More on Reimbursement

New risk adjustment model may reduce financial penalty for safety net hospitals

The new model could reduce the burden for at least half of all safety net hospitals as they care for patients regardless of insurance status.

Jeff Lagasse, Associate Editor

New research shows that safety net hospitals could benefit substantially from a new model that accounts for social risk factors like poverty and living in a disadvantaged neighborhood in determining how the federal government penalizes hospitals financially for their readmission rates.

Researchers say their risk adjustment model could reduce the financial penalty for at least half of all safety net hospitals, which care for patients regardless of their insurance status or ability to pay. And in some cases, it could render them free from any penalty.

Conversely, more affluent hospitals -- those that care for higher-income, better-educated patients -- could see their penalty for readmission rates increase.


The study, published online in Health Services Research, could intensify the debate over the equity of Medicare's Hospital Readmissions Reduction Program, or HRRP. The program, administered by the Centers for Medicare and Medicaid Services, creates financial incentives for hospitals for lowering their readmission rates by penalizing those with higher rates.

Safety net hospitals have long held they are unfairly penalized for their readmission rates under HRRP's current performance model because it doesn't account for social risk factors that put these patients at risk for readmission.

The findings demonstrate the feasibility and impact of adjusting for social factors and financial penalties for HRRP readmissions. The HRRP has been the focus of debate for its exclusion of risk adjustment for social factors since the policy's implementation in 2012.

A 2016 study examining the potential impact of adding adjustment for patient income found little "meaningful change" in readmission rates, though it did not assess the financial impact of the adjustment. Under the 21st Century Cures Act, Congress now requires CMS to assign hospitals to five peer groups based on patients' Medicaid status in assessing penalties under HRRP.


The authors analyzed claims data from nearly three million fee-for-service Medicare patients hospitalized for heart attack, congestive heart failure or pneumonia from December 2012 to November 2015. Their analytic approach was three-pronged: incorporate a broader group of social risk factors than analyzed in other prior research; compare hospital performance on readmissions with and without adjustment for social risk factors; and calculate the financial impact of penalties levied against hospitals after adjusting for social risk factors.

They found that social risk factors like poverty, disability and living in a disadvantaged neighborhood were linked with higher readmissions in all three medical conditions. But when adjusted for social risk factors, the readmission rates for safety net hospitals dropped significantly for all three medical conditions compared to their affluent counterpart hospitals.

The changes translated to a "major shift" in assessed penalties. Safety net hospitals saw a 21.8 percent reduction in penalties, or roughly $17 million, while affluent hospitals saw a 22 percent increase in penalties, or roughly $15 million.


Concerns about HRRP have been around for some time. Since its implementation in 2010, evidence shows it reduced hospital readmissions for certain conditions, as was the program's intent. A 2017 Health Affairs study, however, indicated the current penalty structure leads some hospitals to be penalized persistently, leading to a financial burden.

That burden has resulted in the program becoming controversial to some, despite its purported success. Teaching hospitals, large hospitals, and hospitals treating a high proportion of low-income or dual-eligible patients were more likely than other hospitals to be penalized under the HRRP.

Also, evidence suggests that hospitals penalized under the program are more likely to be penalized by other pay-for-performance programs, such as the Centers for Medicare and Medicaid Services' Value-Based Purchasing and Hospital-Acquired Condition Reduction Programs.

Twitter: @JELagasse

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