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Risk in Context

Readmission Penalties: How Hospitals Can Manage Their Financial Risk

Posted by Dan Phillips October 02, 2018

An estimated $566 million in reimbursements will be withheld from approximately 2,600 hospitals across the country in fiscal year 2019, the Centers for Medicare and Medicaid Services (CMS) recently announced. This is due to their higher-than-expected readmission rates for six specific conditions.

Historically, withheld reimbursements have represented lost revenue for hospitals, making it vital that they protect that revenue through a two-pronged approach: curbing readmission rates through clinical practices and considering innovative insurance solutions.

Readmission Penalties

Under the Hospital Readmissions Reduction Program (HRRP), CMS reduces payments to acute care hospitals with a higher-than-expected number of patients with certain conditions returning within 30 days of their initial discharge, regardless of the reason for patients’ readmission. For fiscal year 2019, CMS will withhold reimbursements for hospitals with high readmission rates for several conditions, including heart attacks, heart failure, and pneumonia.

Although the HRRP provides a clear incentive to ensure that patients are effectively treated during their initial hospitalization, the program has been a thorn in the side of many hospitals. Roughly 80% of all hospitals subject to the HRRP — essentially, those hospitals with Medicare revenue — have been penalized annually since the program was established under the Affordable Care Act. Moreover, penalties under the HRRP are assessed on a curve — so even if an individual hospital has taken steps to curb readmission rates, it will still be penalized if it fails to outperform its peers.

Clinical Steps

By taking a risk-based approach, hospitals can better understand the root cause of readmissions and proactively design and implement risk reduction techniques that improve clinical outcomes, quality of care, and patient satisfaction. Among other actions, hospitals should:

  • Ensure that discharge instructions and other patient communications are free of medical jargon.
  • Work closely with community providers, including primary care physicians, to ensure that high-risk patients receive high-quality, cost-effective care close to home following their discharge.
  • Consider implementing follow-up calls seven days after discharge, allowing providers to identify potential complications and providing patients with the opportunity to ask questions and seek any needed clarifications.
  • Enable smooth transitions for patients requiring treatment in their homes. Transition nurses, for example, can ensure continuity of care, which is especially important for patients with complex and chronic illnesses.

Insurance Coverage

In addition to preventive measures, emerging insurance coverage can also help hospitals protect their Medicare reimbursements. Such coverage can be triggered if the final payment adjustment factor percentage imposed by CMS on an insured hospital exceeds a set payment adjustment factor that is defined under the policy. If triggered, the policy will reimburse the insured hospital for up to 3% of annual inpatient Medicare revenue, the maximum potential penalty under the HRRP.

High readmission rates and the penalties associated with them can have devastating effects on hospitals, but taking these steps can help them protect critical revenues and their bottom lines.


Related to:  Financial Risk , HealthCare

Dan Phillips

Manager Director, HealthCare Placement