CMS readmissions penalty adjustment reducing the hit for high dual-eligible hospitals

Hospitals that treat large populations of patients insured by both Medicare and Medicaid appear to be benefiting from the changes made to the CMS' Hospital Readmissions Reduction Program with lower penalties, according to new data.

In the recent release of fiscal 2020 penalties for the program, the CMS for the second time risk-adjusted hospitals into five peer groups by proportion of inpatient stays where the patient was dually eligible for both Medicare and Medicaid. Hospitals in peer group one had the lowest percentage of dual-eligible patients while hospitals in peer group five had the highest percentage.

Lehigh Valley Hospital - Schuylkill, a rural hospital in Pottsville, Pa., has experienced lower penalties since the program changes. The hospital fell into peer group five and will only receive a 0.54% penalty on its Medicare payments for fiscal 2020. That's much lower compared with fiscal 2018, before the CMS began risk-adjusting hospitals by dual-eligibility status, when it received a 1.68% penalty. The maximum penalty a hospital can receive is 3%.

Dr. Matthew McCambridge, chief quality officer of Lehigh Valley Health Network, said the changes have provided much needed financial relief to the hospital. About 64% of its patients are insured by Medicare and about 18% are insured by Medicaid.

The risk adjustment "is a nice nod to these kind of hospitals," he said. "It understands that the challenges related to readmissions are related to a lot of different social determinants of health."

The CMS was mandated by Congress in 2016 to categorize hospitals by dual-eligibility status to address complaints from safety-net hospitals that they received higher penalties. Safety-net hospitals claim readmissions are harder for them to control because a patient's unique social risks may influence whether or not they are readmitted to the hospital within 30 days.

Status on dual eligibility was selected because it's data the CMS can easily obtain and it's viewed as an indicator of poor socio-economic conditions. The population also accounts for a significant percentage of Medicare spending because patients usually have complex healthcare needs.

The results this year show once again the risk-adjustment change to the readmissions program had its intended effect, which hospitals are pleased with. "CMS' incorporation of peer grouping in the readmissions penalty program was an important first step to account for the impact of social risk factors on hospital readmissions performance," said Akin Demehin, the American Hospital Association's director of policy, in an email. "Peer grouping provides relief to many hospitals serving the poorest and most vulnerable communities."

Similar to last year, it's rare for a hospital in peer group five to get dinged with a 3% penalty. Of the 626 hospitals in peer group five, just four will receive a 3% penalty. Further, 406 will receive a 1% penalty or lower. The penalties will apply to Medicare fee-for-service payments beginning Oct. 1.

Many hospitals in peer group five likely experienced lower penalties because they have just slightly above average readmission rates compared with hospitals nationally, said Dr. Karen Joynt Maddox, assistant professor at Washington University School of Medicine, who has studied the readmissions program.

Some hospitals in peer group five still received a high penalty but it's likely only because their dual-eligibile patient population was much higher than their peers, with much higher readmissions.

"It's still a large improvement from the old program in terms of being more equitable for hospitals with a high proportion of duals," she added.

Hospitals on the other end of the spectrum—in peer group one—were more likely to get hit with higher penalties. Of the 626 hospitals included in peer group one, 27 will receive a 3% payment penalty. Also 287 hospitals in peer group one will receive a 1% or lower penalty, which is lower than the number of hospitals in peer group five.

Even with the changes, hospitals are pushing the CMS to do more to account for social risk factors in the program going forward.

The AHA's Demehin said, "Congress gave CMS the ability to refine its social risk factor adjustment approach over time, and because the research and science on this issue continues to evolve, the AHA has encouraged CMS to consider adopting more sophisticated approaches going forward."

Although there remain barriers to finding new approaches. There still isn't industry consensus about the best data sources to use for factoring in social risk factors and how to acquire them.