CMS To Cut Reimbursement Rates By Up to 2% for About 2K Hospitals

Beginning Oct. 1, CMS will reduce Medicare reimbursement rates by up to 2% for 2,225 hospitals in 49 states as part of a program designed under the Affordable Care Act to curb hospital readmission rates, according to CMS' latest data calculations released last week, Kaiser Health News reports (Rau, Kaiser Health News, 8/2).

Under the Hospital Readmissions Reductions Program, which was implemented in October 2012, CMS will withhold up to 1% of regular reimbursements for hospitals that have too many patient readmissions within 30 days of discharge because of three medical conditions: heart attack, heart failure and pneumonia. The penalty will increase to 3% by 2015 and likely will be expanded to include readmissions for other medical conditions, such as chronic lung disease (California Healthline, 10/3/12).

The latest data calculation showed that hospitals treating mostly low-income patients were penalized disproportionately, reviving hospitals' concerns about uneven penalty distributions, KHN reports. According to KHN, Medicare during the second round of penalties has made some refinements to its calculation process, such as excluding from its analyses cases where physicians planned for a readmission. Medicare estimates that doctors plan readmissions in about 12% of heart attack cases, 6% of heart failure cases and 4% of pneumonia cases.

Report Details

Medicare will penalize hospitals in all states but Maryland -- which operates under a unique reimbursement system designed under a federal waiver -- for a total of $227 million in fines. However, the average fine per hospital will decrease from 0.42% in the first year to 0.38% during the second year, lowering the national total to about $53 million less than the current year's penalties.

Specifically, Medicare will decrease fines for 1,371 hospitals and increase fines for another 1,074 hospitals. A total of 283 hospitals that were not fined in the first year will be penalized during this second round. In addition, Medicare will penalize 18 hospitals with the maximum 2% reduction in reimbursement rates. Of the hospitals that received the maximum 1% reduction in reimbursement rates this year, 141 will receive lower penalties next year.

Overall, 1,154 hospitals -- about one-third of the total number of hospitals -- have kept their readmission rates low enough to avoid any fines, KHN reports.

Uneven Distribution of Penalties

The CMS data showed penalties disproportionally affected hospitals that treat primarily low-income patients, with 77% of such hospitals receiving fines, compared with 36% of other hospitals. However, CMS in a regulation published Friday said there is no need to include hospitals' socio-economic populations into account because the HRRP already factors in the difference in health status of patient populations.

In addition, A KHN analysis found that academic hospitals were similarly affected, with 87% of such institutions receiving fines, compared with only 63% of hospitals that do not train medical residents. However, the penalties for major teaching hospitals were not significantly higher than those of other hospitals.

Hospitals have been "vocal" in their critique of how the program fails to account for the uneven distribution of penalties, according to KHN. Hospital executives have contended that they should not be responsible for the health of patients outside of the hospital, particularly when Medicare does not reimburse for the additional care needed to track patients' well-being beyond the hospital. In June, MedPAC recommended that readmission penalties take into account patient populations' socio-economic status.

Third Round of Penalties

CMS on Oct. 1, 2014 will launch the third phase of the HRRP, raising the maximum penalty to 3% and expanding the number of conditions for which readmissions are penalized to include chronic lung disease and elective hip and knee replacements. In addition, CMS also might include in its calculations a measurement that takes into account all of a hospital's readmissions, KHN reports (Kaiser Health News, 8/2). 


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