Hospital Readmissions Reduction Program
Posted on November 1, 2011 | No Comments
By Jane Hyatt Thorpe and Teresa Cascio, JD
Hospitals in the United States readmit an average of 20% of Medicare patients within thirty days of their initial discharge. These readmissions cost the Medicare program an estimated 12 billion dollars each year and may be an indicator of poor quality of care where the readmission was potentially preventable. Two primary factors are often cited as likely contributors to high rates of readmission among Medicare beneficiaries. First, Medicare pays hospitals based on diagnosis related groups, or DRGs, that allow a single payment for services related to a specific diagnosis and not the actual level of services required for a particular patient. Inherent in this DRG based payment system is an incentive for hospitals to deliver necessary care at or below the DRG rate. In 2007, the Medicare program transitioned to the use of Medical Severity DRGs to better reflect the acute health care needs of Medicare beneficiaries. While this change enhanced reimbursement rates, the incentive to treat patients at or below the MS-DRG rate remains as no reimbursement is provided for the cost of care delivered beyond the DRG rate, outside of an outlier payment. If a hospital discharges a patient before it is medically appropriate to do so, the patient is more likely to return to the hospital for additional care that in some circumstances may be more costly due to exacerbation of the underlying condition(s). Second, there is often a lack of communication between physicians and other health professionals delivering care in the hospital and a Medicare beneficiary’s primary care or other physician. This lack of communication can lead to conflicting or additional care necessitating readmission.
In its June 2007 Report to Congress, the Medicare Payment Advisory Commission (MedPAC) classified many hospital readmissions as potentially preventable. For example, MedPAC suggested that hospitals could reduce readmission rates by better coordinating prescriptions and educating family members on appropriate methods of home care. MedPAC also proposed incentivizing hospitals to lower their readmission rates by publicly announcing hospital readmission rates and changing the Medicare payment system in order to eliminate the early discharge incentive. Based on these recommendations, Congress included the Hospital Readmissions Reduction Program (HRRP or Program) in the Affordable Care Act. CMS issued the final rule implementing the HRRP on August 18, 2011, although CMS will continue to clarify additional details of the program through future rulemaking.
Changes Made by the Affordable Care Act (P.L. 111- 148, § 3025 as amended by § 10309)
Hospital Readmissions Reductions Program, § 3025
- Overview. HRRP will reduce the Medicare payment to hospitals with a high number of readmissions for “applicable conditions” over a specified time period.
- “Applicable Conditions.” The Program only applies to medical conditions selected by the Secretary of HHS. The statute directs the Secretary to select conditions that are costly or prevalent and for which there are readmission measures that are “endorsed by the entity with a contract under section 1890(a)” (i.e., National Quality Forum (NQF)). These measures must contain exclusions for certain readmissions such as transfers. Three conditions currently have the necessary endorsement, but the Secretary must include further conditions in 2015 if possible.
- CMS finalized the initial application of HRRP to Acute Myocardial Infarction (AMI), Heart Failure (HF), and Pneumonia (PN).
- CMS adopted the readmission measures for AMI, HF, and PN as endorsed by the NQF. These measures exclude readmissions for “Percutaneous Transluminal Coronary Angioplasty (PTCA)” and “Coronary Artery Bypass Graft (CABG)” following a discharge for AMI under the rationale that discharge and readmission is normal protocol for these procedures. The measure also excludes transfers from one hospital to another. Readmissions following transfer will be charged to the discharging hospital.
- CMS finalized the methodology for calculating readmission measures for the applicable conditions. The methodology will identify readmissions occurring within thirty days of discharge from a hospitalization for AMI, HF, or PN and apply a risk-adjustment to account for differences in the health status of hospital patients across the country. CMS will utilize Medicare data from July 1, 2008 to June 30, 2011 to calculate the Excess Readmissions Ratio.
- “Applicable Hospitals.” The Program applies to all hospitals except those providing primarily rehabilitative, psychiatric or long-term care, children’s hospitals, critical access hospitals and certain cancer and research centers. Hospitals participating in a Medicare reimbursement demonstration project are subject to the Program, but may be exempted from participation so long as their state submits an annual report describing the state’s own programs to reduce costs and improve outcomes and the Secretary approves.
- “Readmissions.” Section 3025 defines a readmission as occurring when a patient is admitted to a hospital within a certain time period—as established by the Secretary—of his/her discharge date from the same or different hospital.
- CMS finalized the definition of readmission “as occurring when a patient is discharged from the applicable hospital and then is admitted to the same or another acute care hospital within a specified time period from the time of discharge from the index hospitalization.” Thirty days will serve as the applicable time period.
- Calculation of Payment: The payment reduction is calculated by applying an adjustment factor to the “base operating DRG payment amount.” This amount is defined as the payment a hospital would normally receive for an inpatient discharge under Section 1886(d) minus: (i) payments for discharges exceeding base DRG costs; (ii) payments for costs associated with teaching hospitals; (iii) payments to hospitals serving low income populations; (iv) payments to urban hospitals with indigent patients accounting for over 30% of the “net inpatient care revenue;” and (v) payments to low volume hospitals. Certain payment adjustment provisions contained in Section 1886 for small rural hospitals and sole community hospitals will not be applied when calculating the base operating DRG payments for these hospitals.
- Adjustment Factor: Section 3025 of the ACA mandates the application of the greater of two different adjustment factors:
- Floor Value. Sets the floor value at .99 for the fiscal year of 2013. This value will drop to .98 in fiscal year 2014 and .97 in fiscal year 2015.
- Ratio. Establishes a ratio of “aggregate payments for excess for readmissions” and “aggregate payments for all discharges.” The value for “aggregate payments for excess readmissions” will be determined by multiplying the number of admissions for each applicable condition at a hospital during a specified time period by the base operating DRG payment for the condition and the “excess readmissions ratio” which is the ratio of “risk adjusted actual readmissions” to “risk adjusted expected readmissions.” Readmissions will only be included in this ratio if the number exceeds a minimum established by the Secretary. “Aggregate payments for all discharges” is defined as the total of all DRG discharge payments at a hospital during the specified period.
- The excess readmissions ratio methodology finalized by CMS will “evaluate relative hospital performance based on outcomes such as readmission.”
- Data Collection and Reporting. Information regarding the readmission rates for Medicare patients must be released to the public, but hospitals must have an opportunity to examine and correct the information prior to the release. Additionally, “specified hospitals,” or a state or entity on their behalf, must submit patient information to the Secretary in order to calculate readmission rates of all patients. “Specified hospitals” includes the rehabilitative, long-term, psychiatric and children’s hospitals and cancer and research centers that are not subject to payment reductions for readmissions, as well as hospitals the Secretary deems fit for inclusion. Finally, the Hospital Compare website will house the readmission rates for all patients and Medicare patients.
- CMS finalized 25 discharges for each applicable condition as the minimum number necessary for a hospital’s inclusion on the Hospital Compare website.
- CMS finalized a rule allowing hospitals thirty days to review and correct information before CMS posts it on the Hospital Compare website. CMS reviews all corrections made by the hospital.
- Administrative and Judicial Review: ACA Section 3025 prohibits the judicial or administrative review of the “base operating DRG payments,” the adjustment factor formulas, and the chosen readmission measures.
Quality Improvement Program for Hospitals with a High Severity Adjusted Readmission Rate, § 3025
- Overview. The Quality Improvement Program (QIP) will utilize “patient safety organizations” to help “eligible hospitals” reduce their readmission rates.
- “Eligible Hospitals.” Hospitals may participate in the QIP if they have not adequately taken steps to reduce their persistently high risk-adjusted readmission rates for the applicable conditions. The Secretary has discretion to determine whether a risk-adjusted readmission rate is sufficiently “high.”
- Reporting. Participating hospitals and patient safety organizations must keep the Secretary apprised of the measures taken to reduce readmissions and the effectiveness of the measures.
Agency: The Centers for Medicaid & Medicare Services (CMS) will implement the Hospital Readmissions Reduction Program and the Quality Improvement Program.
- CMS plans to implement the Program in FYs 2012 and 2013. The agency released the final rule for FY 2012 on August 18, 2011. The proposed rule for FY 2013 will be included in the inpatient hospital prospective payment rule that will be released in late spring 2012.
- CMS will investigate expanding the set of “applicable conditions” beginning in FY 2015.
- CMS must establish the QIP by 2012.
The Secretary has delegated its authority to implement the HRRP to CMS. CMS will continue to design and implement the HRRP through the federal rulemaking process.
- Payment: CMS will not address rules regarding payment until the FY 2013 rulemaking cycle. Therefore, the precise calculation of the base operating DRG payment, the adjustment factor, and the aggregate payments for excess readmissions are unsettled. In setting the payment methodology, CMS will have to be careful not to apply the adjustment factor too broadly. Such application could undermine the incentive to improve readmission rates by placing too large of a financial burden on hospitals or create a disincentive to treat Medicare eligible patients.
- Applicable Hospital: CMS will define “applicable hospital” in the fiscal year 2013 rulemaking cycle. The statutory language stating “a subsection (d) hospital or a hospital that is paid under 1814(b)(3), as the case may be” appears to give the Secretary flexibility in promulgating the definition. Consequently, CMS should consider stakeholder input in deciding whether to exempt certain types of hospitals, such as trauma centers, cancer centers, and small rural hospitals, that may be unduly burdened by participation in HRRP.
- Gaming: CMS has limited the initial focus of the HRRP to three conditions leading to a concern that hospitals will change their coding practices to reduce the number of readmissions attributable to them. Additionally, the fact that readmissions are attributed to the discharging hospital even if the discharged patient arrived via transfer could incentivize needless transfers. CMS will need to carefully evaluate the impact of the Program to ensure it is achieving the desired goal of reducing preventable readmissions.
- Definition of Readmission: The readmissions measures CMS selected include readmissions to the hospital for any cause within a thirty day period following discharge for an applicable condition. This includes causes that are completely unrelated to the initial hospitalization and over which the hospital had no control. CMS defends the definition as a means to prevent gaming and incentivizing the avoidance of sick patients. While the broad definition may very well guard against these practices, CMS should consider whether a narrower definition over which hospitals have control would be more appropriate given the attached financial penalties.
- Risk-Adjustment: Race, ethnicity, and socioeconomic status (SES) correlate with prevalence of the applicable conditions, but the Risk-Adjustment methodology does not include race, ethnicity or SES as a factor. Thus, the Program could have a disparate impact on hospitals that provide care to large numbers of racial and ethnic minorities and those with low SES. Although CMS indicates their belief that the methodology will not disparately affect hospitals that largely serve minorities, the agency should carefully monitor this issue.
- Limited Administrative and Judicial Review: CMS must carefully develop the adjustment factors, readmission measures, and “base operating DRG” methods because the Affordable Care Act precludes judicial and administrative review of these elements. If the measures prove harmful or ineffective, interested stakeholders will have limited avenues for relief. In particular, interested stakeholders would have to lodge a broad based legal challenge against the Secretary or push for changes through the administrative process.
Authorized Funding Levels
There is no specific reference in the ACA to funding for this program.
 MEDICARE PAYMENT ADVISORY COMMISSION. REPORT TO THE CONGRESS: PROMOTING GREATER EFFICIENCY IN MEDICARE 105, 108 [Hereinafter “MEDPAC REPORT”].
 Medicare Program; Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2008 Rates 72 Fed. Reg. 47130 (Aug. 22, 2007).
 JENNY MINOTT, ACADEMY HEALTH, REDUCING HOSPITAL READMISSIONS 5 (2008), available at http://www.academyhealth.org/files/publications/Reducing%5FHospital%5FReadmissions.pdf.
 MEDPAC REPORT 108.
 Patient Protection and Affordable Care Act Pub. L. No, 111-148 § 3025(a), 124 Stat. 119, 408 (2010).
 Hospital Readmissions Reduction Programs, 76 Fed. Reg. 51660 (Aug. 18, 2011).
 Patient Protection and Affordable Care Act Pub. L. No, 111-148 § 3025(a), 124 Stat. 119, 408 (2010).
 Id.; Hospital Readmissions Reduction Programs, 76 Fed. Reg. 51660, 51665 (Aug. 18, 2011).
 76 Fed. Reg. at 51665.
 Id. at 51668-73.
 § 3025(a), 119 Stat. at 408-09.
 Id. at 411.
 76 Fed. Reg. at 51666.
 § 3025(a), 119 Stat. at 408.
 Id. at 409-10.
 Id. at 410.
 76 Fed. Reg. at 51673.
 Id. at 412.
 Id. at 411-12.
 76 Fed. Reg. at 51672.
 Id. at 51672-73.
 See id. at 51663.
 See id. at 51664; AMERICAN MEDICAL ASSOCIATION, TRENDWATCH: EXAMINING THE DRIVERS OF READMISSIONS AND REDUCING UNNECESSARY READMISSIONS FOR BETTER PATIENT CARE 10 (2011) available at http://www.aha.org/research/reports/tw/11sep-tw-readmissions.pdf. [hereinafter “AMA REPORT”]
 § 3025(a), 119 Stat. at 411 (emphasis added).
 76 Fed. Reg. at 51665.
 76 Fed. Reg. at 51670.
 R. Neal Axon & Mark V. Williams, Hospital Readmissions as Accountability Measure, 305(5) J. AM. MED. ASS’N 504, 505 (2011)
 Id.; See generally Karen E. Joynt, et. al., Thirty-Day Readmission Rates for Medicare Beneficiaries by Race and Site of Care, 305(7) J. AM. MED. ASS’N 675 (2011) (finding that Black patients experience higher rates of readmissions than whites both generally and at hospitals primarily serving minorities).
 § 3025(a), 119 Stat. at 411.