, Mari Devereaux writes for Modern Healthcare.

    Cheat sheet: Hospital Readmissions Reduction Program

    Hospital readmission penalties drop

    For the first time, CMS is using data collected during the Covid-19 pandemic to determine payment adjustments for its Hospital Readmissions Reduction Program, resulting in the lowest penalties hospitals have seen in almost 10 years. 

    The hospital readmissions performance period for fiscal year (FY) 2023, which would typically include three years of data from 2018 to 2021, does not include claims from the first half of 2020. The agency is including data from July 2018 to December 2019 and July 2020 to June 2021.

    In addition, CMS is "suppressing the pneumonia readmissions measure from its review and eliminating diagnosis-related group payment policy and excess readmission ratio calculations for hospitals with extraordinary circumstance exceptions," Devereaux writes.

    In FY 2022, 17.81% of hospitals did not have a readmissions penalty. For FY 2023, 25.33% of hospitals will not receive readmission penalties. In addition, there will be a 57% drop in the number of hospitals that have to pay penalties over 1%. 

    On average, penalties for hospitals with the highest share of Medicare-Medicaid dual-eligible patients, which are classified as peer group five, is 0.23%. Among hospitals with the lowest number of dual-eligible patients, classified as peer group one, the average penalty is 0.37%. During FY 2022, peer group five was penalized 0.60% for readmissions while peer group one was penalized 0.42%.

    What is driving the drop in readmission penalties?

    According to Akin Demehin, senior director for quality and patient safety policy at the American Hospital Association, CMS' efforts to eliminate pandemic-related consequences from its calculations likely contributed to the decrease in penalties.

    While hospitals' efforts to reduce readmissions may be partially responsible for the drop in penalties, Demehin noted that penalty rates were increasing before the pandemic—even though health systems were improving on the program's measures.

    In addition, since hospitals are required to have a minimum number of cases to receive a score on various readmissions measures, some hospitals may not meet the requirements after CMS excludes six months of claims, Demehin noted. 

    "When hospitals can't get scored on certain measures, it could cause their penalty to go down," he said.

    The increase in hospitals not receiving a penalty is not unprecedented, but similar rates have not been seen since FY 2014 and FY 2015, Demehin noted. In fact, penalties have been increasing since CMS started adding extra measures to the readmissions program.

    "It doesn't necessarily feel like progress is being rewarded," Demehin said. "While the number of hospitals getting a penalty for this fiscal year is smaller than it was in prior years, it's important to note that around three quarters of hospitals are still getting readmissions penalties."

    According to Rick Kes, senior healthcare analyst at RSM, many hospitals have kept their focus on managing readmissions and maintaining quality standards throughout the pandemic.

    "I think we might continue seeing improvements in these areas, despite the headwinds of labor and expenses going up much faster than hospitals' revenue," Kes said. (Devereaux, Modern Healthcare, 9/15)

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