Medicare Penalizes Hospitals
Medicare pays for hospital stays. Then Medicare counts how many patients are readmitted within 30 days after the hospital stay. If readmissions are above the national average, adjusted for patient mix, Medicare will charge the hospital an expensive penalty, even if readmissions are unrelated to the original hospital stay, and even if the readmission is at a different hospital.
83% of hospitals measured pay penalties, and some pay over a million dollars per year. Hospitals cannot give up this much revenue. They will need a new business model with less treatment of Medicare patients.
Table A. Readmission Penalties, Paid by Hospitals, for Five Conditions
- "Heart Failure" or "Weak Heart" refers to weak pumping because of muscle deterioration, stiffness, leaking valves, etc. Medical terms for this include heart failure, congestive heart failure, cor pulmonale; or cardiomyopathy. It is not the same as a heart attack or heart stopping.
- A Congressional agency, MedPAC, confirms that the penalty per excess readmission [Col A] = "Payment rate for the initial DRG [Col B] ... × [Col D] 1 / national readmission rate for the condition" (p.99). Click for other details and sources and timing of penalties.
- Penalty for Knee or Hip Replacement is large ($209,000), since the initial payment is big, and readmissions are rare, so the multiplier is big. It applies to elective replacements, not those done for broken bones.
- Updated January 2015 with estimates to exclude capital and other costs which are not subject to readmission penalties.
Find Your Local Hospital's Penalties
- (A) See the penalties at each hospital for Readmissions, Hospital-Acquired Conditions, Value-Based Purchasing, and Inpatient Quality Reporting (Excel spreadsheet, 5 megabytes, March 2015, Help). These numbers are based on FY 2015 penalty rates applied to the latest hospital financial statements.
- (B) See the Readmission penalties at each hospital (web page or Excel spreadsheet 6 MB, January 2015, Help). These numbers are based on national procedure costs (top of this page), adjusted for local prices and numbers of readmissions (more detailed methods).
- (C) See the 1,000 Hospitals with biggest readmission penalties (web page or Excel spreadsheet).
- (D) Previous year: readmission penalties (August 2013, 3 MB XLS)
Examples of the Biggest Penalties - Estimates include:
$3 million penalties per year at
- Beaumont Hospital, Royal Oak, MI
- Thomas Jefferson University Hospital, Philadelphia, PA
- Northwestern Memorial Hospital, Chicago, IL
- Florida Hospital, Orlando, FL
- Advocate Christ Hospital, Oak Lawn, IL
- Beth Israel Medical Center, New York, NY
- Presence Saint Joseph Medical Center, Joliet, IL
- Southcoast Hospital Group, Inc, Fall River, MA
- St Joseph's Regional Medical Center, Paterson, NJ
Readmission Penalties in Thousands of Dollars (Click for state totals of other penalties)
2014 August 6 - Hospitals Fined $529 Million or here
2014 May 30 - Readmission Penalties Put Burdens on Hospitals or here
Coverage by Bloomberg BNA
2013 August 14 - Size of Readmission Penalties, or here
Coverage by EHRIntelligence, Orthopedics This Week
If we want legitimate patients treated, how can we penalize their hospitals? Faced with the level of penalties being imposed, hospitals cannot afford to treat many seniors. There are also incentives against treatment in some of the other ratings of hospitals.
Because of these penalties, all hospitals try to be below average on readmissions, which makes the average get smaller (8% smaller in 2013; goal is 20% smaller, p.292). Faced with moving targets, hospitals cannot afford these penalties. They need to prevent as many readmissions as possible.
The American College of Surgeons has warned Medicare about "the potential that these hospitals will decrease their care for such patients, thereby creating an access issue."
Several studies show that readmissions prevent deaths, so penalties are deadly. The American Hospital Association reported in Trendwatch September 2011, "mortality is inversely related to readmissions."
Dr. Kripalani of Vanderbilt University asks, "which would we rather have -- a hospital readmission or a death?"
Doctors Krumholz, Lin and colleagues in the Journal of the American Medical Association Feb.13, 2013 reported a 17% correlation between higher readmissions and lower deaths among heart failure patients. These are the same Yale authors who develop Medicare's readmission data, yet their own hospital cannot avoid readmissions. Yale-New Haven Hospital did 253 hip and knee replacements and will pay a quarter of that revenue as a readmission penalty.
Doctors Gorodeski, Starling and Blackstone of the Cleveland Clinic showed with a graph in the New England Journal of Medicine July 15, 2010 that hospitals with higher readmissions after heart failure treatment had significantly fewer deaths among the patients.
Hospitals are disclosing the financial risks of penalties in bond disclosures (p.25).
80 Members of the House of Representatives have co-sponsored bill HR 4188, which redefines readmissions to omit "transplants, end-stage renal disease, burns, trauma, psychosis, or substance abuse." This change protects those patients, but half the hospitals will still be above the national average, pay large penalties, and have incentives to deny care to fragile elderly outside these protected classes.
Please support a better fix: ask Congress to change HR 4188 to redefine "excess readmission" in 1886(q)(4)(C)(ii) rather than "readmission" in 1886(q)(5)(E). This technical difference means the national average would not change, and the narrower definition of "excess readmission" means far fewer hospitals would be above that national average and face penalties.
4 Senators have introduced a bill to adjust readmissions for income, education, and poverty rate of the patients or neighborhood of the hospital, so hospitals which serve poor or poorly educated patients are not penalized.
Other sections of this site discuss some of the ways patients and hospitals can respond to readmission penalties, not always healthily. One unhealthy approach that Medicare advocates is to limit care and promote hospice, comfort care (symptom relief or palliative care), and "do not resuscitate" (DNR) orders, so patients die at home and do not come back to the hospital.
- Medicare in 2009 endorsed "end-of-life/palliative care programs" to cut costs and increase bonuses to doctors and hospitals.
- A Congressional agency, MedPAC, in 2012 recommended "hospice use and the presence of advance directives" to reduce rehospitalizations.
The list of all hospitals shows the number of excess readmissions charged to each hospital, though privacy prevents showing the reasons. Many numbers are fractional, because of the adjustment for patient mix, which changes hospitals' baselines by fractions. No matter what they do, half the hospitals will be above average on each condition and will pay penalties. With 5 conditions, 83% of hospitals will always be above average on some condition and pay penalties. Medicare does not know better than 83% of hospitals, and has no business penalizing them.
The penalty is far worse than simply refusing coverage, as Medicare does with long nursing or hospital stays. When Medicare lacks coverage, people can plan with other insurance or their own money. But hospitals cannot accept other money for these readmissions, since
- Medicare pays at the time of treatment, and only later imposes the penalty, and
- People do not know about the readmission policy, so cannot plan around it
These pervasive efforts, important to hospitals and life-threatening to patients, only save $1.5 billion per year (p.26), less than a third of a percent of the Medicare budget. There are better alternatives.
Congress is considering similar penalties for skilled nursing facilities (SNFs) which have above-average rehospitalizations. If adopted, SNFs will find it hard to admit and serve the frailest patients, who need them most.
Which Readmissions Are the Hospital's Responsibility?
Medicare approves for payment both the initial admission and the readmission. When it fines the hospital years later, it implicitly reverses those approvals, and overrules the doctors who decided hospital care was medically necessary, without even looking at the charts.
Many readmissions are random and unrelated to the original hospital care. Patients can be readmitted for severe flu, intestinal infections, burns, a broken arm, or accidental poisoning (pp.57-58).
- After pneumonia, a patient may be readmitted for intestinal infections or other reasons.
- After knee replacement, a patient may be readmitted because a child or dog bumps the knee out of kilter, or the patient gets severe flu, or other reasons.
The law requires Medicare to exclude readmissions unrelated to the initial admission. The implementing regulations are silent, and Medicare does exclude planned readmissions, such as cancer treatment, and transfers to other hospitals for specialized care, but otherwise it does not follow the law's exclusion of unrelated readmissions. Medicare penalizes hospitals for unplanned readmissions, whether related or not.
People have commented on this discrepancy and Medicare answered in the Federal Register Aug. 19, 2013, "creating a comprehensive list of potential complications related to the index hospitalization would be arbitrary, incomplete, and, ultimately, extremely difficult to implement." So they found it hard to obey the law on excluding unrelated readmissions, and they decided not to obey the law, which seems even more arbitrary.
Four research papers confirm that low readmissions mean more deaths.
Other research papers show faster deaths for patients with palliative care or "Do Not Resuscitate" (DNR) orders.
Medicare has chosen not to release its own findings on deaths, which it said it was monitoring two years ago, in the Federal Register Aug 12, 2012. Deaths save money for both Medicare and Social Security.
The general approach of penalizing readmissions derives from an old estimate that 76% are preventable. This was based on experimental software, not verified by reviewing actual cases and seeing what it would have taken to prevent readmissions. (MedPAC 6/07 pp.107-108)
Dr Ashish Jha, of Harvard's School of Public Health, told PBS, "If you look at, for instance, the U.S. News [and World Report] publishes its list of top 50 hospitals. Those hospitals tend to have very low infection rates, very low mortality rates, very low death rates. Guess what? They tend to have very high readmission rates, because they do such a good job of keeping their patients alive that many of them are readmitted."
Doctors are begining to reduce care, to save money, throughout medicine, without discussing the options with patients. For example Medicare proposes payment for less-invasive heart surgery which makes it unaffordable for hospitals