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Readmission Penalties Give Hospitals a Reason to Spend Money on the Right Things

There was a story in the Denver Post this week about Medicare’s penalty for readmissions being charged to 27 Colorado hospitals that participate with Medicare. On average, these hospitals were penalized 1/3 of one percent of their total Medicare reimbursement. In the case of one large hospital system, this amounted to about $300,000 out of a total revenue stream of $2.7 billion, or about 1/100 of one percent. At this level, one might wonder if it’s worth the trouble to administer, or if anyone is really paying attention.

But I think and hope that hospitals are viewing this in larger than financial terms. What hospital in its right mind wants to be on that list? What does it say about the quality of a hospital’s discharge process? What does it say about the outpatient practices in the area who are the receiving end of that process? Perhaps most importantly, what does it say about the relationships between the hospital, the practices, and the patients? The answers may in some cases be “nothing”.

One hospital complained that their patients are sicker because they’re a referral center, and that may be true. There is an ongoing debate in the wonk community about whether hospitals in poorer neighborhoods should be held to different standards, since the patient’s own ability to access resources after discharge may be worse. For example, if your post-discharge appointment is three bus rides away, and you can’t take off work without risking your job, it’s much more challenging than if you can take time off and drive yourself there. Any of these might be valid asterisks on any given hospital’s performance.

But part of the value of imposing such a penalty is that it finally gives hospitals a reason to spend money on a variety of good things: safe and well-communicated discharges, relationship-building with referring practices, talking with patients in a way that they can understand rather than just what’s mandated by regulation. While you may think these things have always been a priority, the system has had a perverse way of rewarding bad transfers in the past: when people got readmitted, the hospital got more revenue. In some markets, 40 percent of admissions were readmissions. And so in a perverse way, preventing readmissions was damaging to a hospital’s top line revenue. Spending time communicating with patients and outpatient providers was a cost in itself; then it reduced future revenue if it was successful.

Now with nonpayment for readmissions within 30 days, and this added penalty, the finances don’t punish those who succeed in lowering readmissions, but actually reward them. And in almost all patients, a readmission saved means more time spent outside a place they didn’t want to be in the first place.

Here at CIVHC, we administer a campaign called Healthy Transitions Colorado (HTC), which promotes better transitions between care sites and across the entire community. While hospitals employ a variety of specific methods, they all focus on preparing the patient and the receiving provider to address emerging problems in the delicate period immediately after a hospitalization. It is our hope that eventually none of our Colorado hospitals receive this penalty. But more importantly, we hope the facilities around the state diligently pursuing this goal produce better care for all of us as a result, and benefit their bottom line at the same time.

About the Author: Dr. Jay Want is CIVHC's Chief Medical Officer. Contact him at


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