Hospitals have long complained that assessments of readmission rates do not take into account the socioeconomic factors that can influence them, resulting in facilities serving the neediest patients taking a financial hit when they don’t meet national standards. That is about to change with the introduction of a law that allows hospitals to factor in that information when determining readmission rates.

Some hospital leaders will rejoice, but there is concern that the law will result in some facilities lowering the bar for acceptable readmission rates.

The change comes as a detail in the 994 pages of the 21st Century Cures Act, which was signed into law in December 2016. The law originated to address biomedical innovation but became a catch-all for a variety of healthcare issues, including a provision that requires Medicare to account for patient backgrounds when determining financial penalties under the Hospital Readmissions Reduction Program. Hospitals are penalized if a patient returns to the hospital within 30 days after discharge for the same reason they were originally admitted.

Readmissions at hospitals serving a high proportion of disadvantaged patients can be higher because discharged patients have limited access to food, medication, and follow-up care. A rate higher than the national average results in CMS reducing Medicare reimbursement.

The new law will redistribute the penalties across a greater number of hospitals, says Neil Smiley, CEO at Loopback Analytics, a healthcare consulting group based in Dallas. That means there will be winners and losers.

“Folks that thought they were in great shape and not subject to any readmission penalties are likely to have a rude awakening as risk gets redistributed from hospitals that have a high dual-eligible population to those that don’t,” Smiley says. “Those that have been really struggling with readmissions may be able to sit back and realize it’s no longer as much of a problem.”

Inner-city hospitals and those with a high teaching component have been most unfairly affected the penalties, so they are likely to benefit the most. More affluent hospitals will find their target for readmissions has suddenly been lowered, requiring steps to stay below the national average, he says.

“The law is revenue-neutral, so it’s not like the penalties are lessened,” Smiley explains. “The amount of money CMS takes back is going to be the same. It’s just going to come from different players.”

Bar Could Be Lowered

There is some controversy over the law, with critics saying that reducing penalties to safety net hospitals with a disadvantaged population amounts to letting those hospitals meet a lower standard of care than others, condemning that population to a lower quality of care than more affluent patients. There is a danger of hospitals letting their readmissions efforts slip because the threat of penalty is not as much, Smiley says.

“One of the very perverse aspects of the readmission penalties is that they encourage hospital CFOs to shoot for mediocrity,” Smiley says. “If you’re any better at reducing readmissions it costs you money, and if you’re any worse it costs you money. Mediocrity is where you have optimal financial returns with these penalties. What you want to be is spot-on average, no worse and no better, which seems kind of crazy to me.”

The effects of the law should be felt immediately as hospitals calculate readmissions and determine where they stand under the new law. Actual financial repercussions will take longer, as the readmissions program has a three-year tail for calculating averages.

“People will do their calculations and figure whether they’re still in the penalty soup or not,” Smiley says. “Those who have invested in trying to reduce readmissions may ask whether they need to double down, and others may ask if they can let off the pedal a little bit and reinvest those resources somewhere else.”

Bundled payments would be a better alternative, encouraging quality without penalizing hospitals unfairly, says Donald Fry, MD, executive vice president for clinic outcomes management with MPA Healthcare Solutions in Chicago, and adjunct professor of surgery at Northwestern University Feinberg School of Medicine. Fry notes that factors such as income levels, employment, geographic location from the index hospital, and a caregiver in the patient’s home need to be considered in the payment structure, and in the likelihood that patients will seek ED or readmission care.

Bundled payment strategies can do this with appropriate databases and could eliminate the Medicare Hospital Readmissions Reduction Program in its entirety, Fry says.

Fry also notes that there can be a problem with defining safety net hospitals. Some facilities thought of as safety net hospitals have substantial financial reserves from well-insured patients, he says.

“Waiving the readmission reduction penalties based on the amount of unreimbursed care that some providers may be giving a pass to some very solvent and well-to-do facilities,” Fry says. “Medicare patients, even if they are going to safety net hospitals, are not the charity care patients that many of us have spent lifetimes taking care of. They are not the down-and-out, unemployed, indigent patients that have nothing else in the world. So when we look at waiving readmission penalties on well-insured patients, I’m having a hard time understanding why that’s a good thing.”