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Readmissions & Medicare: What’s the Cost?

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Hospitals are making significant progress to reduce readmissions in an effort to improve quality and lower healthcare spending. Unfortunately there isn’t a one-size-fits-all solution to preventing hospital readmissions. There are many variables outside of hospitals’ direct control, such as social determinants and patient lifestyle factors, which can impact readmissions.

At the 2016 NIC Spring Investment Forum Anne Tumlinson, Founder, Anne Tumlinson Innovations LLC, said, “In 2015, Medicare spent $600 billion in benefits for seniors. In just 10 years, that is going to double.” Each year, roughly 2 million patients are readmitted, costing Medicare $27 billion, of which $17 billion is spent on readmissions that could be classified as potentially avoidable.

Hospitals are under tremendous pressure to raise their standards of in-patient care and transition of care or face significant financial repercussions. Under the Hospital Readmissions Reduction Program (HRRP), the Centers for Medicare and Medicaid Services (CMS) recently fined a record number of hospitals for having too many patients return within 30 days of discharge for additional treatments. CMS has estimated that total fines for fiscal year 2015 will hit $428 million, up from $227 million the previous year. According to CMS data, for fiscal 2016, only 799 out of more than 3,400 hospitals subject to HRRP performed well enough to face no penalty.

Medicare and insurance companies are testing new programs that reward providers for positive outcomes. The goal of some of these programs is to create partnerships across the continuum of care, thereby reducing costs and maintaining or improving quality. Communication across an interdisciplinary team, including the doctors, nurses, pharmacists, insurers, skilled nursing properties, home health agencies, and others involved in the care of the resident, may result in reduced risk of readmission, and therefore keep overall costs down. Project Re-Engineered Discharge (Project RED), which many hospitals have implemented, aims to improve such communication across care delivery settings. Tools from Project RED focus on enhancing the effectiveness of discharge by arranging follow-up appointments, educating patients, and conducting follow-up phone calls days after discharge to address issues or questions.  

Within post-acute care, the high degree of variation in spending has been well documented. MedPAC, for example, has addressed utilization variability, as well as spending Medicare per beneficiary.

David Stordy, CEO, Mainstreet stated during the “Coordinating and Collaborating Care” session at the 2016 NIC Spring Investment Forum that “11% of all Medicare dollars are spent in post-acute care, a $62 billion dollar spend on an annual basis.”

In fact, another innovative tool to reduce this enormous spend is risk-sharing, which involves the multiple providers who are responsible for a patient’s care also be involved in the financing of that care. Under risk-sharing models, lowering the overall episodic cost of care can result in profit-sharing for the providers involved, but can also impose penalties on all of them. When a patient is discharged to a skilled nursing property, for example, both the SNF and the hospital are incentivized to prevent that patient from being readmitted to the hospital within 30 days. Such alternative payment models are usually thought of in a medical setting, but assisted living may soon also play a role in risk-sharing models.

As Stordy explained, “As post-acute gets focused on hospitals, health systems under their own set of changes and challenges are developing their own post-acute strategies.” Stordy went on to say, “There is an acceleration of continuing care networks across the country—the highest level of integration—and the formation of continuing care networks [is] really opening the door to shared risk arrangements.”

Post-acute care will continue to be a hot topic, as this is a major driver for costs that CMS is hopeful to rein in. In addition to communication tools and financing mechanisms, more innovative approaches to reducing hospital readmissions are sure to emerge. It will be interesting to watch this saga unfold.


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Topics: Research

About the Author

Bill Kauffman

Senior Principal Bill Kauffman works with the research team in providing research and analysis in various areas including sales transactions and skilled nursing. He has lead roles in creating new and enhanced products and implementation of new processes. Prior to joining NIC he worked at Shelter Development in investing/acquiring, financing, and asset management for over $1 billion in assets. He also had key roles in the value creation and strategic planning and analysis for over 65 entities. He received his Bachelor of Business Administration in Finance from the College of Business and Economics at Radford University and his Master of Science in Finance from Loyola College in Maryland. He also holds the Chartered Financial Analyst Designation (CFA).