Panel to Congress: Medicare penalties too harsh on hospitals serving the poor

June 14, 2013

The financial penalties that Medicare imposes on hospitals with high rates of patient readmissions are too harsh for hospitals serving the poor and should be changed, according to a congressional advisory agency.

Since last fall, Medicare has been reducing its payments to 2,213 hospitals under a provision in the health-care law that aims to improve the quality of care. The penalties kick in when patients with heart failure, heart attack or pneumonia are readmitted at rates higher than expected within 30 days.

Although the Medicare policy seems to be having an effect — facilities are scurrying to keep better tabs on their high-risk patients after discharge — some hospital officials and other experts say the penalties are unfair because hospitals that treat the poorest patients are getting hit harder than others.

“The idea is right, but the implementation has been greatly flawed by penalizing hospitals that take care of the most vulnerable patients,” said Atul Grover, chief public policy officer at the Association of American Medical Colleges.

Doctors and researchers say low-income patients are more likely to have trouble following hospital instructions for taking care of themselves after discharge. They don’t always have easy access to doctors to monitor their recuperations and sometimes can’t afford medications.

The maximum penalties, set at 1 percent of Medicare payments, are scheduled to double to 2 percent in October and increase to 3 percent in the fall of 2014.

In the District, Howard University Hospital, which treats the largest share of low-income patients, is being penalized the most of any area hospital; since October, its Medicare payments have been reduced by 0.95 percent. Sibley Memorial Hospital, which treats the smallest share of poor patients, was the only D.C. hospital to avoid a penalty, data show.

In Virginia, Mary Washington Hospital in Fredericksburg and Culpeper Regional Hospital were penalized 1 percent. Maryland hospitals are exempt from the federal program because the state has a unique reimbursement system.

The federal Centers for Medicare and Medicaid Services has disagreed that the readmissions penalty program needs revisions. Officials have noted that after years of holding steady, the national hospital readmission rate last year dipped below 18 percent. The agency did not respond to requests for comment for this article.

The report to Congress from the Medicare Payment Advisory Commission, or MedPAC, agreed with critics that there are “shortcomings” that “can work at cross purposes to the policy’s intent.” The criticisms carry extra weight because MedPAC helped devise the readmission penalties, calling for them in 2008.

MedPAC found that hospitals where fewer than 3 percent of Medicare patients were low income received an average penalty of 0.21 percent. Hospitals where more than 18 percent of Medicare patients were low income had an average penalty more than twice that, of 0.45 percent. Penalties can be a drain on safety-net hospitals, many of which operate on slim profits or at a loss.

“Income is still an important . . . variable in explaining variation in readmissions,” the commission said. It recommended that in future years, when determining penalties, Medicare compare a hospital’s readmission rates with those of hospitals that have comparable numbers of poor patients.

MedPAC warned that if the penalty formulas aren’t changed, many hospitals will be penalized in future years even if they reduce readmissions because they will be judged on how they compare to the entire industry. MedPAC proposed that Medicare set target readmission rates for hospitals each year and exempt those that succeed from penalties.

“These are all steps in the right direction,” said Ashish Jha, the Harvard School of Public Health researcher who first documented the unevenness of the penalties. “MedPAC is thinking smartly about this, and they’re looking at the evidence coming and making changes to the metrics.”

Changing the program, however, might not be easy. Medicare officials have said many details were spelled out in the 2010 law, making them difficult to change in light of the deep partisan divisions in Congress.

Kaiser Health News is an editorially independent program of the Henry J. Kaiser Family Foundation, a nonprofit, nonpartisan health policy research and communication organization not affiliated with Kaiser Permanente.

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