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Readmission Penalties Set to Take Effect

 |  By kminich-pourshadi@healthleadersmedia.com  
   September 17, 2012

It's the kind of news that makes financial leaders shudder: 2,211 hospitals stand to forfeit an estimated $280 million in Medicare funds beginning October 1, as year one of Medicare readmissions penalties take effect in October 1st.

With each claim that providers submit, a penalty of up to 1% may be deducted from the organization's Medicare reimbursements under a provision of the Patient Protection and Affordable Care Act.

How widespread will the financial penalties be? A Kaiser Health analysis of Centers for Medicare &  Medicaid Services data indicates that 278 hospitals (8.3%) stand to receive the maximum, while 1,933 (57.4%) of hospitals will receive other penalties. The average penalty will be approximately $125,000, and an estimated 1,156 hospitals (34.3%) will receive no penalty.

Gundersen Lutheran Health System in La Crosse, WI, an integrated system that operates a 325-bed hospital, is among the organizations with readmissions rates that will not to be penalized this year. "We've been doing patient- and family-centered care for some time, but the emphasis and awareness of what happens if things go wrong has certainly increased with the [readmissions] penalties," says Jerry Arndt, senior vice president and CFO.

Arndt attended the invitation-only HealthLeaders Media CFO Exchange last week in Kiawah Island, SC, to discuss topics such as readmissions rates, cost reduction, and mergers and acquisitions with some of the nation's top healthcare financial leaders.

"When you involve patients and families more in the process and there's more education pre-discharge, it goes a long way [toward preventing a readmission]. We also embrace the concept that a discharge is not a discharge, but the next step in the transition into the continuum of care. We stay connected with the patient when they leave the hospital," adds Arndt.

Patient-centered care and care coordination programs have sprouted at many hospitals nationwide, though at some hospitals the initiatives came after CMS began tracking readmission rates.

For the last few years the federal government has been gathering readmissions data on hospitals nationally, in an effort to decrease the 19% national average readmissions rate.

Readmissions penalties are calculated based on the frequency of Medicare patients readmitted within 30 days between July 2008 and June 2011.

Starting October 1, 2012, hospitals will face a 1% penalty for readmissions related to acute myocardial infarction, heart failure, or pneumonia. A year later the penalty will increase to 2% and then 3% in 2014. Moreover, as of next month, hospitals will be penalized or rewarded based on their level of adherence to basic standards of care and how patients rate their experience.

The hospitals that stand to fare the worst are those in New Jersey, New York, the District of Columbia, Arkansas, Kentucky, Mississippi, Illinois, and Massachusetts, according to CMS data on overall readmissions rates.

Readmissions penalties will be lightest in hospitals in Utah, South Dakota, Vermont, Wyoming, New Mexico, and Idaho. Idaho is the only state in which Medicare will not penalize any hospital under the initial metrics.

The readmissions penalty may hit some of the nation's top-rated hospitals hardest.  In calculating the amount of a provider's penalty, Medicare will weigh the severity of patients' illness, but not racial or socio-economic background. CMS data indicates that providers that care for the lowest-income patients are 2.7 times more likely to have high readmissions rates.

Safety-net hospitals, which tend to have higher rates of readmissions, care disproportionately for low-income patients. These facilities attribute those readmissions to poor post-discharge access to doctors and medication.

Several financial leaders at the HealthLeaders Media CFO Exchange commented that the readmissions program should be reviewed by the Medicare Payment Advisory Commission, with particular attention paid to socio-economic factors.

"We were fortunate not to get hit much, [but] that's not the case for everyone in our area," says Michael T. Burke, CFO, senior vice president, and vice dean at NYU Langone Medical Center, a three-hospital system in New York, NY.

"We focused our effort on reducing length of stay and managing the patients in that [Medicare] population so they wouldn't be readmitted. But we also don't have a lot of those patients. A larger percentage of our population is paid for out of employer-based insurance or is Medicare/Medicaid HMO. We tend to find that those patients are more compliant with post-discharge instructions."

The Kaiser Health analysis indicates that 76% of the hospitals with a high percentage of low-income patients will lose Medicare funds starting in October, while just 55% of providers that treat a low percentage of poorer patients will be penalized. Readmissions penalties are not a certainty for this category of hospitals, though. For instance, University of Mississippi Medical Center in Jackson and Denver Health Medical Center in Colorado, both safety-net hospitals, are not slated to be penalized this year.

Even for those hospitals that fared well during the first round of readmissions penalties, constant vigilance is needed to stay above the CMS bar, while for those that felt the sting of penalties this year there will likely be a renewed push to correct problems.

"We'll continue to focus on our patient-centered approached and the quality of the care we provide. But with mortality and morbidity, we'll look to be sure we are doing a better job coding the healthcare situation, so the mortality and morbidity index is better determined. Underquoting care can obviously cause the statistics to be distorted, and we don't want that to happen," notes Arndt.

Karen Minich-Pourshadi is a Senior Editor with HealthLeaders Media.
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