Researcher Says CMS Proposal Would Penalize More Than 2,600 Hospitals

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By Nathaniel Weixel  

June 2 — According to Medicare data released by an independent researcher, more than 2,600 hospitals would be penalized for excess readmissions if the final fiscal year 2015 inpatient prospective payment system (IPPS) rule remains unchanged from the proposal.

The 2,633 hospitals would face penalties for excess readmissions for five common conditions, Paul Burke, editor and researcher of, told Bloomberg BNA May 30. Burke's site is a readmissions watchdog website that aggregated the Medicare data.

The Centers for Medicare & Medicaid Services published the proposed rule (CMS-1607-P) May 15, and comments are due June 30.

New Conditions Added

The proposed rule added two new conditions for which hospitals would be penalized for readmissions above the national average: knee and hip replacements and chronic obstructive pulmonary disease (COPD).

The three existing conditions hospitals are penalized for are heart failure, heart attack and pneumonia, bringing the total number of eligible conditions to five for FY 2015. The CMS has said it will expand the list of conditions eligible for a readmissions penalty in FY 2017.

Penalties for each readmission above the average range from $33,000 for each patient readmission after COPD treatment to $285,000 for each readmission after hip or knee replacement. According to Burke, FY 2015 is the first year individual hospitals will be able to see what their readmissions penalties will be, before they are imposed, if the proposed rule is made final.

The Medicare data used for the proposed rule's impact cover readmissions that occurred between July 2009 and June 2012. The final rule will cover readmissions between July 2010 and June 2013.

ACA-Mandated Program

Starting Oct. 1, 2012, hospitals began getting penalized for excess readmissions. The Hospital Readmissions Reduction program, mandated by the Affordable Care Act, cuts reimbursement rates for facilities with readmission rates above the national average. Penalties on certain 30-day readmission measures will rise to a maximum of 3 percent of a hospital's base payment in FY 2015. According to the data, 25 hospitals would receive the maximum penalty in FY 2015.

The maximum penalty is “a small percentage of overall revenue, but it's coming from only five cost centers,” Burke said.

Providers Oppose Penalties

Hospitals say the CMS needs to either overhaul the readmissions reduction program or scrap it entirely.

In a statement provided to Bloomberg BNA May 30, the American Hospital Association said the CMS “has raised the financial stakes” of hospital readmission performance by including the two new conditions in the hospital readmission penalty program. “However, CMS has again failed to improve the fairness of the program by adjusting the program's measures for sociodemographic factors,” the AHA said.

In the program's first two years, hospitals treating large numbers of poor patients have been disproportionately more likely to receive readmissions penalties, the AHA said. An adjustment for socioeconomic factors “would maintain the incentive for all hospitals to reduce readmissions while ensuring that hospitals caring for large numbers of poor patients do not receive excessive penalties that can reduce their ability to provide needed services to their communities.”

Blair Childs, vice president of public affairs at the Premier healthcare alliance, told Bloomberg BNA June 2 that Premier's data confirm that 2,633 hospitals would be penalized under the IPPS proposed rule.

Additionally, Childs said the average readmissions penalty as a percentage of overall hospital payments was 0.38 percent in FY 2014. Under the proposed rule, the average penalty would be 0.63 percent—nearly double.

The overall number of readmissions in the country has been declining, Childs said, but the number of hospitals being penalized has increased. For example, a report released through the CMS's Center for Medicare and Medicaid Innovation (CMMI) in May also found that readmissions for Medicare beneficiaries fell 8 percent between January 2012 and December 2013.

Childs said some of the main flaws with the readmission reduction program are that it doesn't take into account a patient's socioeconomic status and that hospitals don't know the benchmarks against which they are being measured.

“You can't see all the data with any clarity,” he said. “It's hard for hospitals to assess what they're doing until they get the penalty.”

Additionally, Childs said if a hospital performs well in three or even four of the five categories, the positive scores won't balance out the negative score.

The penalties “aren't balanced” across clinical areas, he said. “You could be under [the average] by a huge amount in one area, and slightly above in another area. On balance, that should weigh out. But it doesn't.”

To contact the reporter on this story: Nathaniel Weixel in Washington at

To contact the editor responsible for this story: Brian Broderick at