Everything in Context: Medicare's Readmission Penalties Far Overshadowed by Uncompensated Care and DSH Payments

Medicare’s Hospital Readmission Reduction Program (HRRP) is critiqued because hospitals disproportionately treating low socioeconomic status (SES) patients disproportionately receive penalties for excess readmissions. However, HRRP penalties reduce per-discharge wage-adjusted base operating payments but not DSH, uncompensated care payments (UCPs), and IME add-on payments, suggesting that highly penalized hospitals may profit from each additional Medicare patient including those considered excess readmissions.

Data are from FY2010-2013 Medicare Hospital Readmissions Reduction Program Supplemental Data file and the FY2015 final, corrected Impact File.  Using multinomial logit models, we estimated the relative odds (relative risk ratio, RRR) of being in the top or middle compared to lower tertile of hospitals in terms of HRRP penalty as a share of total Medicare payments based upon size, teaching, and different measures of safety-net hospital (SNH) status, after including DSH/UCP/IME add-on payments. 

The average FY2015 per-discharge operating payment was $5,394.  The average penalty as a share of Medicare payments was 0.47%, but after accounting for add-on payments the share was 0.42%.  On average, large ($2,077), teaching ($3,752), and SNHs ($2,721) received additional reimbursement after accounting for add-on payments and the HRRP penalty.  Not accounting for add-ons, hospitals serving low SES patients had greater odds of HRRP penalties; however, accounting for add-ons, large (RRR=0.72), major teaching (RRR=0.99), and SNHs (RRR=1.03) had lower or similar relative odds of being in the highest compared to lowest penalty share tertiles.

The purported disincentive provided by HRRP for excessive readmission of Medicare beneficiaries is counteracted by incentives involving non-penalized components of Medicare payment.