Safety-net hospitals still hit with penalty in readmissions program

Hospitals with the highest proportion of patients insured by both Medicare and Medicaid were more vulnerable this fiscal year to receive a penalty in CMS' readmissions program compared to hospitals with the smallest percentage of such patients, new data shows.

For the third year in a row, CMS peer grouped hospitals by proportion of dual eligible patients to determine penalties in its Hospital Readmissions Reduction Program. The change, which passed Congress in 2016, is an attempt to address long-standing complaints from safety-net hospitals that they are unfairly penalized when compared to hospitals that see patients with less socioeconomic challenges and risks such as specialty facilities. Congress opted to use dual eligible status to indicate poor socioeconomic status because the patients typically have complex healthcare needs, have income at or below poverty levels and account for a significant percentage of Medicare spending.

But an analysis by Modern Healthcare of the most recent data shows those in peer group five — or hospitals with the most proportion of dual-eligible patients — were still more likely to receive a penalty in fiscal year 2021 than hospitals in peer group one. Of the 616 hospitals in peer group five, 499 will see Medicare payment reductions this fiscal year. By comparison, of the 616 hospitals in peer group one, 448 will receive a payment reduction.

"The purpose of the peer grouping approach is to create the level playing field across hospitals. Could it be better? Yes, we think it could be," said Akin Demehin, the American Hospital Association's director of policy. "We knew that using dual eligible status to organize the peer groups could have potential limitations."

Quality researchers and hospital associations have called the peer grouping of hospitals by dual eligibility a solid first step to establish equity in the readmissions program, but urge CMS to do more. For instance, AHA advocates for CMS to explore adding Census Bureau data such as income and zip codes to the program to help account for socioeconomic status.

Although hospitals with more dual eligible patients are still more likely to be penalized, they are hit with smaller penalties than those in peer groups one and two, the data shows. This also follows trends of the last two years.

Of the 1,232 hospitals in peer groups one and two, 24 received the maximum 3% payment reduction to their Medicare payments. By comparison, just eight of the hospitals in peer groups four and five received the maximum penalty. Further, 89 hospitals in peer groups one and two received a 2% penalty or higher whereas 41 of the hospitals in peer groups four and five were hit similarly.

Its possible next year CMS won't be handing out penalties for the readmissions program because of COVID-19. The agency instituted extraordinary circumstance exceptions in March, which included excluding readmissions data from the first two quarters of 2020 in the readmissions program. Then in a September interim final rule, CMS said it would evaluate the data for the remainder of 2020 and may determine it can't reliably be used for penalties. CMS said it may propose suspending program penalties as a result through proposed rulemaking.