Changes in Readmission Adjustment Factors

In FY 2019, hospital performance in the HRRP will be assessed relative to hospitals within the same peer groups.

Since 2013, Medicare has penalized hospitals that have an “excessive” number of readmissions under a program called the Hospital Readmissions Reduction Program, or HRRP. The Centers for Medicare & Medicaid Services (CMS) measures hospital performance in the HRRP by calculating excess readmission ratios (ERRs) for each of the six program measures. An ERR is the ratio of predicted to expected readmissions for a given measure.

The payment adjustment factor formula is used to calculate the size of the payment reduction. Payment reductions were capped at 1 percent (i.e. a minimum payment adjustment factor of 0.99 percent) for FY 2013, then 2 percent for FY 2014 (i.e. a minimum payment adjustment factor of 0.98 percent), and 3 percent (i.e. a minimum payment adjustment factor of 0.97 percent) for FY 2015 and onward. Payment reductions are applied to all Medicare fee-for-service (FFS) base operating DRG payments for the fiscal year. The payment adjustment factor for FY 2013-FY 2018 is:

Powell 2

In this formula, dx is any one of the six measure cohorts. The excess readmission ratio (ERR) is a hospital’s performance on that measure.

For FY 2018, the HRRP cohorts includes six measures:

  • Acute myocardial infarction (AMI)
  • Chronic obstructive pulmonary disease (COPD)
  • Heart failure (HF)
  • Pneumonia
  • Coronary artery bypass graft (CABG)
  • Elective primary total hip and/or knee arthroplasty (THA/TKA)

There was a problem yielding a common complaint among certain types of hospitals with the penalty computations. According to an article published in the Journal of American Medical Association (JAMA) in 2013, certain types of hospitals bore the brunt of the penalties:

“Similarly, we found that major teaching hospitals are more likely to be highly penalized than nonteaching hospitals (44 percent [n = 118] versus 33 percent [n = 979], respectively) and less likely to not be penalized (19 percent [n = 50] versus 35 percent [n = 1043]). Safety-net hospitals are more likely to be highly penalized than non-SNHs (44 percent [n = 337] versus 30 percent [n = 760], respectively), and only 20 percent (n = 157) will not be penalized. In multivariate analyses, we found that the adjusted odds of being highly penalized are greatest for SNHs (odds ratio, 2.38 [95 percent CI, 1.91-2.96]; P < .001).”
JAMA. 2013;309(4):342-343. doi:10.1001/jama.2012.94856

 In December 2016, the 21st Century Cures Act (Cures Act) was signed into law. The legislation requires that CMS assess penalties based on a hospital’s performance relative to that of other hospitals with a similar proportion of patients that are dually eligible for Medicare and full-benefit Medicaid. The legislation further requires that estimated payments under the new methodology equal payments under the old design, also known as budget neutrality.

There is a rub with this neutrality provision, as with all such provisions. Medicare runs on a “prospective payment” methodology. The neutrality never actually works, out as it is based only on a guess. CMS came up with a new formula:

Powell 2

Beginning in FY 2019, hospital performance in the HRRP will be assessed relative to the performance of hospitals within the same peer groups. Hospitals will be stratified into five peer groups, or quintiles, based on their proportion of dual-eligible stays. A hospital’s dual proportion is the proportion of Medicare fee-for-service (FFS) and Medicare Advantage stays wherein the patient was dually eligible for Medicare and full-benefit Medicaid. 

Conclusions?

Is the new method fair? Is it really true that hospitals with larger Medicaid populations face a more difficult readmission situation? Is it fair to increase reimbursement to hospitals with high Medicaid case mixes when they already get an add-on for Disproportionate Share Hospital (DSH) payments? These are policy issues that will continue to be debated. We have no opinion and take no sides.

While we need to wait and see what the peer group data will show, there is no doubt that hospitals with smaller Medicaid populations will bear much more of the readmission penalty burden. These new regulations will tend to pit hospitals within peer groups against each other in the fight against the penalties. It will also impact Medicare Advantage reimbursement for contracted and non-contracted services.

 

Comment on this article

Print Friendly, PDF & Email
Facebook
Twitter
LinkedIn

Timothy Powell, CPA, CHCP

Timothy Powell is a nationally recognized expert on regulatory matters, including the False Claims Act, Zone Program Integrity Contractor (ZPIC) audits, and U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) compliance. He is a member of the RACmonitor editorial board and a national correspondent for Monitor Mondays.

Related Stories

Understanding the Wright Approach

Understanding the Wright Approach

Concern about hospitals sharing space has caused angst for several years. But as reiterated by Centers for Medicare & Medicaid Services (CMS) official David Wright,

Read More

Leave a Reply

Please log in to your account to comment on this article.

Featured Webcasts

Leveraging the CERT: A New Coding and Billing Risk Assessment Plan

Leveraging the CERT: A New Coding and Billing Risk Assessment Plan

Frank Cohen shows you how to leverage the Comprehensive Error Rate Testing Program (CERT) to create your own internal coding and billing risk assessment plan, including granular identification of risk areas and prioritizing audit tasks and functions resulting in decreased claim submission errors, reduced risk of audit-related damages, and a smoother, more efficient reimbursement process from Medicare.

April 9, 2024
2024 Observation Services Billing: How to Get It Right

2024 Observation Services Billing: How to Get It Right

Dr. Ronald Hirsch presents an essential “A to Z” review of Observation, including proper use for Medicare, Medicare Advantage, and commercial payers. He addresses the correct use of Observation in medical patients and surgical patients, and how to deal with the billing of unnecessary Observation services, professional fee billing, and more.

March 21, 2024
Top-10 Compliance Risk Areas for Hospitals & Physicians in 2024: Get Ahead of Federal Audit Targets

Top-10 Compliance Risk Areas for Hospitals & Physicians in 2024: Get Ahead of Federal Audit Targets

Explore the top-10 federal audit targets for 2024 in our webcast, “Top-10 Compliance Risk Areas for Hospitals & Physicians in 2024: Get Ahead of Federal Audit Targets,” featuring Certified Compliance Officer Michael G. Calahan, PA, MBA. Gain insights and best practices to proactively address risks, enhance compliance, and ensure financial well-being for your healthcare facility or practice. Join us for a comprehensive guide to successfully navigating the federal audit landscape.

February 22, 2024
Mastering Healthcare Refunds: Navigating Compliance with Confidence

Mastering Healthcare Refunds: Navigating Compliance with Confidence

Join healthcare attorney David Glaser, as he debunks refund myths, clarifies compliance essentials, and empowers healthcare professionals to safeguard facility finances. Uncover the secrets behind when to refund and why it matters. Don’t miss this crucial insight into strategic refund management.

February 29, 2024
2024 ICD-10-CM/PCS Coding Clinic Update Webcast Series

2024 ICD-10-CM/PCS Coding Clinic Update Webcast Series

HIM coding expert, Kay Piper, RHIA, CDIP, CCS, reviews the guidance and updates coders and CDIs on important information in each of the AHA’s 2024 ICD-10-CM/PCS Quarterly Coding Clinics in easy-to-access on-demand webcasts, available shortly after each official publication.

April 15, 2024

Trending News

Happy National Doctor’s Day! Learn how to get a complimentary webcast on ‘Decoding Social Admissions’ as a token of our heartfelt appreciation! Click here to learn more →

SPRING INTO SAVINGS! Get 21% OFF during our exclusive two-day sale starting 3/21/2024. Use SPRING24 at checkout to claim this offer. Click here to learn more →