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A Guide To Medicare’s Readmissions Penalties And Data

The third year of Medicare’s Hospital Readmissions Reduction Program increases the maximum penalty for hospitals and expands the number of conditions the government evaluates.

This year, hospitals can lose as much as 3 percent of their Medicare payments under the program, which is overseen by the federal Centers for Medicare & Medicaid Services (CMS). To determine each hospital’s penalty, CMS looked at the readmissions rates of patients who initially went into the hospital for one of five conditions but returned within 30 days of discharge. Since the program began, it has examined three conditions: heart failure, heart attack and pneumonia. Two new conditions were added this year: chronic lung problems, such as emphysema and bronchitis, and elective hip and knee replacements.

For penalized hospitals, CMS will reduce each payment for a patient stay from October 2014 through September 2015, which is the federal fiscal year. These penalties apply to patients admitted for any condition, not just the five conditions that were used to determine if a hospital had too many readmissions. Thus, if Medicare would normally pay a hospital $15,000 for a kidney failure patient, with a 1.5 percent penalty Medicare would deduct $225 and pay $14,775. The penalty does not apply to other Medicare payments that compensate for hospitals’ general operating expenses, their training of medical residents or their treatment of large numbers of low-income patients.

The agency calculated readmission rates on discharges for all five categories that occurred from July 1, 2010, through June 30, 2013. CMS omitted rehospitalizations that had been planned by medical professionals before the patient left. In assessing rates, CMS took into account the severity of illness, the age of the patient, the patient’s additional medical conditions and other factors. Officials then estimated what they believed was an appropriate readmissions rate, given the mix of patients and how hospitals nationally were performing. The penalty is based on the difference between the projected rate and the actual rate.

If a hospital had fewer than 25 cases for any of the five conditions being monitored, CMS omitted that condition in its analysis.  But hospitals could still receive a penalty if they had 25 cases or more in one of the other conditions. The evaluations did not include readmissions of patients who are in private Medicare Advantage insurance plans.

CMS excludes Maryland hospitals from the penalties because that state has a unique payment arrangement with the federal government. CMS also excludes certain cancer hospitals and critical access hospitals, as well as hospitals dedicated to psychiatry, rehabilitation, long-term care and veterans. More than 1,400 hospitals are excluded from the program.

2015 Medicare Readmissions Penalties

CMS’ penalties are an “adjustment factor” that will be applied to Medicare reimbursements for care for patients admitted for any reason. The lowest adjustment factor, 0.97, is the maximum penalty; it means that a hospital would be reimbursed only 97 percent of the amount Medicare usually pays. The highest adjustment factor is 1 and means that a hospital would receive the full Medicare reimbursement.

For our stories, charts and graphics, Kaiser Health News expressed the adjustment factor as a penalty, for the purposes of clarity. The penalties were calculated by subtracting each adjustment factor from 1 and turning it into a percentage. Thus, a hospital losing the most money because of its high readmission rate (which CMS gave an adjustment factor of 0.97) is listed by KHN as receiving a 3 percent penalty. Hospitals receiving a 0 percent penalty are not losing any money.

Because the penalty will be applied prospectively over the next federal fiscal year, the exact amount of dollars a hospital will lose is not yet known, although many hospitals can estimate their likely losses based on previous years’ Medicare payments.

This year’s increase of the maximum penalty from 2 percent to 3 percent is the final such change. In each future year, CMS will reassess readmission rates for hospitals but the maximum penalty will remain 3 percent. CMS expects to add other conditions to those it evaluates in the future.

Medicare’s list of registered hospitals does not include several dozen hospitals that were evaluated in the readmissions program. Those hospitals may have closed or merged since the period Medicare evaluated their readmission rates. These hospitals are excluded from KHN’s analysis.

Main Story: Medicare Fines 2,610 Hospitals In Third Round Of Readmission Penalties

This article was produced by Kaiser Health News with support from The SCAN Foundation.

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