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Preventing Hospital Readmissions Presents Financial Paradox

June 10, 2013

Despite valid financial concerns, hospital executives are expressing a growing desire to avoid readmissions for the sake of good patient care—because it's the right thing to do.

As Medicare turns up the heat on hospitals by imposing financial penalties for readmissions it considers preventable, provider organizations are caught in a catch-22.

By avoiding readmissions and the corresponding Medicare payment consequences, hospitals also drive down their patient volume, and, therefore, their revenue, which is still mainly based on a fee-for-service reimbursement model. Although healthcare is undoubtedly moving toward a value-based payment structure, it hasn't gotten there yet.

Despite this valid financial concern around preventing readmissions, the hospital executives I speak to often express a growing desire within their organizations to avoid readmissions for the sake of good patient care.

This attitude is also reflected in the HealthLeaders Media Industry Survey 2013, where 92% of respondents identified reduced reimbursements as the number one threat to their organizations, while citing patient satisfaction/experience and clinical quality as their top two priorities for the next three years, at 54% and 48% respectively. Healthcare leaders are clearly worried about finances, but are still focusing their attention on improving quality.

So I wasn't surprised to read a recent statement from the RARE (Reducing Avoidable Readmissions Effectively) Campaign—a coalition of healthcare stakeholders in Minnesota sponsored by the Minnesota Hospital Association, Stratis Health, and the Institute for Clinical Systems Improvement—reporting that participating hospitals succeeded in preventing 4,750 readmissions in the state between Jan. 1, 2011 and Dec. 31, 2012.

Mark Sonneborn, vice president of information services at the Minnesota Hospital Association, says these hospitals are well aware of the financial dilemma, but are nonetheless committed to preventing readmissions.

"First and foremost we consider readmissions to be [an indication of] suboptimal care, even though in a fee-for-service way of doing things, a hospital is paid for doing both the admission and readmission," he says.  

"Even with Medicare penalties, a CFO could do the calculations and find it is still worth it to have the readmission despite the penalty… There is still some wariness that we are not there yet, and haven't really shifted from a fee-for-service to a value-based payment structure. There is a worry about shifting too soon in terms of the bottom line, but everyone agrees this is the right thing to do."

Sonneborn's take on the readmissions conundrum rang true to me. At a recent meeting with three health system CEOs, I heard lots of conversation about the financial challenge created by preventing readmissions while still operating in a predominately fee-for-service world. Although all three were clearly concerned about the money, they kept coming back to one point: It's about doing what is best for the patient.

This is also the theme I heard when I spoke to a few of the hospitals that are taking part in the RARE Campaign.

"I think everyone in healthcare knows that preventing avoidable readmissions is something we need to improve upon because for the patient. Any time you have to be rehospitalized, it's a negative," says Barbara Possin, vice president of strategy and quality at Essentia Health, a Duluth, MN-based integrated health system that spans three states.

"We know this is where we need to go in the future, and our executive leadership team believes strongly that this is the right way to go… To say it impacts our bottom line today isn't going to help us in the future," she adds.

Possin believes that reimbursement structures will eventually reward providers more for higher-quality care as the industry continues to move toward accountable care models. Essentia is already participating in a number of programs that provide financial incentives for quality improvement, she says.

"We have contracts with certain payers around meeting quality measures, and those financial relationships help to ease the transition."

Jeffrey Lyon, MD, patient quality officer for Essentia Health's east region, reports that the health system has more than met its goals for preventing readmissions.

"Our overall rate of readmissions has gone down significantly. The goal was to decrease readmissions by 20% using 2009 as a baseline. We're down 22% overall," Lyon says.

To achieve these results, Essentia has taken steps to provide better care transition at the time of hospital discharge, improve medication reconciliation, and conduct follow-up calls with patients to ensure they understand their care instructions and have an appointment with a primary care doctor within five days of discharge, Lyon says.

"Medicare is looking at overall readmissions and paying based on that, but when we got into the business of preventing readmissions we were completely in a fee-for-service environment. We did it because it is the right thing to do for our patients," he adds.

Through its participation in the RARE Campaign, Regions Hospital in St. Paul, a 454-bed facility that is part of the HealthPartners care system, experienced a 15% drop in its readmission rate in 2012 compared to 2009 and 2010, says Josh Brewster, director, care management.

"This is equivalent to preventing over 378 readmissions in 2012 alone," Brewster says.

"We have come to realize there is no silver bullet to preventing readmissions," he says, noting that the hospital is focusing on efforts such as interventions targeting micro-populations of high-risk patients, improved collaboration and coordination among all care settings, building a culture focused on readmission risks, and closely monitoring non-elective readmission rates across all patient populations and CMS target populations.

"Although one of our measures of success was to minimize the Medicare penalties, we see this work as being about excellent patient care and ensuring patients' care is coordinated," Brewster says. "The overall cost of care for the larger health system and improving patient care are more important to us than any impact fewer admission may have to our bottom line."

Brewster's comment echoes what I've heard many times recently. Many healthcare leaders know preventing readmissions may hurt their organization financially—at least in the short term—but are still pushing their teams to make immediate strides on this important quality measure because it's just the right thing to do.

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