Are Medicare Value-Based Penalties Fair to Safety Net Hospitals?

September 28, 2016 - Safety-net hospitals have to work harder to avoid value-based penalties than other participants in a Medicare program designed to reduce hospital readmissions, a new study in Health Affairs indicates.

While safety-net hospitals have made significant progress lowering readmissions rates under the Hospital Readmissions Reduction Program, researchers stated that the hospitals are still facing the largest financial penalties because the program is designed to compare them to a national average rate.

In the Hospital Readmissions Reduction Program, hospitals may see a reduction in their Medicare inpatient claims reimbursement rates if they demonstrate excessive hospital readmissions compared to the national mean readmissions rate, which is risk-adjusted for some demographic factors (i.e. age and sex) and the severity of illness of patients at each hospital.

When the program was launched in 2013, hospitals with above average readmission rates received a one percent reduction in Medicare inpatient revenue, but the penalty increased to three percent by 2015.

The researchers noted that other studies, including those by MedPac and the American Hospital Association, have found that safety net hospitals are more likely to receive financial penalties under the value-based reimbursement program.

But the penalties are unfair, they argue, because they do not recognize continuous improvement. Safety net hospitals have significantly improved readmission rates and decreased the disparity in rates between hospitals treating high proportions of low-income patients and those that treat fewer disadvantaged patients.

Using 30-day readmission rates from Medicare’s Hospital Compare website from 2013 to 2016, researchers revealed that unadjusted readmission rate improvements for heart attacks, heart failures, and pneumonia were greater in safety-net hospitals than other participating hospitals. For example, heart attack readmissions declined by 2.86 percentage points for safety-net hospital, whereas other participant rates only fell by 2.64 percentage points.

Despite greater overall improvements, the study showed that safety-net hospitals fared worse in reducing readmission rates compared to hospitals that had similar initial rates for the three conditions. For heart attacks, safety net hospitals decreased the rate by 2.86 percentage points, but the rate declined by 3.20 percentage points at comparable hospitals.

The findings indicate that safety-net hospitals experienced unique challenges compared to the matching group. The challenges impacted readmission rates, but were outside the hospital’s control, such as patient homelessness and lack of family support, the study explained.

Researchers advised CMS to modify the Hospital Readmissions Reduction Program by comparing hospitals to similar participants rather than an adjusted national average rate. The recommendation was first proposed by MedPac in 2013.

“Our results support the approach recommended by MedPAC as a way of modifying the amount of penalties imposed on safety-net hospitals: evaluating them against other safety-net hospitals,” the researchers from Boston University and Boston Medical Center wrote. “This would maintain incentives for improvement but would reduce financial pressure on safety-net hospitals, especially for those with patient populations of the lowest socioeconomic status.”

Hospitals should be separated into deciles based on the proportion of low-income patients they treat and CMS should determine value-based penalties through comparative performance evaluations within the deciles, MedPac and the Boston-based researchers suggested.

“This modification would avoid evaluating safety-net hospitals on the same basis as hospitals that serve populations with higher socioeconomic status, without altering the risk-adjustment methodology,” the study stated.

Similar changes to the Hospital Readmissions Reduction Program may be on their way. In June, the House of Representatives passed a bill that would mandate CMS to calculate value-based penalties under the program using comparisons between hospitals with similar dually eligible Medicare and Medicaid populations. The methodology would be tested under the legislation and refined as data is collected over time.

Additionally, the Health Affairs study contended that value-based penalty programs may not be the most effective strategy for changing the behavior of safety-net hospitals. Even though the Hospital Readmissions Reduction Program penalizes hospitals with excessive readmissions, they are still reimbursed for all readmitted patients.

Implementing the value-based reimbursement program may also not generate enough return on investment, researchers argued. Safety-net hospitals face a variety of additional costs related to the program, including staff time for analyzing data and implementing changes as well as acquisition of new technologies. With limited budgets, the study explained that safety-net hospitals may choose to allocate their resources to other quality improvement efforts that they view as more valuable.

“Some administrators may conclude that avoiding the possible penalties of the HRRP is not worthwhile,” stated the study.

Another study in the American Journal of Managed Care from August, however, found that value-based penalties are more effective at motivating hospitals to decrease readmissions. Nearly 66 percent of hospital leaders reported that the Hospital Readmissions Reduction Program had a significant or great impact on boosting their hospital’s efforts to cut down readmissions compared to two CMS-sponsored public reporting programs that preceded it.

“This experience may suggest that policy makers should move more rapidly to financially reward or penalize hospitals for desired outcomes rather than merely reporting them publicly,” the study stated.

Dig Deeper:

• Preparing the Healthcare Revenue Cycle for Value-Based Care

• What is Value-Based Care, What It Means for Providers?