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MedPAC Discusses Readmission Payment Reduction Program

September 14, 2012—At the Sept. 7 meeting of the Medicare Payment Advisory Commission (MedPAC), commissioners discussed the readmission payment reduction program legislated by section 3025 of the Affordable Care Act (ACA, P.L. 111-148 and P.L. 111-152). MedPAC staff urged caution as the commissioners proceed in their discussions, as any policy changes to the readmission program will require a legislative fix.  

MedPAC staff reiterated the importance of reducing readmissions and provided data showing readmission rates have improved from 2009-2011, although not significantly.  Their analysis also indicated that hospitals that serve a high percentage of low income patients tend to have higher readmission rates.  This finding is consistent with the analysis the AAMC has conducted.

MedPAC staff raised four long term issues with the implementation of the readmission program:

  • Computation of the readmission penalty, which as currently constructed, will result in higher penalties as hospital readmission rates decrease.  Therefore, according to staff, the program penalizes providers for making improvements and does not provide appropriate incentives. 
  • Lack of exclusions for planned and unrelated readmissions in the current readmission measures. 
  • The readmission program does not take into account socio-economic status (SES) in the risk-adjustment methodology. 
  • The impact of random variation and small number of observations in certain hospitals.  The lack of sufficient related discharges impacts the ability of these hospitals to participate in the program, and for those that can participate, the question remains if rates that are based on such a small number of cases are an accurate depiction of the quality of care. 

MedPAC staff to proposed a variety of possible solutions for each issue including eliminating the current multiplier approach and setting a fixed readmission rate for all hospitals based on an historical average; moving to an all-condition measure that would have more appropriate exclusions for planned and unrelated readmissions; and possibly adding SES status to the risk-adjustment model.

Several commissioners were very supportive of identifying an approach to address the SES issue, so that hospitals that treat these patients are not unfairly penalized.  Some commissioners also were interested in focusing on what was in the control of the hospital.  While various alternatives were discussed, no recommendations were made.  MedPAC will continue to discuss the readmission reduction program at future meetings. 

During the public comment period, the AAMC discussed the results of its readmission analysis, which also shows that hospitals with high rates of dual-eligibles have higher readmission rates.  In addition, AAMC shared its recommendation to the Centers for Medicare and Medicaid Services (CMS) to address the SES issue, which is to apply a payment adjustment using a stratification approach based on proportion of dual-eligible patients.  The AAMC offered to work with MedPAC staff and share the results of the data analysis, as well as help identify alternatives for addressing the SES issue in the future. 

In addition to readmissions, the commission also focused on issues – including approaches to post-acute care services, the geographic adjustment of payments for the work of physicians and other health professionals, and competitively-determined plan contributions – but did not yet propose any recommendations in these areas. 

Competitively-determined plan contributions are a new topic for the commission’s consideration and, similar to the so-called “premium support” models of benefit design, would involve a federal contribution to buy Medicare coverage that would be competitively determined.  Under this model, individual premiums would vary depending on the beneficiary’s choice of coverage and the level of the federal contribution.  Commission staff sought to define next steps for research on this topic and announced plans to study such subjects as the importance and adequacy of risk adjustment and how to address issues regarding low-income beneficiaries. 

During the public comment period, the AAMC encouraged the commission and the staff also to consider the effects of this type of benefit design on traditional policy payments like direct graduate medical education, indirect medical education, and disproportionate share hospital payments.

The next public meeting of MedPAC is Oct. 4 - 5.

The presentation slides for all of the sessions, as well as a transcript of the meeting is available on the MedPAC website.


Jennifer Faerberg, MHSA
Director, Clinical Transformation Unit
Telephone: 202-862-6221


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