Medicare rule would decrease payments to hospitals with high re-admission rates

July 30, 2011

When hospitals discharge patients, they typically see their job as done. But soon they could be on the hook for what happens after Medicare patients leave the premises, and particularly if they are re-admitted within a month.

In an effort to save money and improve care, Medicare, the federal program for the elderly and disabled, is about to release a final rule aimed at getting hospitals to pay more attention to patients after discharge.

A key component of the new approach is to cut back payments to hospitals where high numbers of patients are re-admitted, prodding hospitals to make sure patients see their doctors and fill their prescriptions.

Medicare also wants to pay less to hospitals with higher-than-average costs for patient care. It has proposed calculating the costs by combining a patient’s hospital expenses with fees incurred up to 90 days after discharge.

The efforts, called for in last year’s health-care law, are part of a push to make hospitals the hub for coordinating care. Hospital care is the largest chunk of Medicare spending; Medicare says re-admissions alone cost $26 billion a decade. Plus, many experts argue that hospitals are the most organized actors in a splintered and often dysfunctional health system and thus best able to take the lead in overseeing patient care.

Hospitals’ objections

Hospital groups complain that Medicare’s plans could punish them for things they cannot control, such as unavoidable re-admissions and patients who cannot afford the costs of prescriptions.

“A lot of this is very unfair,” said Blair Childs, a vice president at Premier, an alliance of more than 200 hospitals.

He said hospitals that do not have a lot of money to invest in improving their oversight of former patients could end up losing more money under Medicare’s proposals, putting them in an even bigger financial hole. In particular, he said, the changes may hurt inner-city hospitals.

“These are often very stressed hospitals, and they’re the ones that are going to be penalized the most,” Childs said.

Some academics who have studied hospitals also think Medicare is potentially being too harsh.

“The truth is the 30-day re-admission is a relatively lousy quality measure for a hospital because a lot is happening outside a hospital’s control,” said Ashish Jha, a professor at the Harvard School of Public Health.

Medicare’s penalties could be significant — and widespread. Almost 7 percent of acute-care hospitals — 307 out of 4,498 — had higher-than-expected re-admission rates for heart failure, heart attack or pneumonia, according to Medicare data. Under Medicare’s draft proposal, which it put out in May, penalties would start in October 2012 and hospitals with the worst re-admission rates eventually could lose up to 3 percent of their regular Medicare payments.

Hospitals with patients who cost Medicare lots of money during and after their hospital stays also could be hurt. Beginning in October 2013, these spending levels would count for a fifth of Medicare’s “value-based purchasing program,” which alters hospital payments based on a long list of quality measures.

“The incentives we’re putting into place have created a whole new way to think about hospital care,” said Jonathan Blum, deputy administrator of the federal Centers for Medicare and Medicaid Services (CMS).

These initiatives come on top of other Medicare experiments that will make not just hospitals but also surgeons responsible for costs run up from complications that occur beyond the operating room. One approach is “bundled payments,” in which Medicare pays a set fee for the entire cost of a patient’s treatment, including expenses after discharge. And Medicare’s high-profile venture to create “accountable care organizations,” in which teams of doctors and hospitals share the financial risks and rewards for caring for patients, would also hold hospitals partially to account for the costs of treatments that patients get elsewhere.

CMS has limited leeway to tinker with the re-admissions rule, because much of it was spelled out in the health-care law. CMS has more freedom to change its plan to measure per-patient spending; the law did not detail how it should work.

‘Health-care managers’

Regardless of what CMS decides, many hospitals are already scrambling to change how they supervise former patients, said Chas Roades, chief research officer at the Advisory Board Co., a health-care consultancy.

“One of the big themes I’m hearing now across the hospital industry is, ‘We can no longer think of ourselves as just hospital companies. We have to be full-service health-care managers,’ ” Roades said.

Consider Trinity Health, which owns 50 hospitals around the country, including Holy Cross in Silver Spring. Before patients leave the hospital, Trinity’s nurses now set up appointments for them with their regular doctors. They also make sure patients can get to the appointment, by helping them figure out whether Medicare or Medicaid pays for transportation or by paying for the trips directly.

“We’re trying to do a better job of sending them home better prepared rather than just saying good luck,” said Terry O’Rourke, Trinity’s chief clinical officer. But he said there are limits to what they can do.

“The majority of physicians are not employed by the hospital,” O’Rourke said, “and we don’t have control over their practices.”

Kavita Patel, a Brookings Institution fellow and former Obama administration official, said changes occurring in both the private sector and Medicare will speed up the trend of hospitals’ overseeing the care of former patients.

For example, she said, many hospitals are buying the practices of primary-care doctors, making it easier for them to arrange and oversee the care of patients after discharge.

“The more hospitals realize they’re going to be held accountable, that’s where they are going to get creative,” Patel said.

Rau is a senior correspondent with Kaiser Health News. KHN, an editorially independent news service, is a program of the Kaiser Family Foundation, a nonpartisan health-care-policy organization that is not affiliated with Kaiser Permanente.

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