Association Between Financial Incentives in Medicare's Hospital Readmissions Reduction Program and Hospital Readmission Performance

Abstract

Importance: The strongest evidence for the effectiveness of Medicare's Hospital Readmissions Reduction Program (HRRP) involves greater reductions in readmissions for hospitals receiving penalties compared with those not receiving penalties. However, the HRRP penalty is an imperfect measure of hospitals' marginal incentive to avoid a readmission for HRRP-targeted diagnoses.

Objectives: To assess the association between hospitals' condition-specific incentives and readmission performance and to examine the responsiveness of hospitals to condition-specific incentives compared with aggregate penalty amounts.

Design, setting, and participants: This retrospective cohort analysis used Medicare readmissions data from 2823 US short-term acute care hospitals participating in HRRP to compare 3-year (fiscal years 2016-2019) follow-up readmission performance according to tertiles of hospitals' baseline (2016) marginal incentives for each of 5 HRRP-targeted conditions (acute myocardial infarction, heart failure, chronic obstructive pulmonary disease, pneumonia, and hip and/or knee surgery).

Main outcomes and measures: Linear regression models were used to estimate mean change in follow-up readmission performance, measured using the excess readmissions ratio, with baseline condition-specific incentives and aggregate penalty amounts.

Results: Of 2823 hospitals that participated in the HRRP from baseline to follow-up, 2280 (81%) had more than 1 excess readmission for 1 or more applicable condition and 543 (19%) did not have any excess readmissions. The mean (SD) financial incentive to reduce readmissions for incentivized hospitals ranged from $8762 ($3699) to $58 158 ($26 198) per 1 avoided readmission. Hospitals with greater incentives for readmission avoidance had greater decreases in readmissions compared with hospitals with smaller incentives (45% greater for pneumonia, 172% greater for acute myocardial infarction, 40% greater for hip and/or knee surgery, 32% greater for chronic obstructive pulmonary disease, and 13% greater for heart failure), whereas hospitals with no incentives had increases in excess readmissions of 4% to 7% (median, 4% [percentage change for nonincentivized hospitals was 3.7% for pneumonia, 4.2% for acute myocardial infarction, 7.1% for hip and/or knee surgery, 3.7% for chronic obstructive pulmonary disease, and 3.7% for heart failure]; P < .001). During the study period, each additional $5000 in the incentive amount was associated with a 0.6- to 1.3-percentage point decrease, or up to a 26% decrease, in excess readmissions (P < .001). Regression to the mean explained approximately one-third of the results depending on the condition examined.

Conclusions and relevance: The findings suggest that improvements in readmission avoidance are more strongly associated with incentives from the HRRP than with aggregate penalty amounts, suggesting that the program has elicited sizeable changes. Worsened performance among hospitals with small or no incentives may indicate the need for reconsideration of the program's lack of financial rewards for high-performing hospitals.

Figure 1.. Readmission Performance From 2016 to 2019 by Hospitals’ Condition-Specific Incentive Amounts in 2016 per the Hospital Readmissions Reduction Program

Excess readmissions ratio is a hospital’s condition-specific ratio of predicted-to-expected readmissions (ie, readmissions in excess of those expected given the hospital’s specific patient mix and the mean national hospital readmission performance level). The incentive tertile indicates the relative level of a hospital’s condition-specific marginal financial outcome of avoiding a readmission at baseline in 2016; this outcome consists of Hospital Readmissions Reduction Program penalty amount avoided as well as foregone patient revenue because of an avoided readmission. The penalty amount avoided for each condition was derived from the Hospital Readmissions Reduction Program statutory formula using differential calculus methods.

Figure 2.. Change in Excess Readmissions Ratios by Incentive Size per the Hospital Readmissions Reduction Program From 2016 to 2019

Excess readmissions ratio is a hospital’s condition-specific ratio of predicted to expected readmissions (ie, readmissions in excess of those expected given the hospital’s specific patient mix and the mean national hospital readmission performance level). The incentive tertile indicates the relative level of a hospital’s condition-specific marginal financial outcome of avoiding a readmission at baseline in 2016; this outcome consists of Hospital Readmissions Reduction Program penalty amount avoided as well as foregone patient revenue because of an avoided readmission. The penalty amount avoided for each condition was derived from the Hospital Readmissions Reduction Program statutory formula using differential calculus methods. The no-incentive tertiles are tertiles of excess admissions among high-performing hospitals with no excess readmissions (excess readmissions ratio <1, no incentive for readmission avoidance) at baseline in 2016. COPD indicates chronic obstructive pulmonary disease; error bars indicate upper 95% confidence limits.