The addition of an adjustment for socioeconomic status has been long-sought by hospitals.

May 24—The hospital readmission reduction program (HRRP) would add a first-time socioeconomic status (SES) adjustment under legislation that began to advance this week in the U.S. House of Representatives.

The legislation, called the Helping Hospitals Improve Patient Care Act, was approved May 24 by a voice vote of the House Ways and Means Committee.

The bill would modify HRRP by first creating a transitional risk adjustment based on a hospital’s proportion of patients who are dually eligible for Medicare and Medicaid. Subsequently, the U.S. Department of Health and Human Services (HHS) could develop a permanent substitute adjustment using an analysis required by the Improving Medicare Post-Acute Care Transformation Act of 2014.

The change has been long-sought by the hospital industry, which has warned that the lack of an SES adjustment was leading HRRP to disproportionately penalize hospitals with larger shares of low-income patients.

“It’s the socioeconomic issues that cause these readmissions. It is not the hospitals’ fault, and because it is not the hospitals’ fault, they should not be penalized—that’s what this bill does,” Rep. Pat Tiberi (R-Ohio), the bill’s sponsor, said before the vote.

The SES provision was based on the language from a narrower bill, the Establishing Beneficiary Equity in the Hospital Readmission Program Act of 2015. That bill—focused just on the HRRP change—garnered 82 cosponsors and a bipartisan companion bill in the Senate.

If enacted, the SES changes would be some of the first to the HRRP, which was established by the Affordable Care Act to penalize hospitals with higher-than-average Medicare readmissions rates. The HRRP, which already includes risk adjustment for clinical factors such as comorbidities and severity of illness, reduces payments to hospitals with excess readmissions during the prior three years. HRRP cuts started in 2013 at up to 1 percent of a hospital’s inpatient base operating payments and grew to as much as 3 percent in 2015, where they remain.

Research Basis

Among the research indicating that high readmission rates may be linked to socioeconomic factors outside of a hospital’s control was a study published in September 2015 in JAMA Internal Medicine.

The nationally representative study of readmissions in the Medicare population used many patient characteristics not currently included in risk adjustment of hospital readmission rates. Adjusting for those characteristics accounted for approximately half of the difference in the probability of readmission among patients admitted to hospitals with the highest and lowest readmission rates.

The financial consequences for hospitals with larger shares of low-income patients could include both a need for much greater spending to change patient behavior and the loss of sorely needed revenue when they fail in that effort, the authors noted.

Similarly, a January analysis by the American Association of Medical Colleges found hospitals treating more-complex and low-SES patients were more likely to incur penalties in Medicare’s pay-for-performance programs. Among the findings was that the SES variable was the most significant difference between hospitals with the largest bonuses and those with the largest penalties.

That analysis came shortly after the publication in Health Affairs of research that credited SES-related factors with driving about one-quarter of the difference in the odds of readmission among all hospitals in the HRRP. However, the study, which was led by Steven Sheingold, director of the Division of Health Financing Policy at HHS, also found that a larger share of differences in penalties among hospitals—approximately 40 percent—was from other factors, including post-discharge destination.

Critics said the proposed change to HRRP would mask disparities in health care and effectively allow lower quality standards for patients with low SES.

“Then we are accepting the fact that low-income or poorer communities have a lower standard, as it relates to those patients that are readmitted,” Rep. Charlie Rangel (D-N.Y.) said before the vote.

Rep. Kevin Brady (R-Texas), chairman of the committee, countered that the provision was needed to prevent a disincentive for hospitals to treat lower-income patients with greater health needs.

“We want them engaged with that population without being somehow penalized simply because there may be greater healthcare challenges they are taking on,” Brady said.

The legislation followed a 2013 proposal of the Medicare Payment Advisory Commission to revise readmission-penalty calculations by comparing hospitals within peer groups based on their share of low-income Medicare patients.

Outpatient Payment

A separate provision of the bill that garnered enthusiastic hospital support would amend the required switch from outpatient Medicare rates to physician office rates for remote outpatient departments that are newly acquired or built by hospitals. The bill would change the start of the required rate switch from November 2015 to 60 days after the measure is enacted. The underlying rate change was implemented by the Bipartisan Budget Act (BBA) of 2015 and aimed to eliminate the incentive for hospitals to purchase physician offices and then designate them as outpatient departments, which would result in higher charges for the same services.

The legislation aimed to accommodate pending construction projects that were already underway when the BBA was enacted.

“My bill will help the hospitals obtain the revenue they anticipated when they made the decision to invest in new construction projects,” Tiberi said. “It’s just common sense to recognize the reality of business practices; no one likes to think of health care like a business, but hospitals have to keep the lights on to treat patients.”

The outlook for the legislation was unclear, especially given that Congress typically enacts fewer laws during an election year. The legislation also was referred to the Energy and Commerce Committee.

Rich Daly is a senior writer/editor in HFMA’s Washington, D.C. office. Follow Rich on Twitter: @rdalyhealthcare

Publication Date: Tuesday, May 24, 2016