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How the Hospital Readmission Reduction Program Supports Value-Based Care


The Hospital Readmission Reduction Program was added to the Social Security Act with the passage of 2010's Affordable Care Act. The program uses a penalty scheme in an effort to tamp down preventable hospital readmissions.

Hospital Medicine, Hospital Bed, Value-Based Care

The Hospital Readmission Reduction Program was an addition made to the Social Security Act by the Affordable Care Act establishing a penalty for hospitals with excessive avoidable readmissions. The program issues a 1% penalty.

One percent may not seem like much, but in healthcare business operations, the operating margins have hovered in the 2% range for some time now. Thus, these figures have the potential to vastly affect systems.

Hospital Readmission Reduction Program Timeline

In 2012, the HRRP set the parameters for readmissions at 30 days following discharge from the hospital. If a discharged patient is readmitted for the same issue or section of the system a penalty may be incurred as a result. Some of the Initial disease states looked at were for acute myocardial infarction (AMI), heart failure, and pneumonia.

Research conducted around the costs of an admission episode for acute AMI in 2013 stated that the highest cost drivers for an episode of AMI were CABG and PCI, which added approximately $12,546 and $28,406 dollars to the cost of stay respectively. These cost implications provide a clear economic rationale for efforts to prevent the occurrence of AMI.

Despite having higher initial costs, the CABG has been shown to be a cost-effective strategy in high-risk patients with comorbidities of diabetes mellitus and multivessel coronary artery disease.

Heart failure has been a leading cause of inpatient hospitalization for individuals older than 65 for some time now, with north of 1 million patients admitted with a primary diagnosis of heart failure. The costs related to these episodes of care for Medicare has been estimated to be over $17 billion.

A look at community-acquired pneumonia reveals an average inpatient episode of 31.8 days and approximately 11 days for an outpatient episode. The estimates for all-cause cost for an inpatient episode ranges from $11,148 to $51,219.

The program takes into account the risk adjustments set by the National Quality Forum for these measures for all-cause admissions and readmissions. To establish an average, hospitals need a minimum of 25 cases and may use three years of hospital data.

In 2014 to 2015, the program expanded to include individuals admitted for acute exacerbation of chronic obstructive pulmonary disease (COPD) and the orthopedic procedures for a total hip arthroplasty and total knee arthroplasty.

Studies looking at the cost of COPD episodes of care have found them to be quite expensive. The cost of episodes that result in intensive care unit admission were found to be of highest cost at $44,909 with a standard deviation of $80,351.

A report published by Blue Cross Blue Shield found wide variation in the cost of hip and knee procedures and most recently the Centers for Medicare and Medicaid Services has moved to mandatory bundled payments for some of these procedures.

In 2016, broader parameters were added to other pneumonia diagnoses such as aspiration pneumonia as well as sepsis patients coded with pneumonia that was present at admission.


Excess Readmission Ratio: Predicted/Expected

This is a ratio looking at predicted ratios in comparison to the expected readmissions. The predicted admissions comes for the number of 30-day readmits for a given hospital taking into account its case mix as a rate per 100 discharges. The expected rate is based on the average of a hospital's performance in this area.

Other formulas that are included in this program include the aggregate payments for excess readmits, aggregate payments for all discharges, and a readmission adjustment factor. The readmission factor also looks at wage-adjusted DRG operating amounts, and Base operating DRG payments

Readmissions Payment Adjustment Amount = [Base operating DRG payment amount x readmissions adjustment factor] - base operating DRG payment amount.

Related Articles:

Bundled Payments and the Road Ahead

7 Components for clinical integration management and health expenditures


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Journal of Applied Health Economics


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