CMS penalized more than half of hospitals participating in the Hospital Readmissions Reduction Program (HRRP) initiated by the Affordable Care Act in all five years of the program — but penalties were less common for hospitals treating the most medically complex patients, according to a recent analysis.

The penalties also could have increased significantly but did not, notes lead author Michael P. Thompson, a postdoctoral fellow in the Department of Preventive Medicine at the University of Tennessee Health Science Center in Memphis. (An abstract of the report is available online at:

Thompson and his colleagues focused on the characteristics of hospitals that received penalties during all five years, how penalties changed over time, and the relationship between baseline and subsequent performance. They found that in fiscal years 2013 to 2017, slightly more than half of the hospitals were penalized but the average penalties remained modest. They doubled from 0.29% to 0.60%, remaining low despite increasing opportunities for penalization, Thompson says.

“Even though conditions for readmission were added during this period, the size of the penalties did not increase all that much,” he says. “There was a slight increase but not as much as we expected, considering the increased opportunity for more penalties simply because more conditions were included in the program. That was surprising.”

Penalties were more common in urban hospitals, major teaching facilities, large hospitals, for-profit hospitals, and those that treated larger shares of Medicare or socioeconomically disadvantaged patients.

“Surprisingly, hospitals treating greater proportions of medically complex Medicare patients had a lower cumulative penalty burden compared to those treating fewer proportions of these patients,” the study authors wrote.

The researchers also found that hospitals with high baseline penalties in the first year continued to receive significantly higher penalties in subsequent years.

“I think that was mostly based on the fact that penalties were assessed based on your performance relative to your peers, and if you start off high you are going to remain high even if you are improving,” Thompson says. “That is somewhat concerning and leads to the larger issue of how we do pay-for-performance. If we do it solely off performance, you may have to make extra effort to drop below your peers who also may be improving. If you’re both improving at the same rate, you’re still going to be relatively worse or relatively better than your peers, depending on where you started.”

Alternatives might include basing pay-for-performance on changes relative to previous performance or some established benchmark, he notes. The continuation of the high baseline penalties through the five years could lend support to arguments in favor of those options, he says.

Continuing to assess quality in this way could have unintended consequences if hospitals continue to receive penalties every year, even when they are improving quality, Thompson says. If hospital leaders start to feel like they can’t win no matter how they try, some may stop trying so hard to improve quality, he suggests.

Thompson notes that the 21st Century Cures Act now allows the HRRP to allow for dual-eligible status.

“It will be interesting to see how penalties will be modified based off of that. Knowing the type of patients your hospital treats will become increasingly important in understanding where your burden might lie,” he says. “If you’re a hospital that treats disadvantaged, lower socioeconomic status patients you probably already know that you’re going to have a harder time with this policy. So understanding where you lie relative to your peers is the first step, and then you may have to take greater steps to reduce readmissions, with larger investments. You can’t just do what everyone else is doing because you have to do more to avoid penalties in the future.”

Thompson says adjusting for socioeconomic factors could change the situation significantly if the system begins comparing hospitals that have similar proportions of dual eligibles.

“It’s going to shake up who are the winners and losers, who receives a penalty, and who doesn’t,” he says. “In the current paradigm of penalties we can expect a continuation of the penalties we’ve seen in the past five years, and the same patterns that suggest some hospitals are at a real disadvantage, but factoring in socioeconomics could turn a lot of this on its head.”