William & Mary

Schroeder Center Publishes New Study on Medicare Readmissions

A new study to be published in Health Economics features research conducted by Schroeder Center faculty and staff on an important issue affecting hospitals and patients around the country – what happens when Medicare penalizes hospitals that have excess readmission rates for patients treated for pneumonia, heart attacks, and congestive heart failure? Medicare implemented these financial penalties in 2012 under a new program called the Hospital Readmissions Reduction Program or HRRP, an important component of the Affordable Care Act. A readmission is when a patient returns to the hospital shortly after being discharged for a condition. Out of concern that hospitals were readmitting Medicare patients too frequently, a practice that could indicate poor quality of care and also lead to substantial costs for the Medicare program, the HRRP was designed to incentivize hospitals to cut back on readmissions that take place within 30 days. Under the law, if a hospital has a readmission rate for one of the targeted conditions that exceeds the national average rate, with adjustments for differences in the age and health of the patients it treats, the hospital stands to lose as much as 3% of its entire reimbursement for treating all Medicare patients that year.

In “Does It Pay to Penalize Hospitals for Excess Readmissions? Intended and Unintended Consequences of Medicare's Hospital Readmissions Reductions Program,” economics professor Jennifer Mellor and Schroeder Center researchers Michael Daly and Molly Smith used data from Virginia hospitals to test whether the roll-out of the HRRP led to reductions in readmission rates. They found that the HRRP significantly reduced readmission for Medicare patients treated for acute myocardial infarction (AMI), the clinical term for a heart attack. Specifically, the authors compared the probability that an AMI patient was readmitted at hospitals before and after the program went into effect, and at hospitals that were at-risk for the penalty and hospitals that were not at-risk for the penalty. They then made comparisons to patients who were treated at these same hospitals but whose treatment was not subject to a readmission penalty, for example, patients who had private insurance. According to Mellor, “after the HRRP went into effect, our data showed a 2.5 percentage point drop in Medicare AMI readmissions relative to privately insured AMI readmissions, and this decline took place in hospitals that were at-risk for the penalty, that is, those with existing readmission rates that put them in danger of getting a penalty.” For example, a hospital that had a readmission rate below the national average rate before the policy went into effect was highly unlikely to suffer a penalty and said to be not at-risk.

The authors also looked at several other hospital decisions about the treatment of patients in order to identify how exactly hospitals were reducing readmission rates. They found no evidence that hospitals kept patients any longer, or ran more tests and procedures, or admitted healthier patients in the first place. Two possible explanations stood out: that hospitals were offering more “observation care” (something the Virginia data did not allow the authors to test) or that readmissions fell due to steps taken by healthcare providers once the patient left the hospital (for example, due to reminders for follow-up appointments, or assistance with filling prescriptions).

This study provides important new evidence about the success of a policy that continues to receive a lot of attention from hospitals. Molly Smith, a 2016 graduate of the College of William and Mary who majored in Economics, worked on the project as a student and had the chance to present her work at a workshop and a poster session held on campus. Molly plans to apply to graduate school in Economics in the near future, and having a publication under her belt and substantial research experience will surely help with the application process.