Hospital Readmissions Reduction Program May Impact Post-Acute Providers

A new Medicare payment policy on readmissions may place more pressure on post-acute providers to coordinate care with the general acute-care hospitals in their community. The Centers for Medicare & Medicaid Services ("CMS") is in the process of adopting a new policy for reducing payments under the inpatient prospective payment system ("IPPS") to those hospitals with high readmission rates for patients with certain conditions. As a result, hospitals paid under the IPPS may incur a payment penalty if a skilled nursing facility ("SNF"), long-term acute care hospital ("LTCH"), inpatient rehabilitation facility ("IRF") or other post-acute care provider transfers a patient or resident back to the hospital for additional inpatient services. This policy change provides a powerful incentive to coordinate care and standardize procedures across providers.

Beginning in fiscal year ("FY") 2013, which commences October 1, 2012, an inpatient admission by a short-term acute care hospital ("STACH") of a patient discharged from the same or different STACH within 30 days preceding the readmission may result in a reduction of Medicare payments to the STACH that initially treated the patient under the Hospital Readmissions Reduction Program ("HRRP"). CMS proposes to use a complex formula to determine the amount of the payment reduction to the original STACH for readmissions exceeding a hospital-specific, risk-adjusted ratio based on each applicable condition. CMS refers to readmissions exceeding the ratio as "excess readmissions." For STACHs with excess readmissions, CMS will reduce the hospital's base operating Diagnosis-Related Group ("DRG") payment amount by an adjustment factor intended to account for the so-called excess readmissions. Initially, STACHs could be subject to a maximum potential reduction of 1 percent in FY 2013. CMS proposes to increase the payment penalties in subsequent fiscal years, increasing the importance of reducing unnecessary readmissions in the future.

Not every patient transferred by a post-acute provider to a STACH will result in a payment penalty to the STACH under the HRRP. For example, if a patient discharged from a STACH to a post-acute provider subsequently receives outpatient services from a STACH "under arrangements" (i.e., under an agreement between the post-acute provider and the STACH for provision of certain specialized services), the patient will not be considered to have been "readmitted" to the STACH for purposes of the HRRP, and will not create risk of reduced payment under the HRRP.

Overview of the Hospital Readmissions Reduction Program The Patient Protection and Affordable Care Act ("PPACA") mandated the adoption of the HRRP for the purpose of reducing Medicare payments for services to patients who have been readmitted to a STACH within a short time after an initial hospital discharge.

Under the HRRP, any STACH that originally discharged a patient to a post-acute provider or to the patient's home runs the risk of receiving a reduction in the payment it receives from Medicare if the patient:

has a diagnosis of myocardial infarction ("AMI"), heart failure ("HF") or pneumonia ("PN") upon discharge from the STACH1 ; and is readmitted as an inpatient to the same STACH, or to a different acute care facility, in 30 days or less with any acute condition (excluding planned readmissions).2 Patients who meet these conditions will be included in CMS' calculation of the original STACH's readmission rate. Hospitals with readmission rates that are higher than a specified threshold will experience decreased Medicare payments for all Medicare discharges.3 The HRRP applies to those STACHs paid under the IPPS and certain demonstration programs.4 LTCHs, SNFs, IRFs and inpatient psychiatric facilities are not subject to a reduction in Medicare payment under the HRRP.

Because the HRRP provisions set forth in the PPACA are not effective until FY 2013, CMS has chosen to implement the...