Medicare's Challenging Relationship with Hospitals

Other Topics on this Site: List of all US doctors who offer long office visits
List of the most experienced specialist doctors

Most of the Medicare program provides needed treatment. Some aspects reduce treatment to save cost, as explained here. For example Medicare discourages hospitals from treating patients twice in 30 days. This policy hurts frail elderly patients who need more frequent care than average. Medicare also offers doctors and hospitals  bonuses if they reduce treatment. (More sources about this subject)

1. Re-hospitalization, or Readmission into Hospitals

 Medicare pays for hospital stays. Then they count how many Medicare 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.

84% of hospitals measured pay penalties, and some pay over a million dollars per year. Hospitals cannot give up this much revenue. They are shifting to less treatment of Medicare patients, and patients are dying.  There are better ways to save Medicare money, without cutting needed hospital care.

Table A. Readmission Penalties, Paid by Hospitals, for Six Conditions

Table notes:  

1. "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.
2. A Congressional agency, MedPAC, confirms that the penalty per excess readmission [Col A] = "Payment rate for the initial DRG [Col B] ... × 1 / national readmission rate for the condition  [Col D] " (p.99). So if readmission rates fall, penalties rise proportionately, and the only way hospitals as a group can reduce penalties is to reduce their variation around the national average or reduce the number of admissions  Click for other details and sources and timing of penalties.
3. Penalty for Knee or Hip Replacement is large ($250,000), 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. 
4. Updated September 2017.

Hospitals with Penalties over $1 million in FY 2018

​Those hospitals have large penalties because of a combination of their large size and the patients they treat, who need extra care. They do NOT deserve the penalties. They are penalized for giving thorough care.

$6,250,000 FL Florida Hospital Orlando
$3,940,000 MA Southcoast Hospital Group, Inc Fall River
$3,430,000 CT Yale-New Haven Hospital New Haven - They think the penalties are a good idea and calculate them for Medicare.
$3,010,000 FL St Lucie Medical Center Port St. Lucie
$2,630,000 FL North Florida Regional Medical Center Gainesville
$2,610,000 FL Lakeland Regional Medical Center Lakeland
$2,290,000 NJ St Joseph's Regional Medical Center Paterson
$2,270,000 MS Forrest General Hospital Hattiesburg
$2,190,000 MA Beth Israel Deaconess Medical Center Boston
$2,080,000 PA Thomas Jefferson University Hospital Philadelphia
$1,780,000 MI Beaumont Hospital, Royal Oak Royal Oak
$1,730,000 NJ Virtua West Jersey Hospitals Berlin Berlin
$1,710,000 NY Vassar Brothers Medical Center Poughkeepsie
$1,660,000 NY Montefiore Medical Center Bronx
$1,610,000 VA Reston Hospital Center Reston
$1,610,000 IL Presence Saint Joseph Medical Center Joliet
$1,600,000 MA Lahey Hospital & Medical Center, Burlington Burlington
$1,550,000 NY Orange Regional Medical Center Middletown
$1,540,000 NY Long Island Jewish Medical Center New Hyde Park
$1,540,000 NJ Robert Wood Johnson University Hospital New Brunswick
$1,530,000 MI Beaumont Hospital - Dearborn Dearborn
$1,490,000 NY North Shore University Hospital Manhasset
$1,440,000 FL Lee Memorial Hospital Fort Myers
$1,430,000 TX Memorial Hermann Hospital System Houston
$1,420,000 MO North Kansas City Hospital North Kansas City
$1,420,000 SC Grand Strand Regional Medical Center Myrtle Beach
$1,340,000 TN Baptist Memorial Hospital Memphis
$1,290,000 NY Good Samaritan Hospital Medical Center West Islip
$1,290,000 CA Oroville Hospital Oroville
$1,280,000 PA Pinnacle Health Hospitals Harrisburg
$1,250,000 FL Leesburg Regional Medical Center Leesburg
$1,240,000 NJ Kennedy University Hospital - Stratford Div Stratford
$1,190,000 NJ Jfk Medical Ctr - Anthony M. Yelencsics Community Edison
$1,190,000 MO Centerpoint Medical Center Independence
$1,180,000 VA Cjw Medical Center Richmond
$1,170,000 NY Mount Sinai Beth Israel/Petrie Campus New York
$1,170,000 VA Chesapeake General Hospital Chesapeake
$1,170,000 FL Baptist Medical Center Jacksonville Jacksonville
$1,160,000 CA Regional Medical Center Of San Jose San Jose
$1,150,000 IL Advocate Christ Hospital & Medical Center Oak Lawn
$1,140,000 AL D C H Regional Medical Center Tuscaloosa
$1,140,000 DE Bayhealth - Kent General Hospital Dover
$1,130,000 NY New York-Presbyterian Brooklyn Methodist Hospital Brooklyn
$1,130,000 MI Mclaren Flint Flint
$1,120,000 AZ Northwest Medical Center Tucson
$1,120,000 FL Lawnwood Regional Medical Center & Heart Institute Fort Pierce
$1,100,000 NJ Cooper University Hospital Camden
$1,090,000 DE Christiana Care Health Services, Inc. Newark
$1,090,000 NY Huntington Hospital Huntington
$1,070,000 MA Lowell General Hospital Lowell
$1,070,000 MA South Shore Hospital South Weymouth
$1,070,000 MO Mercy Hospital Springfield Springfield
$1,070,000 MI Edward W Sparrow Hospital Lansing
$1,050,000 NV Sunrise Hospital And Medical Center Las Vegas
$1,050,000 PA Aria Health Philadelphia
$1,040,000 TX East Texas Medical Center Tyler
$1,030,000 IL Franciscan Health Olympia & Chicago Heights Olympia Fields
$1,000,000 NY Maimonides Medical Center Brooklyn

2. Find Your Local Hospital's Penalties

• (A) Readmission penalties for each condition at each hospital (web page 4 MB or Excel spreadsheet 8 MB, Help). Effective FY 2018, which is October 2017 to September 2018. The Advisory Board (a consultant group) estimates total readmission penalty for each hospital (click on their map), but not the subtotal for each condition.
• (B) Trend in penalties and number of patients treated at each hospital FY 2013 through 2017 (xls 9MB) or FY 2015-16 (xls 17 MB)
• (C) 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.
• (D) See the Hospitals with biggest readmission penalties (web page or Excel spreadsheet).
• (E) Previous years' readmission penalties (FY2014, Aug 2013, 3 MB XLS, FY 2015, Oct 2014, 5 MB XLS, FY 2016, Oct 2016, 5 MB XLS, , FY 2016, Oct 2016, 5 MB XLS).).

Click for definitions of the varied penalties and how they are calculated. A and C are 2 methods with very similar results. C is simpler but older, and only A gives detailed penalties for the 5 conditions. The examples below are from A. Both approaches for FY 2015 are In the financial spreadsheet, columns CF and CL, and in a pdf of state comparisons.

Maryland and Puerto Rico are exempt.

Press Announcements:
2015 August 10 - Hospitals Treat Fewer Seniors when Medicare Charges 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

3. Effects 

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.

Measuring and rewarding medical providers can backfire and reduce quality by reducing motivation (see a very good, broad article on these effects). Studies find that doctors avoid treating risky patients, when there is public reporting of outcomes. 75% of interventional cardiologists decided not to treat a patient due, at least in part, to protecting the doctor's or hospital's success rate. 74%  sometimes or often delay treatment to see if the patient dies first. 52% worry their superiors won't support a decision to treat risky patients.

Because of the readmission 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, often by emergency treatment without hospital admission, or brief admissions for observations instead of full treatment, or treating fewer patients for these conditions in the first place. If a risky patient is not admitted, s/he can't be readmitted.

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."

The latest data and 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).

Evaluations have shown limited results.

Researchers at Columbia and Yale found that even an extra day of hospital treatment for pneumonia or heart attack saves thousands of lives (Table H). So reducing access to hospital treatment will be deadly.

Table H. Lives Saved by More Hospital Treatment

4. Responses

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 6 conditions, over 80% of hospitals will always be above average on some condition and pay penalties. Medicare does not know better than 80% 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 

1. Medicare pays at the time of treatment, and only later imposes the penalty, and
2. People do not know about the readmission policy, so cannot plan around it
3. Hospitals are not allowed to charge Medicare patients extra

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.

5. 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. 

• "readmission diagnoses usually differed from the specific diagnosis responsible for the index hospitalization and often involve different physiologic systems."
• "only 22% of readmissions after hospitalization for pneumonia were due to recurrent pneumonia and less than 40% were due to pulmonary disease."
• After heart failure, heart attack or pneumonia, 5-8% of readmissions are for kidney problems and 4-6% of readmissions are for septicemia or shock.
• Patients can be readmitted for severe flu, intestinal infections, burns, a broken arm, or accidental poisoning (pp.57-58).

There is no reason to expect these random readmissions to average the same at all hospitals, so the unlucky hospitals each year, or the ones serving fragile patients, are fined for being over the US average readmission rate (17.7% post-pneumonia, 5.27% post-joint-replacement).

The law requires Medicare to exclude readmissions unrelated to the initial admission. 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.

6. Research

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 years ago, in the Federal Register Aug 12, 2012. Earlier deaths save billions of dollars for Medicare, Social Security, and private companies' pensions.

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 a payment for less-invasive heart surgery which makes it unaffordable for hospitals