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Safety-net hospitals fare better under new Medicare reimbursement rules

Large hospitals and teaching hospitals are the most likely to see reduced penalties; those in states with high Medicaid enrollment will fare better.

Jeff Lagasse, Associate Editor

New Medicare reimbursement rules provide some relief to safety-net hospitals, shifting the burden of financial penalties toward hospitals serving wealthier patient populations, according to a new study led by Washington University School of Medicine in St. Louis.

The new rules also reduce the burden of such penalties on hospitals in states that have more generous Medicaid programs.

Conducted by researchers at Washington University, the Missouri Hospital Association and the Henry Ford Health System in Detroit, the study appears in JAMA Internal Medicine.

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In an effort to reduce healthcare costs, Medicare issues financial penalties via the hospital readmissions reduction program to hospitals with higher than expected readmission rates.

The program -- which can cut a hospital's Medicare reimbursements by up to 3 percent -- has been criticized for unfairly penalizing so-called safety-net hospitals that serve the poorest patients, who are more likely to be readmitted for reasons beyond the hospital's control.

Rather than comparing all hospitals directly, the new rules divide hospitals into five groups based on the proportion of their Medicare patients who are also enrolled in Medicaid. Hospitals are then only compared to peers that treat similar proportions of disadvantaged patients.

Across the five groups of hospitals, the average proportion of patients dually enrolled in Medicare and Medicaid ranged from a low of 9.5 percent to a high of almost 45 percent.

Looking at the most recent data published by the Centers for Medicare and Medicaid Services, the researchers calculated and compared the penalties under the old and new reimbursement rules for just over 3,000 hospitals nationwide. Using the published data, they projected how the penalties will shift by comparing projected penalties under the new rules to what they would have been under the old rules.

Under the new rules, penalties for the hospitals serving the fewest poor patients are projected to increase more than $12 million in total. Meanwhile, penalties for the hospitals serving the highest proportion of poor patients are projected to decrease by more than $22 million in total. On an individual hospital level, the changes are projected to range from an increase in penalties of $225,000 to a decrease of $436,000.

Large hospitals and teaching hospitals are the most likely to see reduced penalties. The study also found reduced penalties among hospitals serving patients from the most disadvantaged neighborhoods and those serving the most patients with disabilities. Hospitals in states with more generous Medicaid enrollment also fare better than those in states with fewer poor patients enrolled in the Medicaid program.


The researchers said they were surprised at the magnitude of the state and regional differences in the shift in penalties, with more penalties for hospitals in the South and Midwest and fewer penalties for hospitals in the West and Northeast.

California, which has generous Medicaid enrollment, had the most reduced penalties. Meanwhile, South Dakota and Florida, two states with fewer poor patients enrolled in Medicaid, had the greatest increases. Overall, much of the shift in penalties between states could be explained by differences in state Medicaid enrollment.

The authors said that while this was a positive change for the HRRP, there's work to be done yet, since there are still disparities in readmissions related to social determinants of health.


The study's findings support those of separate research appearing last month that found safety-net hospitals could benefit substantially from a new model that accounts for social risk factors such as poverty and living in a disadvantaged neighborhood in determining how the federal government penalizes hospitals financially for their readmission rates.

The 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.

Twitter: @JELagasse

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