CMS' readmissions program changes hit specialty hospitals

Recent changes to the CMS' Hospital Readmissions Reduction Program will result in smaller penalties at teaching and community hospitals and larger penalties at specialty hospitals, according to a Modern Healthcare analysis.

In its most recent release of hospital readmissions penalties data, the CMS for the first time risk adjusted hospitals by five peer groups to address differences in socioeconomic conditions between hospital patient populations. A study by consulting firm Sullivan, Cotter and Associates and Modern Healthcare found that teaching and community hospitals avoided larger penalties while specialty hospitals saw penalties rise as a result of the methodology changes.

Of the 2,979 teaching and community hospitals, 602 face a Medicare payment penalty of 1% or higher in fiscal 2019 compared with fiscal 2018 when 653 hospitals faced similar penalties. By comparison, of the 174 specialty hospitals, 34 will face a penalty of 1% or higher in fiscal 2019 while 27 faced similar penalties in fiscal 2018.

Additionally, the number of specialty hospitals hit with a 3% penalty—the highest a hospital can get dinged with in the CMS program—jumped from 10 in fiscal year 2018 to 18 in fiscal year 2019 while the number of community and teaching hospitals with 3% penalties fell from 38 to 29.

Hospital stakeholders and policy experts say the new risk adjustment will level the playing field for teaching and community hospitals that have historically struggled under the program, but more work is needed.

Dr. Ashish Jha, a professor of health policy at the Harvard School of Public Health who has written extensively about the program, said the change "moves the ball in the right direction."

Specialty hospitals, which often have larger proportion of commercially insured and healthier patient populations, were usually able to avoid penalties from the readmissions program because their performance was being compared to teaching and community hospitals, which are more likely to have poorer and sicker populations vulnerable to readmission. In fact, 117 specialty hospitals won't get a penalty in fiscal 2019 a drop from 2018 when 133 hospitals were able to avoid a penalty.

"We're encouraged by these shifts. They clearly show that the challenges vulnerable patients and their hospitals face make a difference, and it validates our work to account for this in the readmissions reduction program," said Dr. Bruce Siegel, president and CEO of America's Essential Hospitals, in a statement.

Congress ordered the CMS in 2016 to fix a longstanding complaint from hospitals—safety-net hospitals in particular—that they are unfairly penalized in the CMS' Hospital Readmissions Reduction Program. Hospitals argue readmissions are difficult for them to control considering a patient's social conditions influence whether or not they will return within 30 days of discharge.

To address this, the CMS divided hospitals with similar proportions of dual-eligible patients into five groups and compared their readmission rates for six conditions or procedures. Dual-eligibility is viewed by some as an indicator of poor socioeconomic conditions. The population also accounts for a significant percentage of Medicare spending because patients usually have complex healthcare needs.

The majority of specialty hospitals—78.2%— were in peer group one, which is the group with the lowest proportion of dual-eligible patients, according to Sullivan Cotter's analysis.

At the same time, 32.4% of major teaching hospitals were in peer group five while 25.9% were in peer group four.

Minor teaching and large community were more evenly dispersed throughout all five groups with 19.4% in peer group one and 17.9% in peer group five.

For fiscal year 2019, major teaching hospitals in peer group five will have an average payment reduction of .43% compared with last year when the hospitals had an average payment reduction of 0.58%.

But the avoidance of penalties for major teaching hospitals wasn't as dramatic as the Association of American Medical Colleges had hoped. Dr. Atul Grover, executive vice president of the AAMC, said while the changes have provided "some relief," "the penalties remain high and disproportionately affect many major teaching hospitals."

Richard Fuller, an economist for the clinical and economic research group at 3M Health Information Systems who has studied the readmissions program, said the avoidance of penalties for major teaching hospitals likely wasn't as dramatic because they are now "competing against themselves."

Major teaching hospitals make up a substantial percentage of peer group five and these hospitals generally perform better on outcomes and preventing readmissions than other institutions so the change may have actually made it harder for major teaching hospitals to avoid a penalty, Fuller said.

Another problem is that the peer grouping has only heightened the stark differences between specialty hospitals and other hospital types, said David Levine, senior vice president of advanced analytics and informatics at consultancy Vizient.

Now that hospitals are being compared to each other in smaller groups, the specialty hospitals that dominate peer group one can influence how the community and minor teaching hospitals also in that group get penalized. Specialty hospitals generally have lower readmission rates, so it could increase penalties for the other hospitals in the same peer groups.

About 19% of minor teaching hospitals share peer group one with specialty hospitals. Of the 840 minor teaching hospitals, 186 will get a penalty of 1% or higher in fiscal year 2019.

"I think the CMS is going in the right direction, but I think with the cohorts, the specialty hospitals need to be excluded or in their own cohort," Levine said.

Hospital stakeholders emphasize they don't want the CMS to stop changes to the program.

Both America's Essential Hospitals and the American Hospital Association are pushing the CMS to risk adjust the measures used in the program.

Akin Demehin, director of quality policy at the AHA, said by risk adjusting measures, the program will better distinguish between hospital characteristics. Right now, hospitals with very similar case mixes can be in different peer groups.

"We are continuing to strive to improve the quality of care we deliver and we expect the CMS will want to improve the measures that are applied," said Nancy Foster, vice president of quality and patient safety policy at the AHA.

Editor's Note: Sullivan Cotter used its own methodology to categorize hospitals by four types: specialty, small or medium community, large community or minor teaching and major teaching. The firm considers numerous sources to establish the groups including teaching status, case-mix index, resident-to-bed ratio and bed size.