Does a Reduction in Readmissions Result in Net Savings for Most Hospitals? An Examination of Medicare's Hospital Readmissions Reduction Program

Abstract

This study aimed (1) to estimate the impact of an incremental reduction in excess readmissions on a hospital's Medicare reimbursement revenue, for hospitals subject to penalties under the Medicare's Hospital Readmissions Reduction Program and (2) to evaluate the economic case for an investment in a readmission reduction program. For 2,465 hospitals with excess readmissions in the Fiscal Year 2016 Hospital Compare data set, we (1) used the Hospital Readmissions Reduction Program statute to estimate hospital-specific Medicare reimbursement gains per an avoided readmission and (2) carried out a pro forma analysis of investment in a broad-scale readmission reduction program under conservative assumptions regarding program effectiveness and using program costs from earlier studies. For an average hospital, avoiding one excess readmission would result in reimbursement gains of $10,000 to $58,000 for Medicare discharges. The economic case for investments in a readmission reduction effort was strong overall, with the possible exception of hospitals with low excess readmissions.

Keywords: Medicare; acute care; health economics; health policy/politics/law/regulation; readmissions.

Figure 1.. Hospital-level average expected net earnings (Medicare reimbursement revenue gain net of program costs) from an investment in a broad-scale readmission reduction program, by the number of conditions with EXRR>1

Broad-scale implementation assumes targeting all patients hospitalized for any of the HRRP applicable condition, regardless of whether or not a hospital has excess readmissions for all conditions. The numbers are computed across all conditions, by using condition-specific net earnings estimates from Table 3 for conditions with excess readmissions, and only revenue losses from forgone readmissions and intervention costs for conditions without excess readmissions for which no HRRP penalty savings from further readmission avoidance can be expected. As in Table 3, four permutations of assumptions regarding the effectiveness and costs of the intervention are used. We display the means and 95% CIs of the expected net earnings from a broad-scale readmission reduction intervention. Points located below the x-axis represent negative expected net earnings (the cost of the intervention is expected to exceed the projected overall Medicare reimbursement revenue gain).

Figure 2.. Proportion of hospitals with expected net earnings (Medicare reimbursement revenue gain net of program costs) from an investment in a broad-scale readmission reduction program, by the number of applicable conditions with EXRR>1.

Broad-scale implementation assumes targeting all patients hospitalized for an HRRP applicable condition, regardless of whether or not a hospital has excess readmissions for all conditions. The numbers are computed across all conditions, by using condition-specific net earnings estimates from Table 3 for conditions with excess readmissions, and only revenue losses from forgone readmissions plus intervention costs for conditions without excess readmissions for which no HRRP penalty savings from further readmission avoidance can be expected. As in Table 3, four permutations of assumptions regarding the effectiveness and costs of the intervention are used. As in Table 3, the number and percentage of hospitals with positive the expected net earnings from a broad-scale readmission reduction intervention.