Taking stock of the readmission penalties

CMS program has led to lower readmissions but may need updating.


The threat of financial penalties has been a potent motivator to reduce 30-day readmissions across all U.S. hospitals, according to analyses of Medicare's Hospital Readmissions Reduction Program (HRRP). Recent studies have also shown the sharpest improvements in lowest-performing hospitals, allaying concerns that hospitals serving poor and disadvantaged patients might lack the resources to significantly improve.

“We already knew that readmission rates dropped after the program was announced, but we were curious about which hospitals were responding,” said Leora Horwitz, MD, MHS, FACP, director of the Center for Healthcare Innovation and Delivery Science at New York University School of Medicine in New York and senior author of an analysis published in the Dec. 27, 2016, JAMA. “We found that hospitals were very strategic and responded very specifically to avoid readmission penalties for the targeted conditions.”

Photo by Thinkstock
Photo by Thinkstock

Before implementation of the HRRP, some worried that it might widen disparities between low- and high-performing hospitals. Hospitals caring for the sickest and poorest patients—those most likely to be readmitted—potentially could be disproportionately penalized and caught in a downward spiral.

“There were concerns that taking money away from hospitals that were doing poorly might cause them to do even more poorly,” said Jason Wasfy, MD, director of quality and analytics at Massachusetts General Hospital Heart Center in Boston and lead author of an analysis published in the Dec. 27, 2016 Annals of Internal Medicine. “However, we found that the gap between high- and low-performing hospitals got narrower.”

Both studies offer convincing evidence that the HRRP has succeeded in significantly reducing readmission rates, noted Michael Barnett, MD, an assistant professor of health policy and management at the Harvard T. H. Chan School of Public Health in Boston, who coauthored a 2015 study on the HRRP, published in JAMA Internal Medicine. However, it's important to view it as a first step in a broader push toward value-based care, he said.

“The HRRP was a major innovation, and it accomplished an important public health goal of raising awareness of the readmissions problem and the need to focus on postdischarge planning,” he said. “But the way it is currently structured is becoming obsolete as health care moves toward more sophisticated payment models, like accountable care organizations [ACOs].”

Interpreting the impact

Although the recent studies show that the HRRP has had a positive impact so far, other factors should be considered when interpreting the results, noted Dr. Barnett. For example, lower-performing hospitals showed the most dramatic improvement in part because they had the most room to improve—a statistical principle known as regression to the mean.

“As you follow any group of hospitals over time, the performers on the extreme ends of the spectrum will move towards the center even if nothing changes,” he said. “The fact that the poorest-performing hospitals improved the most in these studies is an expected statistical fluctuation.”

A closer look at the findings also suggests that penalties will not continue to have the same dramatic impact going forward, said Dr. Horwitz. Hospitals were very strategic about making improvements and were only willing to invest in them insofar as it made financial sense.

For example, according to Dr. Horwitz's study, between 2010 and 2012 the lowest-performing hospitals were proactive in addressing readmissions for the three initial target conditions—acute myocardial infarction, congestive heart failure, and pneumonia—while higher performers apparently felt less urgency to improve. After that initial push, readmission rates plateaued.

The latter point likely reflects that many hospitals didn't see a financial benefit to making additional improvements, the authors noted. They may have decided that absorbing any future penalties would be preferable to making significant financial investments in lowering readmissions even further.

“A main message of this study is that people respond to policies based on the ways in which we organize the financial incentives,” she said. “Hospitals will react to policies as befits their interest.”

Ideally, readmission penalties should apply to all patients regardless of diagnosis, said Amy Boutwell, MD, MPP, president of Collaborative Healthcare Strategies and co-developer of an Agency for Healthcare Research and Quality guide about reducing Medicaid readmissions.

In addition to the initial three target conditions, HRRP now also applies to chronic obstructive pulmonary disease, elective hip or knee replacement, and coronary artery bypass graft. “We now have a two-tiered discharge process where more efforts are deployed for some patients with certain diagnoses,” Dr. Boutwell said. “Now that we have proof that penalties work, it's important to expand the program to all patients regardless of payer or reason for hospitalization.”

It's also important to note that the HRRP formula does not adjust for socioeconomic factors that may increase the risk of readmission. Since lower-performing hospitals are more likely to serve socially and economically disadvantaged patients, penalties could still unfairly impact safety-net hospitals, according to Dr. Wasfy.

Some factors that affect readmission during the postdischarge period are outside of hospitals' direct control, he said. For example, low-income patients may have limited access to transportation for follow-up appointments and assistance with home health care needs.

“We still need to look at potential adverse effects on hospitals that serve poor and minority patients,” he said. “It's important to make sure penalties are affecting different hospitals in the same way.”

Future directions

Currently, the HRRP is designed so that a certain percentage of hospitals will always be penalized regardless of how much they improve. Because penalties are determined based on how much a hospital's readmission rate exceeds the national average, hospitals that improve can still incur penalties if the national average improves at the same time.

Consequently, average penalties have stayed the same or increased even while the national readmission rate has declined, according to a recent analysis by the Kaiser Family Foundation. That may create a disincentive for the lowest-performing hospitals to continue investing in improvements, some experts say.

“By penalizing half of all hospitals no matter what they do, we miss the opportunity to encourage those hospitals to improve,” said Dr. Horwitz. “Establishing an absolute target or reward for improvement might be a better way to incentivize poor performers.”

The Kaiser study suggests that poor performance on readmissions is often tied to socioeconomic factors as opposed to quality. In the first five years of HRRP, major teaching hospitals and hospitals with higher proportions of low-income patients—which often overlap—were the most likely to incur penalties. Conversely, those with the smallest share of low-income patients were the least likely to be penalized.

To address such issues, a 2013 report by the Medicare Payment Advisory Commission proposed tweaking the HRRP formula to compare safety-net hospitals to peer groups with similar percentages of low-income patients, as opposed to a national average (see sidebar). However, CMS has been reluctant to make changes that hold hospitals to differing standards or that could potentially weaken incentives for low performers to improve.

Although penalties succeeded in jumpstarting improvement, they are an overly simplistic approach to a complex issue, said Dr. Barnett. Unlike with hospital-acquired infections or wrong-site surgeries, the goal isn't to entirely eliminate readmissions but to avoid unnecessary ones through better coordination of care inside and outside the hospital.

“With readmissions we have to look at why they happen, whether they are preventable, and which patients are at highest risk,” he said. “New models like ACOs and bundled payments incorporate more sophisticated ways to push and pull hospitals in the right direction.”

In ACOs, hospitals and other providers—including primary care physicians and skilled nursing facilities—are held jointly accountable for patient outcomes. Providers receive financial incentives if they contain costs while meeting certain quality targets. According to a January 2017 analysis published in Health Affairs, that model has been more successful than penalties alone in avoiding readmissions.

The researchers found that between 2007 and 2013, hospitals affiliated with ACOs reduced readmissions from skilled nursing facilities more quickly than hospitals that were only subject to the HRRP. The relative reduction in 30-day readmissions from skilled nursing facilities was 17.7% for hospitals participating in a shared-savings ACO versus 13.1% for non-ACO-affiliated hospitals, even after researchers controlled for patient characteristics.

Bundled payments, in which clinicians and facilities receive fixed amounts for entire episodes of care, is another example of Medicare combining carrot and stick approaches to improving patient outcomes. Under Medicare's current bundled payment models for joint replacements and cardiac care, providers share in savings if the actual cost of an episode of care is less than Medicare's budgeted amount.

ACOs and bundled-payment programs give hospitals more incentives to improve care after a patient leaves the hospital, said Dr. Boutwell. Such payment systems could provide motivation for interventions like having patient navigators and care managers assist with follow-up after discharge to reduce the chances of a readmission that the hospital wouldn't be paid for.

“Penalties have been effective, but improvements in readmission rates since HRRP began have not happened in isolation,” said Dr. Barnett. “My hope is that we can update the program to something that resembles the ACO model.”