Policy advisors continue to urge a range of changes to the program, and advancing legislation could have a big impact.

Aug. 4—The number of hospitals penalized under Medicare’s Hospital Readmission Reduction Program (HRRP) will fall in the coming fiscal year, even as total cuts increase by more than $100 million.

The Centers for Medicare & Medicaid Service (CMS) estimated in the final rule for the inpatient prospective payment system (IPPS) released this week that 2,588 out of 3,450 hospitals, or 75 percent, will have their base operating DRG payments cut under HRRP by a total of $528 million in FY17. In the current fiscal year, 2,666 hospitals out of 3,466, or 77 percent, had payments cut by $420 million under HRRP.

In April’s proposed rule for IPPS, CMS had estimated HRRP would cut payments to 2,603 hospitals by $523 million.

HRRP, which was created by the Affordable Care Act (ACA), requires cuts in hospitals’ base operating DRG payments to account for what CMS determines are “excess readmissions.”

CMS credited the $108 million increase in HRRP cuts relative to the current fiscal year to a refinement of the pneumonia readmissions measure, “which expanded the measure cohort,” along with the addition of a coronary artery bypass graft (CABG) readmission measure to the payment adjustment calculation.

The FY17 cut is based on a hospital’s risk-adjusted readmission rate during a three-year period (July 1, 2012, through June 30, 2015) for acute myocardial infarction (AMI), heart failure, pneumonia, chronic obstructive pulmonary disease (COPD), total hip arthroplasty/total knee arthroplasty, and CABG.

The HRRP cuts in FY17 were capped at 3 percent of base inpatient payments. Fifty hospitals will receive the maximum 3 percent penalty in FY17, an increase from 39 hospitals that received the same cut in FY16. Additionally, 180 hospitals will have their Medicare payments cut by at least 2 percent in FY17, compared with 114 in FY16. And 685 hospitals will have their payments cut by at least 1 percent, up from 515 hospitals the year before.

For FY17, the mean penalty for affected hospitals will be 0.53 percent, an increase from 0.42 percent in FY16. The average cut of about $204,000 in FY17 is a 30 percent increase from about $157,000 in FY16.

The number of eligible hospitals that avoided a cut will increase to 852 from 801 in the current fiscal year.

Policy Responses

The final rule noted that readmission data will be posted “as soon as feasible”—which could be as early as October—to the Hospital Compare website, following a preview period. The rule also finalized the inclusion of CABG in the calculation of the readmissions cuts for FY17.

CMS rejected requests to allow hospitals to begin to preview their results before late June and to extend the preview period to more than 30 days.

The agency also rejected calls for adjusting the readmission results based on patients’ socioeconomic status (SES). Hospital advocates and others have criticized the HRRP cuts for disproportionately affecting safety-net hospitals, which already face daunting financial challenges as the primary source of care in many economically struggling communities.

For instance, the Medicare Payment Advisory Commission, which Congress created to serve as an advisory group on payment policy, has urged changes to address the SES issue. Specifically, evaluating hospital readmission rates against a group of peers with similar shares of low-income Medicare beneficiaries would “avoid unfairly penalizing hospitals that treat large shares of low-income patients,” Mark Miller, executive director of MedPAC, said in congressional testimony last year.

Ongoing research—mandated by Congress—by the U.S. Department of Health and Human Services is examining the impact of SES on quality measures, resource use, and other Medicare measures. Additionally, the National Quality Forum continues a two-year study of whether SES factors should be added to each HRRP measure.

In June, the House of Representatives passed the Helping Hospitals Improve Patient Care Act, which would establish processes for adjusting a hospital's Medicare payments based on the overall proportion of inpatients who are dually eligible for Medicare and Medicaid. Supporters hailed this as a way to address the SES issue in HRRP.

HRRP Impacts

The Obama administration has credited HRRP with driving reductions in readmissions. Although penalties under the HRRP started in FY13, CMS officials have argued hospitals began efforts to cut unnecessary readmissions when the ACA was enacted in 2010.

From 2010 to 2014, potentially preventable readmissions declined by 1.9 percentage points across all cases, after adjusting for changes in the patient mix, MedPAC noted in its 2016 report to Congress. Specifically, potentially preventable readmission rates dropped three percentage points for AMI, 2.5 percentage points for heart failure, and 1.6 percentage points for pneumonia. Readmission rates for COPD (which was added to the program in 2015) fell 2.1 percentage points from 2010 through 2014.

Additionally, a MedPAC analysis found that patients with a prior admission were not placed in observation at a systematically higher rate than the Medicare population overall. That finding ran counter to a 2015 analysis inHealth Affairs, which concluded the readmission decline was largely attributable to a rapid increase in the use of observation stays.

MedPAC’s analysis found readmission rates declined substantially even after adjusting for observation stays.

“Increases in the use of 24-hour-plus observation care account for only a small portion of the drop in readmission rates, meaning that care (not just coding) is improving,” the MedPAC report stated.

Among the changes to HRRP sought by MedPAC was the creation of a fixed target for readmission rates, which would allow aggregate penalties to be cut when industry performance improves.

Among changes sought by healthcare finance advisors was HFMA’s request that CMS further research the impact of skilled nursing facility (SNF) quality on hospital readmissions and that the agency address legal barriers that prevent hospitals and SNFs from collaborating to reduce preventable readmissions.

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

Publication Date: Thursday, August 04, 2016