By Christopher Ody, Lucy Msall, Leemore S. Dafny, David C. Grabowski, and David M. Cutler
Health Affairs, January 2019
Medicare’s Hospital Readmissions Reduction Program (HRRP) has been credited with lowering risk-adjusted readmission rates for targeted conditions at general acute care hospitals. However, these reductions appear to be illusory or overstated. This is because a concurrent change in electronic transaction standards allowed hospitals to document a larger number of diagnoses per claim, which had the effect of reducing risk-adjusted patient readmission rates. Prior studies of the HRRP relied upon control groups’ having lower baseline readmission rates, which could falsely create the appearance that readmission rates are changing more in the treatment than in the control group. Accounting for the revised standards reduced the decline in risk-adjusted readmission rates for targeted conditions by 48 percent. After further adjusting for differences in pre-HRRP readmission rates across samples, we found that declines for targeted conditions at general acute care hospitals were statistically indistinguishable from declines in two control samples. Either the HRRP had no effect on readmissions, or it led to a systemwide reduction in readmissions that was roughly half as large as prior estimates have suggested.
From the Discussion
The Hospital Readmissions Reduction Program has been cited as one of the successes of value-based payment, which fosters the view that targeted financial incentives can lead to large changes in behavior. However, altering two seemingly small details related to data and methodology meaningfully weakens the evidence that the HRRP lowered risk-adjusted readmission rates for targeted conditions and targeted hospitals. By coincidence, the HRRP was implemented just before a change in electronic transaction standards that increased diagnostic coding and therefore created the illusion that risk-adjusted readmission rates had decreased. Furthermore, given the higher rate of readmissions for targeted conditions at targeted hospitals than at nontargeted hospitals and nontargeted conditions, the decreases in readmission rates for targeted conditions and targeted hospitals were not atypically large.
This set of findings can be interpreted in two ways. One is that the HRRP had no effect on readmissions. The second is that the HRRP may have led to a systemwide reduction in readmissions (that is, a reduction not limited to targeted conditions and targeted hospitals) that was roughly half as large as prior estimates have suggested. Distinguishing between these conclusions remains an important topic for research.
We note in closing that if the HRRP has not lowered readmission rates, then the rationale for the program’s existence becomes substantially weaker. To see why, note that pay-for-performance programs have at least two potential downsides. First, participants may engage in undesirable efforts to game the system. In the case of the HRRP, many observers have raised concerns that hospitals may have been less willing to readmit patients after implementation of the program, which could have increased the use of care that was not counted as a readmission (such as emergency department visits or observation stays) or prevented patients from receiving needed care, possibly harming care quality. Second, pay-for-performance schemes expose participants to the risk of unstable funding, in ways that may seem unfair or contrary to other social goals. In the case of the HRRP, the program was found to have initially penalized hospitals that cared predominantly for patients of low socioeconomic status—hospitals that are more likely to be safety-net providers already operating on tight budgets.
In a successful pay-for-performance program, these two potential downsides must be more than made up for by robust improvements in performance. Our study suggests that any salutary effects of the HRRP are smaller than earlier estimates have suggested.
By Don McCanne, M.D.
Medicare’s Hospital Readmissions Reduction Program (HRRP) has been used extensively as an example of how changing incentives (P4P – paying more, or at least not penalizing, based on performance) can lower costs. Yet this study shows that, at a minimum, the benefits of penalizing hospitals for readmitting patients have been tremendously overstated.
An additional concern is that patients are often held on observation status rather than being readmitted, sometimes to avoid the readmission penalties. This can significantly increase out-of-pocket costs for the patient since they are billed as outpatients (Part B), with greater cost-sharing, rather than as inpatients (Part A). More importantly, there is also the risk that the patient may receive less care as an outpatient when the patient’s condition warrants full inpatient services. Thus the readmission reduction program may be causing significant patient harm, both physically and fiscally.
The government bureaucrats and the policy community are fixated on these various programs that they just thought up out of the blue that supposedly would control spending, even though their track record overall is dismal. Yet they keep avoiding a proven solution that would reduce our uniquely outrageous administrative waste that costs hundreds of billions of dollars. That solution is a single payer national health program, an improved Medicare that would cover everyone. We should at least enact that and then we could examine other innovations as long as they are designed to truly benefit patients.
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