Looking back on 12 years of Obamacare’s Readmission Penalty

In 2010, President Obama passed the Patient Protection and Affordable Care Act of 2010 (PPACA) – often referred to as Obamacare. Included in that legislation was the introduction of the Hospital Readmission Penalty. 

At the time, few operators and physicians were focusing on the topic of reducing avoidable hospital admissions and the body of research was small. 

This was partially why there was not much movement from hospitals seeking to reduce avoidable readmissions in the few years after PPACA passed. 

Then two years later in 2012, the first penalties were assessed. That’s when things really began to  change as hospitals realized this could really impact profits going forward.  

When hospitals began receiving their first fines, or Medicare withhold (or claw-back), is when they really started paying more attention. 

But still, few were moved to real action. 

And now, ten years after those first penalties were assessed, it’s time to revisit the penalty and how it is continuing to impact the delivery of healthcare in America. 

In 2015 I wrote a book, Readmission Prevention: Solutions Across the Provider Continuum, which worked as a user-friendly guide for healthcare operators and doctors that went over real tactics to prevent unnecessary hospital readmissions and avoid the penalty.

While many of those tactics are still incredibly useful, the intervening years have led to a  broad range of best practices, readmission prevention tactics and case studies that can help operators realize \a significant decline in their hospital readmission rate. 

More importantly, we have made great strides in preventing the majority of avoidable hospitalizations – not just readmissions. 

In doing so many hospitals have increased their efficiency and profitability.  

Today it is more important than ever to include post-acute providers as partners in preventing avoidable hospitalizations. When hospitals find the right partner of choice. Those post-acute providers that do it well are becoming increasingly popular as ]managed care organizations narrow their post-acute provider networks more aggressively – leading to more streamlined and profitable relationship for all. 

I spent ten years as a hospital Chief Executive Officer and health system Vice President. 

Caring daily for the neediest of the needy, including homeless and adult psychiatric patients, shaped me as an administrator. And just as I managed safety-net hospitals on a shoe-string budget for many years – I see the readmission penalty as an opportunity for hospitals not an albatross – it just takes effort and a commitment! 

How it began: Head in a Bed and Unintended Consequences

To simplify the readmission problem, the hospital reimbursement methodology used prior to 2010 was referred to as the Medicare Fee For Service model (FFS), which incentivized facilities, including hospitals, and nursing homes to admit patients. Medicare FFS also incentivized physicians to admit patients to the hospital, skilled nursing facilities, long-term acute care hospitals, acute rehab hospitals, and home health agencies, by reimbursing them each time they admitted a patient to one of these levels of care. Further physicians would be reimbursed every single day while caring for them. Likewise, hospitals were incentivized for admitting patients as well as every other level of care. 

Quite simply there was no system of checks and balances under an FFS model. I have come to call this era, “the Fee For Service free-for-all”. The system’s unintended consequence was that it encouraged over-utilization of patients at all levels, by both doctors and providers. 

Thus, more people were admitted, additional unnecessary tests were ordered on patients, and patients often stayed in hospitals and nursing homes longer than necessary. And as a result, costs sky-rocketed year over year. PPACA was an attempt to undo those trends and reverse the motivations of doctors and hospitals. 

While the fee-for-service free-for-all was a lucrative time for many hospitals, facilities, doctors, and home health agencies, it ultimately put our federal government in a compromising position as funds for healthcare ran dry. 

While far from being perfect, PPACA was a historic attempt to change how care is delivered in our country. When you look at PPACA as a whole, the fact remains that the desired model is a coordinated care model that makes fee-for-service a thing of the past. 

This model is designed to reimburse physicians and providers based on value and quality care, as opposed to episodic care when an inpatient needs to be hospitalized. It is a model that incentivizes caretakers at all levels to collaborate to improve outcomes instead of viewing and treating all patients simply as a commodity.  

Unfortunately, both with generic readmission efforts within a hospital and disease-specific programs, history has proven that successful efforts are often short-lived as they are championed by one or two influential leaders, and when they move or to a new role – the enthusiasm for change leaves with them. 

This trend is unfortunately all too common in hospital management nationwide. The flavor of the month or crisis of the day in the hospital often becomes a bigger priority, and since readmissions itself are contrary to the hospital revenue model, it’s an easy one to let go for many hospital managers and Directors when the C-Suite quits prioritizing it. 

While this is not always the case, hospitals are penalized for readmissions in a series of specific disease categories, which originated with three disease-specific categories and grew to five categories in the fiscal year 2015. 

Hospitals are also evaluated on their all-cause readmission rate for Medicare fee-for-service patients. Hospitals are not financially penalized based on each disease-specific readmission. 

Therefore, hospitals and health systems should be effective in implementing comprehensive readmission prevention programs by taking a facility and organization-wide approach to the problem.

The fact is that even in 2022, with value-based care models continuing to be introduced and the gradual phase out the FFS era, the majority of hospital revenue is still derived from putting a head in a bed. 

Not-So-Fun Fact: CMS recently announced that it was punishing and penalizing 2,499 hospitals nationwide for excessive readmissions. The penalties were capped at a maximum of 3 percent of a hospital’s annual Medicare spend but averaged .64 percent for the fiscal year 2022. In its tenth round of annual payments, Medicare fined approximately 47 percent of all hospitals in the United States with 39 hospitals receiving the maximum 3 percent fine in the fiscal year 2022. In 2018 for example, the average hospital fine was $217,000. 

Finding ways to reduce avoidable readmissions is simply good business. Finding the right post-acute care partners is one of the best ways to do it. And beyond saving money – it will also help you streamline your tendering process and save your administrative headaches. 

If you have questions about any of this please don’t hesitate to book a free 30 minute consultation.