Medicare on Tuesday made the latest payment adjustments to hospitals under the Hospital Readmissions Reduction Program (HRRP), and more than 2,500 hospitals will face penalties for fiscal year (FY) 2020, according to a Kaiser Health News (KHN) analysis.

Cheat sheet: Hospital Readmissions Reduction Program (HRRP) 101

How HRRP works

Under the HRRP, CMS withholds up to 3% of regular reimbursements for hospitals if they have a higher-than-expected number of 30-day readmissions for any of six conditions:

• Chronic lung disease;
• Coronary artery bypass graft surgery;
• Heart attacks;
• Heart failure;
• Hip and knee replacements; and
• Pneumonia.

Historically, hospitals received a penalty if their observed readmissions for any one of these conditions exceeded a national standard. However, in response to criticism, CMS last year scraped the national standard comparison standard, and instead compares hospitals' performance to that of other hospitals serving a similar population of low-income patients.

Under the revised methodology, CMS has categorized all participating hospitals into quintiles according to the proportion of dual eligible patients (patients eligible for Medicare and Medicaid) each hospital serves. Now, each hospital is compared to the median readmissions performance of its cohort and hospitals with higher-than-cohort-median performance are penalized.

The program does not apply to veterans hospitals, children's hospitals, psychiatric hospitals, or hospitals in Maryland, which has a federal waiver for how it distributes Medicare funding. In addition, hospitals will not be evaluated under the program if they do not treat enough cases of the conditions evaluated.

Details on this year's cuts

CMS evaluated 3,129 hospitals under HRRP for FY 2020. The penalties, which will apply to each affected hospital's Medicare payments between Oct. 1 and Sept. 30, 2020, are based upon readmissions between July 1, 2015, to June 30, 2018.

Overall, 2,583—or 83%—will face penalties under HRRP in FY 2020, according to KHN. Medicare estimated its payment penalties will cost hospitals a total of $563 million over a year.

The average penalty this year will be 0.71%, which is up from FY 2019's average 0.57% penalty.

KHN found that 1,177 hospitals received a higher penalty than they did last year, while 1,148 received a lower penalty, and 64 received the same penalty. Fifty-six hospitals received a 3% penalty, which is the highest levied under the program. Meanwhile, 372 hospitals avoided penalties both last year and this year.

These numbers do not include the 2,142 hospitals that were exempted by Medicare from the program.   

Discussion

HRRP has been a topic of controversy in health care policy.

Some critics have said the policy creates perverse incentives for hospitals to avoid certain patients. And some studies have shown an increase in mortality rates since HRRP took effect, Rau reports.

However, other studies, including one by the Medicare Payment Advisory Commission (MedPAC), have not disputed that link.

In addition, critics have also questioned whether the program has actually led to the changes it tries to incentivize.

Karen Joynt Maddox, co-director of the Center for Health Economics and Policy at Washington University in St. Louis, said, "A lot of hard work has gone into trying to reduce readmissions, and the needle has not moved very far. It's been a huge investment by hospitals but not very much in outcomes, but some good things have come out of it."

Meanwhile, Jeff Stensland, an analyst with MedPAC, said the program is showing signs of success. "On a risk-adjusted basis, it appears that readmissions have declined in 2010 to 2018 without causing a material increase in mortality," Stensland noted (Rau, Kaiser Health News, 10/1; Hancock, Kaiser Health News, 3/19/18).