Hospitals need to be vigilant as non-governmental payors begin to take steps to penalize hospitals for readmissions.
By now, much has been communicated about Medicare’s Hospital Readmissions Reduction Program (“HRRP”). The HRRP is designed to incentivize hospitals to reduce the number of costly and unnecessary inpatient readmissions. As with other reimbursement initiatives, the effects of the HRRP tend to ripple beyond the perimeter of the Medicare program, as other payors take Medicare’s lead in addressing the issue of unnecessary readmissions.
Section 3025 of the Affordable Care Act established the HRRP. Under this program — which generally applies to hospitals paid under Medicare’s inpatient prospective payment system and which was effective for discharges beginning on October 1, 2012 — the Centers for Medicare and Medicaid Services (“CMS”) reduces payments to hospitals that experience excess readmissions for certain core measures1. Currently, the five core measures covered by this program are heart failure, acute myocardial infarction, pneumonia, total hip or total knee arthroplasty, and chronic obstructive pulmonary disease.
The penalties under the HRRP can be significant. A hospital found by CMS to have experienced excess readmissions faces the following adjustments to the hospital’s base operating DRG payment amount for each discharge occurring during the given fiscal year:
- 1% in fiscal year 2013,
- 2% in fiscal year 2014, and
- 3% in fiscal year 2015 and thereafter2
And, these penalties apply to Medicare discharges related to patients admitted for any condition, not just the five conditions that were used to determine if a hospital had too many readmissions.
The HRRP seems to be having its intended impact. For example, citing government studies Kaiser Health recently reported that:
- Medicare will penalize the majority of the nation’s hospitals under the Readmissions Program, resulting in a combined loss by these hospitals of $420 million in Medicare funds; and
- Nearly 2,600 hospitals will receive lower payments for every Medicare discharge starting in October 2015.3
While still grappling with the HRRP, hospitals are witnessing the impacts of this initiative beyond Medicare patients. Factors influencing this expansion include:
- Indications that Medicaid adults have the highest readmission rates of any payer at a time when Medicaid eligibility is expanding under the Affordable Care Act;
- Mounting pressures to reduce Medicaid readmissions due to state-mandated payment reforms4;
- Accountable care organizations requiring hospitals to reduce avoidable admissions and readmissions; and
- Continuing focus by the commercial and private third party payors to reduce healthcare costs.
Addressing and reducing avoidable readmissions is an important issue, supporting key financial and quality policy objectives. These types of initiatives by the governmental payors are typically developed through the public rulemaking process, and are subject to public review and comment prior to adoption and implementation.
However, hospitals need to be vigilant as non-governmental payors begin to take steps to penalize hospitals for readmissions. In particular, hospitals should determine whether actions taken by these payors are supported by law and or contract. Case in point — a national commercial third party payor recently notified participating hospitals that the payor was reviewing readmissions and would be combining such admissions for payment purposes based on clinical assessments conducted by the payor. It is not clear at this stage whether the contracts with the participating hospitals authorize the payor to implement unilaterally any steps that could adversely impact payments to the hospitals for care furnished to the payor’s enrollees.
When faced with actions taken by the commercial third party payors to address readmissions, the hospital should scrutinize the payor’s authority for taking such action. For example:
- Does the contract between the hospital and the payor specifically address readmissions? If not, what is the payor’s basis under the contract for implementing action that might adversely impact payment to the hospital?
- Also, what is scope of the readmission initiative being implemented by the payor; that is, does the initiative apply to readmissions related to certain core conditions (similar to Medicare’s Readmission Program)? Or, is the scope of the payor’s readmission review broader in scope?
- What is the procedure available to the hospital to address disputes regarding the payor’s readmissions assessments?
These determinations will require a fact-specific and contract-specific analysis. However, considering the attendant financial implications, the hospital is better served by taking this issue head-on and by ensuring that the integrity of its contract with the payor is maintained.
/ The regulations for the Readmissions Program are set forth at 42 C.F.R. §§ 412.150 et seq. A “readmission” in the case of an individual who is discharged from an applicable hospital is defined as:
… the admission of the individual to the same or another applicable hospital within a time period of 30 days from the date of such discharge. 42 C.F.R. §§ 412.152.
/ For fiscal years 2013 and 2014, excess readmissions were determined with respect to heart failure, acute myocardial infarction and pneumonia. For fiscal year 2015, a determination of excess readmissions also encompasses admissions following total hip or total knee arthroplasty and chronic obstructive pulmonary disease.
/ The Agency for Healthcare Research and Quality published a helpful report entitled Hospital Guide to reducing Medicaid Readmissions which, in part, explains why there is a focus on Medicaid readmissions at this time. http://www.ahrq.gov/professionals/systems/hospital/medicaidreadmitguide/medread-focus.html.