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Medicare applies many penalties at many hospitals. The dollar amount of each penalty, at each hospital, is on this site. The most recent penalties are in the readmissions spreadsheet, for fiscal year 2017 (10/1/2016 to 9/30/2017). For other types of penalties, this site has older data, for 2015, in the financial spreadsheet, except Electronic Health Records (EHR, see below). United States and state totals are here. EHR totals by state for 2011-2014 are here. A. HRRP: HOSPITAL READMISSIONS REDUCTION PROGRAM PENALTYIn the readmissions spreadsheet the dollar penalties for each diagnosis, at each hospital, are estimated by multiplying the number of excess readmissions at each hospital, times the US average penalty adjusted for the local cost level. The US average includes the "Base Operating DRG Payment Amount = Wage-adjusted DRG operating amount + new technology payment, if applicable". DRG stands for Diagnostic Related Groups. Formal readmissions penalty rules are at 42 CFR 412.152 and 154. The number of excess readmissions at each hospital, for each diagnosis, derives from two numbers in Medicare's "Readmissions Supplemental File" for the current year:
Medicare's full payment calculation is described in the Payments section. For the local cost level at each hospital, the readmissions spreadsheet calculates a weighted average of 2 numbers, which Medicare provides in the "Impact File" for the current year:
Besides dollar estimates described above, the readmissions spreadsheet also shows penalties as a percent of hospital revenue for each of the 6 diagnoses affected. Section F below explains how this is estimated. In the financial spreadsheet the total readmission penalty at each hospital is Medicare's Readmissions Adjustment Factor times each hospital's "wage-adjusted DRG operating payment plus any applicable new technology add-on... [including] adjustment for transfers" (42 CFR 412.152), same base as VBP, with a different adjustment factor. Subtotals for the 5 diagnoses are based on the national cost of treatment and each hospital's excess readmissions, as shown in the readmissions spreadsheet. B. HAC: HOSPITAL ACQUIRED CONDITIONS PENALTY The HAC penalties in the financial spreadsheet are 1% of Medicare payments to the hospitals. Medicare lists hospitals subject to 1% penalties, and has a Fact Sheet on how the hospitals were scored. The 1% applies to all inpatient payments, including IME, DSH, outliers, uncompensated care, remote hospitals, early transfer. HAC penalties are calculated after deducting VBP and readmissions penalties (line 71, worksheet E in Medicare Cost reports, p.85 of the form in file R6P240f, 4 MB). Formal HAC rules are at 42 CFR 412.170 and 172. HAC penalties here are the same order of magnitude as found by a hospital software publisher 1/5/2015, with differences in detail, since they did not use Medicare's actual data. C. VBP: VALUE-BASED PURCHASING PENALTY The dollar amounts of VBP penalties and bonuses in the financial spreadsheet are estimated by multiplying a VBP Adjustment Factor times Medicare's "wage-adjusted DRG operating payment plus any applicable new technology add-on... [including] adjustment for transfers" (42 CFR 412.160, DRG means Diagnostic Related Groups). Medicare's public financial statements do not separate DRG into operating and capital, so the spreadsheet finds what percent is operating at each hospital, generally 93%. Medicare provides the Adjustment Factors in .zip files, and calculates them from several measures (pdf item 25). The percent adjustments are scaled so the worst penalty is no more than 1.5% in FY 2015, 1.75% in 2016, 2% in 2017+, and the total bonuses equal the total penalties. After Medicare's correction, the actual range in 2015 was from a 1.24% penalty to a 2.09% bonus. Formal VBP rules are at 42 CFR 412.160 to 167. This "Value Based Purchasing" applies to hospitals, and is not the same as the "Value-Based Payment Modifier" also called "Value Modifier," which applies to doctors and doctor groups. D. IQR: INPATIENT QUALITY REPORTING About 70 hospitals have an IQR payment cut if they do not "successfully report designated quality measures." Medicare lists the hospitals and measures each year. Payments in FY2015 are based on data from 2013. The IQR payment cut is half a percent of inpatient payments. It is actually a quarter of the "increase in the market basket index" 42 CFR 412.64(d)(2)(i)(C). The annual increase in the market basket is 1.9% to 2.1% per year in FY2015, so a quarter of it is half a percent. According to 42 U.S.C. 1395ww(b)(3)(B)(i), the IQR cut applies to 1395ww(d) "Inpatient hospital service payments" and 1395ww(j) "inpatient rehabilitation services". The financial spreadsheet therefore multiplies the half percent penalty by the total of inpatient hospital service payments, the same base as HAC above, or line 71 of worksheet E in the Medicare Cost reports. Medicare says the IQR cut is 2%, which was true in FY 2007-2014: 42 CFR 412.64(d)(2)(i)(B). Formal IQR rules are at 42 CFR 412.140 and 412.64(d)(2). E. MU EHR: MEANINGFUL USE OF ELECTRONIC HEALTH RECORDS The "Meaningful Use" program to encourage electronic health records offers penalties and incentive payments. Incentive payments are a fraction of $2 to $6.37 million dollars per hospital, depending on number of patients discharged. The fraction paid in FY2015 is half of Medicare's fraction of the non-charity care (in FY2016 it is a quarter). Medicare has released the 2011-2014 incentive payments for each hospital (bottom of their data page, or see US and state totals). The peak year was 2013, when $4.6 billion went to 3,453 hospitals, an average of $1.3 million per hospital. Penalties apply starting in 2015 to 200 hospitals for insufficient use of electronic health records. Medicare provided that number in a press briefing, but Medicare has not provided the list of hospitals with penalties, "We do not have the list posted publicly and at present do not intend to publicly post it until the appropriate disclosure reviews and analysis of the potential impact are completed" (email 4/9/15). The penalty in FY2015 is half a percent of inpatient payments (1/4 of market basket increase, the same amount as IQR, though on different hospitals): 42 CFR 412.64(d)(3)(i). It will double to half the increase in the market basket in FY2016 and 3/4 in FY2017 and later years (factsheet). Meaningful Use means reaching 16 objectives with electronic health records. Outsiders have criticized it for perfection: missing any objective earns the full penalty. Outsiders have also criticized electronic records as a recipe for data breaches and impersonal interaction with doctors. In 2015, Medicare drafted changes, which were summarized by Modern Healthcare. Formal MU EHR rules are at 42 CFR 412.64(d)(3) through (5) and 42 CFR 495 Electronic health records are problematic, since they have enabled vast breaches of medical privacy for 30,000,000 patients. Great systems are rare, though ideally they would show key information clearly in the way that each clinician needs it. Bad systems are not read by clinicians, are full of errors, generate erroneous prescriptions, and interrupt doctors when listening to patients. (Thoughtful article on referrals and funny video.) Electronic records often send prescriptions to pharmacies electronically, but far fewer can send a cancellation order to correct a mistake or cancel refills. Only a third of prescribers and 40% of pharmacies use software certified to handle cancellations, so only about 13% of cancellations can be expected to go through. Pharmacies often generate refills automatically, so patients can get undesired medicine for long periods, thinking their doctor ordered it. F. READMISSION PENALTY PERCENTAGESThe readmission spreadsheet shows the total dollar readmission penalty for each of the 5 conditions, as a fraction of total dollar revenue from treating that condition. This section explains how the fractions are calculated.
total penalty total revenue By definition, the total penalty is the number of extra readmissions (above the national rate) times the penalty for each. The total revenue is the number of admissions times the payment for each admission: total penalty = #extra readmits x [penalty for each] total revenue #admit x payment for each admission As MedPAC says, the penalty equals the [payment for each admission, divided by the national readmission rate] total penalty = #extra readmits x [payment for each admission / US readmission rate] total revenue #admit x payment for each admission which simplifies to: total penalty = ________#extra readmits total revenue #admit x US readmission rate That denominator is the number of expected readmissions, since Medicare expects the US rate to apply to every hospital, with a small adjustment for patient mix. total penalty = #extra readmits (adjusted for patient mix) total revenue #expected If we add 1 we get (adjusted for patient mix): total penalty + 1 = #extra readmits + #expected total revenue #expected Remember the "extra readmits" means just actual readmits above those expected based on the national rate, so in the numerator, #extra plus #expected are the #actual total penalty + 1 = #actual readmits total revenue #expected total penalty = #actual readmits − 1 total revenue #expected Medicare provides this last ratio, #actual / #expected, adjusted for patient mix, so the spreadsheet subtracts one, to display total penalty / total revenue. Each calculation is approximate, because of the adjustment for patient mix, but those adjustments are small and average out across the country.
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