Do financial penalties in healthcare actually change behavior to a degree that leads to positive change? When it comes to hospital readmissions, an answer to that question is emerging: the threat of such penalties can—and has—done so for the relationship between acute-care and post-acute providers that care for the same patients.

Beginning Oct. 1, the Hospital Readmissions Reduction Program—included in the Patient Protection and Affordable Care Act—will kick in, which means hospitals will face a penalty for excessive readmissions of as much as 1% of their total Medicare billings next year. That fine will increase to 2% in 2014 and 3% in 2015.

“CMS is implementing the Readmissions Reduction Program through two IPPS (inpatient prospective payment system) cycles—FY 2012 and FY 2013,” a CMS official says in an e-mail, noting that the proposed rule for fiscal 2013 will be issued this spring and made final by Aug. 1. “Initially, CMS will be looking at readmissions rates for acute myocardial infarction (AMI), or heart attack, heart failure and pneumonia.”

For this fiscal year—which began Oct. 1, 2011—the agency implemented certain provisions, such as the definition of “readmission,” measures for the applicable conditions and public reporting of the readmission data. But the new program won't affect payments to hospitals until fiscal 2013, which starts in October.

Although hospital patients are often discharged to post-acute settings such as skilled-nursing facilities, long-term acute-care hospitals and inpatient rehabilitation facilities, if they are readmitted to a hospital, it's the acute-care facility that will take the financial hit. One might think this would place a great strain on the relationship between the acute-care and post-acute providers and generate an endless blame game.

Not so, it seems. The looming penalty is having the opposite effect. Instead of adding tension to the relationship between hospitals and post-acute providers, it's prompting the groups to work together and communicate more effectively, strengthening those partnerships.

“In the net, it helps improve the relationship,” says Dr. David Gifford, senior vice president of quality and regulatory affairs for the American Health Care Association and the National Center for Assisted Living, the assisted-living arm of the AHCA. “It's always existed because hospitals need a place to send patients—and one out of five go to a skilled-nursing facility. So a lot of them have relationships there,” he adds. “This is going to improve that relationship even further because now there is an incentive at both ends to coordinate the care.”

As Gifford explains, hospitals are the first providers to be subjected to such a penalty.

Gifford says that Medicare Payment Advisory Commission data show that of all Medicare hospital discharges that need post-acute services, regardless of where they go, 18% receive care in a skilled-nursing facility. But of those who are discharged to an institutional setting or home with healthcare services, about one-third end up going to a SNF.

“So if a hospital is looking to reduce rehospitalization, we're a fifth of the discharges and a lot of those do come back to the hospital,” Gifford says.

The AHCA has made working with acute-care providers a priority in the past year, says Gifford, who adds that his group's members are working to improve communication, given that many readmissions occur because of inadequate information—from either setting.

“Right now, the only ‘penalty' to a SNF is a hospital deciding not to refer a patient to them,” Gifford says. “But it's clear that all providers, not just SNFs, will have a similar penalty structure that hospitals have—so everyone is trying to get ahead of the curve.”

Catherine Koppelman, chief nursing officer for the University Hospitals health system and 703-bed University Hospitals Case Medical Center in Cleveland, also emphasizes the need for strong communication among acute and post-acute providers. The Ohio system established its own hospital readmission reduction program in the fall of 2008, well more than a year before the health reform law passed.

“I think that hospitals have more of an incentive to work with the post-acute providers in terms of collaborating in ways to prevent readmissions,” Koppelman says, adding that communication often means educating staff in post-acute facilities beyond basic care measures. Consequently, they are “more tuned in to” the signs and symptoms of different diseases and can care for those problems in the post-acute facility.

“What we did is set up an infrastructure of a steering committee and subcommittees, and they were assigned to examine the root causes of readmissions for heart failure, MI (myocardial infarction) and pneumonia patients,” she says. “Then with those root causes, you have the programmatic changes you have to make in the care of those patients.”

For University Hospitals, those “programmatic changes” meant modifying how caregivers collect patient medical histories. Now they ask more questions on topics such as a patient's home environment (are others available to help with their care?) and whether they are able to care for themselves and afford medications.

Dr. Peter DeGolia, director of the Center for Geriatric Medicine at Case Medical Center, was involved in establishing the system's readmissions reduction program more than three years ago. In his role, he has four main responsibilities, some of which include direct involvement with local nursing facilities.

“We're working with area nursing homes in two areas,” DeGolia says. “One is particular to making sure that information is received at the SNF, and facilitating communication,” he says, adding this usually happens through monthly meetings to identify and address concerns from both the acute and post-acute facilities.

“In connection with that, we've developed an outreach with the Western Reserve Area Agency on Aging.” For this, caregivers work with the agency to develop a care-transitions project. “They have social workers for the dual-eligible population,” he says, referring to those patients who qualify for both Medicare and Medicaid. “We're working with them to support transition coaching.”

It's that kind of extended outreach that should be occurring, says Nancy Foster, vice president of quality and patient-safety policy at the American Hospital Association. Foster says the AHA has begun to see efforts in “many communities” to reduce readmissions through stronger relationships with hospitals and other providers with whom they share patients. Chief among those providers are nursing homes and rehabilitation facilities.

“It's equally important that hospitals develop relationships with the visiting nurses association or physicians who provide care for individuals in an ambulatory setting,” Foster says. “If they're all really on the same page—to continue on their path toward wellness—then the chance is greater the patient won't be readmitted.”

There is no one solution that will fit all communities, Foster says. While some facilities will concentrate on improving the flow of communication, others will work to refine discharge instructions to patients and their families. “There are also ways in which hospitals and the nursing homes and other facilities with whom they share a lot of patients are getting together to talk, to do case reviews, to look at incidents of infections and then use a common approach” to address those issues.

Meanwhile, Foster says, there are examples of readmissions that are “right and proper,” and, often cannot be foreseen. While Foster says the Affordable Care Act does not give hospitals a lot of “wiggle room,” the AHA is working with organizations to gather examples of readmissions for which hospitals should not be penalized.

“What we're doing with state hospital associations is to collect those kinds of examples and share with CMS where we think they need to amend the measures themselves,” Foster says, adding that it means the CMS would change the calculation in a way that would either exclude patients with those certain diagnoses or risk-adjust for those complications or underlying conditions.

“The law itself calls for readmissions to be excluded from the measures,” Foster says. “We've called on CMS to make sure that happens. We have yet to see any modifications.”

In the meantime, caregivers such as DeGolia are confident the provisions in the law are already producing positive results for patients.

“This is driving change,” DeGolia says of the Hospital Readmissions Reduction Program. “And it has not even gone into effect yet.”