Medicare Readmissions Equals Revenue Cuts Equals Hospital Consolidation. Here's Why

This way to consolidation....

Disease Management Care Blog readers may recall that Medicare's Hospital Readmissions Reduction Program was among the many provisions of the Affordable Care Act. 

According to the finalized regulations, if a hospital's readmission rate within 30 days for heart attack, heart failure or pneumonia exceeds an established norm (using three years of data based on a minimum of 25 patients with a statistical risk adjustment to account for co-morbid conditions), that hospital's Medicare payment rates will be reduced for all discharges in the following year. The reduction, depending on the excess rate, can go from zero (readmissions meet the norm) to a maximum of 1% (the hospital penalty results in payment of only 99% of the applicable fee schedule).

Now, Kaiser Health News has just looked at the numbers and calculates that, thanks to the HRRP,over 2000 hospitals will forgo close to $300 million. According to KHN, 278 hospitals - including some household names - will achieve the dubious distinction of a full 1% reduction.  You can check out how your local hospital will likely fare here.

While readmissions themselves are a significant problem, the approach used by the HRRP has its own set of under-appreciated methodologic challenges (as noted here and here). Now that hospitals are about to get battered by a well-meaning if flawed payment system, your DMCB raises one more red flag:

This will drive hospital consolidation.

That may well be one intent of the law. Cheesecake Factory logic tells us that large hospital systems have the intellectual and capital resources to systematize care, apply best practices, reduce variation and maximize outcomes.  Rather than weep for those hospitals that are losing income, Washington's policymakers are probably hoping that the losers have one more reason to join forces with the bigger, smarter and more efficient hospitals or systems nearby or in the next state (especially the ones with a smartly run disease management program).

Yet, whether or not hospital consolidation alone would make a palpable difference in cost or quality remains to be seen (as indicated here and here). What could happen instead is the rise of too-big-to-fail, politically connected and market-dominant health care systems.

We'll see.

Image from NIHSeniorHealth