The Centers for Medicare and Medicaid Services’ (CMS) Hospital Readmissions Reduction Program (HRRP) began in 2012. In the first year, 65.6% of eligible hospitals incurred readmissions penalties totaling $280 million.
(Not all hospitals are eligible for HRRP. Exempt hospitals include all hospitals in Maryland, critical access and long-term care hospitals, and hospitals that treat veterans, children, cancer patients, and psychiatric patients.)
The Financial Impact of Hospital Readmissions
Failure to reduce readmissions has become more expensive over the program’s lifetime. In the first year of the HRRP, the maximum penalty was 1% of Medicare reimbursements withheld. By design, that maximum penalty has since increased to 3%.
National hospital readmission rates have dropped since the program launched, but not enough to decrease penalties. In 2016, CMS announced that it would withhold an all-time high of $528 million from 2,597 hospitals across the United States. Overall, 4 out of 5 eligible hospitals were penalized.
The increases are due in part to additional health conditions included in the program. In the program’s first year, CMS evaluated the readmission rates of patients with heart attacks, heart failure, and pneumonia to determine whether a hospital faced penalties. Today, CMS also measures readmission rates of patients with COPD, hip and knee replacement, and bypass surgery.
Additionally, the program is set up such that CMS evaluates each hospital’s readmission rates relative to the national average for each condition. Even as readmission rates drop overall, there will always be hospitals that have more readmissions than the national average.
A 2016 study on hospital profitability published in the journal Health Affairs found that most hospitals in the United States are not profitable, and the median acute care hospital is losing $82 per discharge. Given those numbers, it’s imperative for hospitals to reduce readmission rates and reduce the amount of Medicare reimbursements left on the table.