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Sources and Methodology: A Guide To Medicare’s Readmissions Data And KHN’s Analysis

Kaiser Health News’ data on hospital readmissions penalties comes from the Centers for Medicare & Medicaid Services (CMS), which oversees the Hospital Readmissions Reduction Program.

To determine each hospital’s penalty, CMS calculated an excess readmission rate for patients who first went into the hospital for three conditions: heart failure, heart attack and pneumonia. The agency based the rate on discharges occurring from July 1, 2009, through June 30, 2012. CMS took into account the severity of illness of each hospital’s patients in estimating what the hospital’s readmission rate should have been given the national averages. If a hospital had fewer than 25 cases for heart failure, heart attack or pneumonia, CMS did not include 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 data do not include readmission of patients who are in private Medicare Advantage insurance plans. For the second year of the penalty program, which begins with the fiscal year starting Oct. 1, CMS changed its calculations to exclude readmissions that were planned by medical professionals at the time of the patient’s original discharge.

Medicare published a data file with the penalties on Aug. 2.

CMS expressed the penalty as an “adjustment factor” that will be applied to Medicare reimbursements for care for patients admitted for any reason. The lowest adjustment factor, 0.9800, is the maximum penalty; it means that a hospital would be reimbursed only 98 percent of the amount Medicare usually pays. The highest adjustment factor, 1.000, means that a hospital would receive the full Medicare reimbursement. The penalty does not apply to additional Medicare payments paid to compensate for hospitals’ general operating expenses, their training of medical residents or their treatment of larger than normal numbers of low-income patients. 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 0.9800) is listed by KHN as receiving a 2 percent penalty. Hospitals receiving a 0 percent penalty are not losing any money.

KHN found that 49 of the hospitals on Medicare’s penalty list for Fiscal Year 2014 are not listed in Medicare’s file of hospitals that are registered with Medicare.  Spot checks on those hospitals’ web pages found that some are no longer in business while others appear to still be open. KHN left these hospitals in its analysis, but included a footnote on the data tables for each of those hospitals. Nineteen hospitals that were penalized last year were not listed in Medicare’s records for this year’s penalties; KHN does not list them in its charts or graphics.

CMS excludes Maryland hospitals from the penalties because that state has its own unique payment arrangement with the federal government. Therefore no Maryland hospitals are listed in the KHN charts. CMS also excludes certain cancer hospitals and critical access hospitals as well as hospitals dedicated to psychiatry, rehabilitation, long-term care and veterans.

The penalties in the second year of the Hospital Readmissions Reduction Program are listed in the CMS’ Fiscal Year 2014 Final Impact File for inpatient hospitals that participate in Medicare’s Prospective Payment Systems. To compare the penalties to the first year of the Readmissions Reductions Program, KHN used the Fiscal Year 2013 Final Rule Impact File Updated March 2013. Not all of the hospitals penalized in 2014 were assessed in the first year of the penalty program.

To determine how the penalties affected teaching hospitals, KHN divided hospitals into three groups: major teaching hospitals—those with at least one medical resident for every four beds; minor teaching hospitals that had a lower ratio of these doctors in training, and hospitals that do not teach residents. Those hospitals’ teaching statuses were identified by the Association of American Medical Colleges.

To evaluate the socioeconomic status of each hospital’s patient population, KHN examined an analysis that CMS published in regulations breaking hospitals into 10 groups, or deciles, based on an index CMS uses to decide whether a hospital deserves “Disproportionate Share Hospital” (DSH) payments because it treats an excess of poor patients. That index, which CMS calculates, reflects the prevalence of admitted patients who qualify for Medicaid, the joint federal-state health program for the poor, or Medicare’s Supplemental Security Income benefit for the poor and disabled. CMS’s calculations show that out of the 335 hospitals with the most low-income patients, 257 received penalties and 78 did not. Of the 336 hospitals with the fewest low-income patients, 120 hospitals received penalties and 216 did not.

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