In virtually every health insurance plan in the United States, hospitals and doctors are paid a set price for each service or procedure they perform. While this system makes sense in many ways, it has long been known to lead to an unfortunate set of incentives: Since hospitals get paid more for admitting more patients and performing more procedures, they have no natural financial interest in preventing future complications or hospitalizations resulting from the procedures they perform.
As part of the Affordable Care Act (“Obamacare”), the 2010 health-care reform law, Congress tried to remedy this situation by tying certain Medicare payments to hospitals’ readmission rates following certain procedures. Specifically, as described last week in a Kaiser Health News article, Medicare — the federal health insurance program for older adults and others — began to look at readmissions after Medicare patients were hospitalized for five common reasons: heart attack, heart failure, pneumonia, a chronic lung condition, or hip or knee replacement. For each hospital, Medicare then compared the number of people readmitted within a month of each hospitalization with what it thought the number should be, based on the hospital’s mix of patients and nationwide readmission rates.
If a hospital’s readmission rate is higher than Medicare thinks it should be, the agency penalizes that hospital during the next fiscal year by paying it less for hospitalizations in the five categories. Since these penalties began three years ago, readmissions have fallen, but about one in five Medicare patients still returns to the hospital within a month of being discharged.
As noted in the Kaiser article, the amount of the Medicare penalty varies, and the number of hospitals penalized varies widely by state. The fines will be applied in fiscal year 2016 — which begins on October 1, 2015 — with North Dakota having the lowest percentage of penalized hospitals at 7%, and New Jersey having the highest at 97%. Medicare will penalize 54% of hospitals nationwide. The states with the most penalized hospitals are located in the Northeast and the South (Alabama, Connecticut, Florida, Massachusetts, New Jersey, New York, Rhode Island, South Carolina, and Virginia will have 75% or more of their hospitals penalized), while states with the fewest penalized hospitals are mostly located in the Great Plains (Idaho, Iowa, Kansas, Montana, Nebraska, North Dakota, and South Dakota will have fewer than 25% of their hospitals penalized).
The average penalty applied to hospitals for 2016 is 0.61% of the normal reimbursement rate for hospitalizations, but some hospitals — 38 across the country — earned the maximum penalty of 3%. Four of these 38 hospitals have also received the maximum penalty for the last three years. Three of these four lowest-performing hospitals are located in rural Appalachian regions of Kentucky and Tennessee, and serve largely impoverished populations that are more likely to be in poor general health. The fourth is in northern Louisiana.
The fact that hospitals serving poorer populations are more likely to be penalized by Medicare has prompted two U.S. senators — Joe Manchin of West Virginia, a Democrat, and Roger Wicker of Mississippi, a Republican — and a professor at the Harvard School of Public Health to call for changes to the problem in an editorial in The Journal of the American Medical Association, published last month. The two senators have also introduced a bill that would require Medicare to consider patients’ socioeconomic status when calculating penalties for hospital readmissions, in light of the fact that penalties are falling disproportionately on hospitals with lower revenues and profits already. But Medicare opposes the proposal, saying that poorer patients deserve hospitals that make an effort to reduce complications and readmissions just as much as richer patients do.
What’s your take on penalties for hospital readmissions — does this process seem fair to you? Should penalties take local or regional variations into account? Is calling on hospitals to do more with less money self-defeating, or is it a good incentive to prod them to change their outcomes? Could, or should, Medicare offer more money to certain hospitals to help them reduce readmissions, rather than penalizing them? Have you ever been readmitted to a hospital shortly after a procedure? If so, do you think the hospital could have done anything to prevent your readmission? Leave a comment below!