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Are Readmission Penalties Unfair to Safety Net Hospitals?

October 23, 2014

Earlier this month Medicare fined 2,610 hospitals—a record number—for readmitting too many patients less than 30 days after they were discharged. In 2015, these hospitals will see their Medicare reimbursements cut by as little as .01% to a maximum of 3% in this, the third year that the Center for Medicare and Medicaid Services’ Hospital Readmissions Reduction Program (HRRP) has been in place.

The fines “are intended to jolt hospitals to pay attention to what happens to their patients after they leave,” according to Kaiser Health News. The take-home message is that CMS wants hospitals to know that preventing readmission requires more than sending patients home with discharge orders in their hands. Instead, providers need to develop action plans that ensure patients have access to the medications they need, have scheduled follow-up appointments and are connected to community health services that can assist them with managing their health.

The goal of the readmissions reduction program is to improve the quality of care while also cutting Medicare costs associated with patients bouncing back and forth to hospitals. There are already signs of progress. In 2013, 17.5 % of Medicare patients were readmitted within 30 days to hospitals for any condition, down from an average of 19% each of the past five years. That’s good news for CMS, which estimates the cost of 30-day readmissions for Medicare patients to be $26 billion annually with $17 billion of that deemed potentially avoidable if patients had received the right care. Reducing avoidable readmissions by just 10 percent could achieve a savings of $1 billion or more.

Despite this overall trend, progress in reducing readmissions has not been consistent across the board. Safety-net hospitals—mostly public and teaching institutions that serve the largest proportion of low-income patients—are lagging and, according to The Commonwealth Fund, on average, receive higher penalties under the CMS program. They are also far more likely to be penalized: 77 percent of the hospitals with the highest share of low-income patients were penalized for excessive readmissions in the program’s first year vs. just 36 percent of the hospitals with the fewest poor patients. The Medicare Payment Advisory Commission (MedPAC), which advises Congress on policy, has found that lower-income patients have higher readmission rates and major teaching hospitals, which serve large numbers of indigent patients, face the highest penalties. With this in mind, there is growing concern that instead of improving the quality of care, the penalties could worsen health disparities among Medicare beneficiaries who live in low-income areas. Specifically, higher readmission penalties might actually exacerbate the financial challenges safety net hospitals already face, resulting in fewer services, more frequent readmissions, and hospital closures in high-need urban or rural areas.

What can be done? A good first step would be to change the way readmission penalties are calculated. Currently, Medicare tracks the number of patients who go into the hospital for a heart attack, heart failure or pneumonia and then are readmitted within 30 days. This year for the first time Medicare also tracked patients with chronic lung problems and those who underwent elective hip and knee replacements. Hospitals that readmitted patients at a rate higher than expected—keeping in mind the severity of the problem and other confounding factors like gender and age of the patient—saw their reimbursements cut. The question then becomes; are safety-net hospitals providing lower quality care to their disadvantaged patients or are there factors outside the hospital’s walls that are leading to more frequent readmission?

Evidence suggests the latter. Low-income patients are far more likely to be homeless, have low health literacy, be unable to afford medications and home care, and have poor access to follow-up medical care. They often lack family or community support to help keep them healthy and out of the hospital. A panel of experts convened by the National Quality Forum, a nonprofit organization that evaluates measures the government uses, recommended that CMS take socio-economic status into account when assessing hospital readmission penalties. The panel found that “readmissions are difficult to avoid in patients who can’t afford post-discharge medications, have no social support to help with recovery at home, have no way to get to follow-up doctor appointments or are homeless.” As the New York Times put it; “in effect, the panel said, two hospitals that provide the same high-quality care may see very different rates of readmission if one has mostly low-income patients and the other serves a more affluent population.”

A recent study in the journal Health Services Research found that nearly 60 percent of the variation in hospital readmission rates appears to be associated with the county the hospital is located in, rather than on individual hospital performance on quality measures. In Kentucky, for example, forty counties are considered to have “persistent poverty,” meaning 20% or more of their residents have fallen below the poverty line over the past three decades. According to an article in Modern Healthcare,  nine of the 39 hospitals that were fined the maximum 3% readmission penalty this month are located in the state. Elizabeth Cobb, the Kentucky Hospital Association’s vice president for health policy tells the journal that most of the penalized hospitals are located in rural areas where obesity and smoking rates are high and patients often do not have access to outpatient health care services they need. “Seven of the nine hospitals that received the maximum fine in that state were in persistent-poverty counties, and three received the maximum fine all three years,” says Cobb.

Hospitals in Detroit are also being hit with a disproportionate share of readmission penalties. The authors of a letter to the New England Journal of Medicine report that hospitals in the city received higher readmission penalties in both 2013 and 2014 when compared to five other metropolitan areas in each of five nearby states. The Detroit area also has the greatest income disparities and the highest rates of poverty and unemployment of these metropolitan areas. Within Michigan, “all 5 hospitals in Detroit and all of the other 12 hospitals in the Detroit metropolitan area were given a readmission penalty, as compared with only 37 of 75 hospitals in the rest of [the state].”

With increasing evidence that socioeconomic factors—whether at the county or community level—are playing a major role in hospital readmissions, there are growing calls for change. MedPAC, the National Quality Forum and healthcare organizations like the American Hospital Association, American Medical Association and the National Hispanic Health Association are asking the government to consider social, economic and demographic factors when calculating readmission rates and penalties. A bipartisan bill introduced in the Senate would require  CMS to account for patient socio-economic status when calculating risk-adjusted readmissions penalties, starting in 2017. Similar legislation in the House  “would require the secretary of the Department of Health and Human Services to adjust the readmission penalty based on a hospital’s share of dual eligibles”—its share of the most vulnerable low-income seniors or disabled patients who receive both Medicare and Medicaid benefits.

So far the Obama administration has resisted these calls to factor in socioeconomic measures. The argument has been that doing so would be equivalent to accepting a double standard, with lower expectations for hospitals that provide care to low-income patients. Besides, CMS has said that its own research finds that hospitals in poor communities “can and do perform well on readmissions measures.” This double standard concern warrants consideration. The idea of readmission penalties is, again, to hold hospitals responsible for what happens once their most vulnerable patients leave their care. The penalties also serve as a counterbalance to the financial incentives hospitals might gain by increasing frequent readmissions. The question remains, how best to promote better policies and programs that prevent readmission while avoiding unfairly punishing hospitals that serve low-income patients?

The answer is to take a two-fold approach. First, as recommended by MedPAC, CMS should continue to report readmission data without socioeconomic risk adjustments, but determine penalties by comparing hospital performance between peers with similar shares of low-income patients. This avoids the apples-to-oranges problem and can help better identify hospitals that perform poorly due to problems under their control. Secondly, if we acknowledge that socioeconomic factors play a role in hospital readmissions, we need to identify and implement care transition strategies within communities that promote better health and maintenance of chronic diseases like heart failure and diabetes. A 2013 MedPAC report recommends that hospitals look beyond their walls to improve care coordination—i.e. employ case managers to ensure proper medication regimens and access to needed supports; help patients connect with community-based doctors and other providers.

To help in this effort, the Affordable Care Act provided $500 million in funding for 102 community-based organizations to partner with hospitals and build up care transition networks that begin working with patients within 24 hours of hospital discharge. The idea is to provide care management and coaching and focus on “downstream providers” that can help keep patients out of the hospital. The effort, called the Community-based Care Transitions Program currently provides transition services to more than 700,000 Medicare beneficiaries in 40 states after they leave the hospital. Results have been encouraging at some sites that are getting closer to meeting the 20% reduction in 30-day readmissions goal that the program sets. Unfortunately, in March 2013 $200 million was cut from the CCTP and the fate of many hospital-community partnerships is up in the air.

In the end, the impact of the fines on the 2,610 hospitals that had excess hospital readmissions this past year will be mixed. For many, the fines will have limited financial repercussions and will help spur on-going efforts to reduce the number of patients who return within 30 days. For others, mainly safety-net hospitals that already struggle financially to serve a population of largely low-income patients, the readmission penalties may do more harm than good—especially if there are limited funds for creating community-based transition care programs. Taking socioeconomic factors into consideration—whether by adding them to the original calculations or as MedPAC suggests, comparing hospitals with similar populations when determining penalties—is the fairest way to promote progress in reducing hospital readmissions.




  1. John Rusche permalink

    I suspect. That non-safety net facilities have more resources available for community interventions. I know in rural states like Idaho the community hospital is often the holding place while other arrangements (nursing home, assisted living, home visits, family placement and training, community services like meals and transportation) are made. And poorer or smaller communities have less community resources.

    • Rep. Rusche, I think you are right about community hospitals in rural states being the default for lower-income residents who may not have access to other health care and social supports. High readmission rates often reflect this absence of a connection between hospitals and community supports; it would be interesting to find out what kinds of interventions might bridge this gap in rural areas.

  2. Great article. This just spells out even more forcefully the need for transitional care support services for recently discharge patients from every health care setting.

  3. Amazing blog, you help clear the mind in understanding the support of every patients right. Thank you for the great article you have the good piece!

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