Medicare’s Hospital Readmission Reduction Program – Increasing Penalties, Increasing Pressure

November 12, 2013 at 10:50 AM Leave a comment

This week’s blog post will take a look at the results of the second year of Medicare’s hospital readmissions reduction program. This year, 2,225 hospitals will be fined an estimated total of $227 million for high readmissions rates. Authorized by the 2010 health care law and implemented in October 2012, the penalties are aimed at reducing the ratio of 1 out of 5 Medicare patients who are readmitted into the hospital within 30 days.1 It is part of a greater effort by Medicare to use financial incentives to improve hospital quality, and is another reason that quality healthcare products that help reduce readmissions and length of hospital stay will become economically attractive to hospitals.


As an incentive for hospitals to reduce readmissions, Medicare penalizes those hospitals who have readmission rates higher than what CMS predicts for three conditions: Acute Myocardial Infarction (AMI), Heart Failure (HF) and Pneumonia (PN).

In the first year of the program (FY 2013: October 1, 2012 – September 30, 2013) the maximum penalty a hospital could receive was a 1% decrease in all Medicare payments, meaning that 1% of regular reimbursements for hospitals was withheld. The penalty each hospital received was based off of the number of 30 day readmissions between July 1, 2008 to June 30, 2011.The higher the ratio of the hospital’s actual readmission rates compared to the Centers for Medicare & Medicaid Services’ expected readmission rates, the greater the penalty.

The second year penalties for FY 2014 were calculated from hospital readmission rates between July 2009 and June 2012. The penalty for FY 2014 was raised to a maximum of 2% .These calculated penalties will be applied to Medicare payments starting October 1, 2013 through September 30, 2014.2

Beginning October 2014 (FY 2015), this penalty will increase to a maximum of up to 3% and the program will include readmission data for additional conditions, such as chronic lung disease and hip and knee replacements.3

The 2,225 hospitals to be penalized for readmissions in FY 2014 are similar to those from the previous year’s total of 2, 213. Although only an estimation, the total fines hospitals will pay for FY 2014 are about $43 million less than the $280 million hospitals had to pay for FY 2013.

As the chart4 below shows, the total number of hospitals receiving the maximum penalty has decreased from the first year of the program. The total number of hospitals receiving a 1% penalty or greater declined by approximately 38%.

2013 08 14 penalties pie chart

With hospitals already under significant cost-related stresses, Medicare’s Hospital Readmissions Reduction Program’s gradually increasing penalty for excessive readmissions will only add to this pressure. Furthermore, the hospitals hardest hit with readmissions penalties tend to be treating low-income patients.5  While there are many reasons for readmissions, the use of healthcare products and medical devices  designed with quality metrics in mind will help minimize the occurrence of readmissions. Therefore, in order for healthcare manufacturers to stand out from their competitors, it is important that they provide data proving the quality and reliability of their product, as well as an argument for the economic value it provides.








Entry filed under: Affordable Care Act, Healthcare Reform, Hospital Care, Hospital trends, Medical Device, Medicare.

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