Medicare’s Readmission Penalties Hit New High

Fines expected to total $528 million

The federal government’s penalties on hospitals will reach a new high as Medicare withholds more than half a billion dollars in payments over the next year, according to a Kaiser Health News (KHN) analysis.

The government will punish more than half of the nation’s hospitals —a total of 2,597—that have more patients than expected return within a month. While that is about the same number penalized last year, the average penalty will increase by 20%. The new penalties, which take effect in October, are based on the rehospitalization rate for patients with six common conditions: heart attacks, heart failure, pneumonia, chronic lung disease, hip and knee replacements, and—for the first time this year––coronary artery bypass graft surgery.

The penalties are the subject of a prolonged debate about whether the government should consider the special challenges faced by hospitals that treat large numbers of low-income people. Those patients can have more trouble recuperating, sometimes because they can’t afford their medications or lack social support to follow physician instructions. The Centers for Medicare and Medicaid Services (CMS), however, has said those hospitals should not be held to a different standard.

The CMS expects the penalties to total $528 million, approximately $108 million more than last year, because of changes in how readmissions are measured.

The fines are based on Medicare patients who left the hospital from July 2012 through June 2015. For each hospital, the government calculated 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 that runs from October 1, 2016, through September 2017.

The payment cuts apply to all Medicare patients, not just to those with one of the six conditions Medicare measured. The maximum reduction for any hospital is 3%, and it does not affect special Medicare payments for hospitals that treat large numbers of low-income patients or train residents. Forty-nine hospitals received the maximum fine. The average penalty was 0.73% of each Medicare payment, up from 0.61% last year and higher than in any other year, according to the KHN analysis.

Under the Patient Protection and Affordable Care Act, which created the penalties, a variety of hospitals are excluded, including those serving veterans, children, and psychiatric patients. Maryland hospitals are exempted as well because Congress has given that state extra leeway in how it distributes Medicare money. Critical-access hospitals, which Medicare also pays differently because they are the only hospitals in their areas, are also exempt. As a result, more than 1,400 hospitals were automatically exempt from the penalties.

The KHN analysis found that 1,621 hospitals have been penalized in each of the five years of the program.

Source: Kaiser Health News; August 2, 2016.