Hospitals Brace for Increased Medicare Patient Readmission Penalties by Whitney K. Schiffer, CPA

Posted on September 09, 2016 by Whitney Schiffer

Beginning on October 1, 2016, more than half of the United States’ acute-care hospitals that are paid through the Inpatient Prospective Payment System (IPPS) will receive less money from Medicare due to a history of higher-than-expected patient readmissions within 30 days of discharge. The penalties, which can equal as much as a 3 percent reduction in a hospital’s Medicare rate, are a part of the Hospital Readmissions Reduction Program (HRRP), which was created under the Affordable Care Act (ACA), to pay hospitals for the value of care provided to Medicare beneficiaries, rather than volume of care. Under the ACA, certain hospitals are excluded from the penalties, including those serving veterans, children and psychiatric patients.


The Medicare payment adjustments are measured by a ratio based on the “appropriate” number of patient readmissions, as determined by Medicare and the number of actual readmissions that occurred between July 1, 2012, and June 30, 2015, for patients whose original care focused on certain conditions, such as heart attack, heart failure, coronary artery bypass graft surgery, pneumonia, chronic obstructive pulmonary disease (COPD) and elective total knee or total hip replacements. The reimbursement reductions are then applied prospectively to all of a hospital’s Medicare patient billing, regardless of the reason for patient admission, for fiscal year 2017, which begins in October 2016. The Centers for Medicare and Medicaid Services (CMS) annually provides hospitals with a 30-day window to review and correct confidential reports detailing the excess readmission calculations via its QualityNet portal. For the 2017 fiscal year, this period occurred in June 2016.


Since the HRRP program began in 2012, the rate of unplanned hospital readmissions have declined while CMS has increased the number of medical conditions the program measures. As a result, the number of hospitals being penalized in FY 2017 will not differ significantly from the prior year, but the penalties are expected to rise to $528 million, which is approximately $108 million more than last year.


Hospitals that are a part of the Inpatient Prospective Payment System (IPPS), must prepare for lower Medicare reimbursements while also aiming to reduce patient readmissions through quality control measures. Failure to do so will not only result in reimbursement cuts, it will also put hospitals’ reputations at risk when CMS posts readmission data on the publically accessible Hospital Compare website.


The advisors and accountants with Berkowitz Pollack Brant have extensive experience providing tax, audit, litigation support and consulting services to hospitals, physician practices, HMOs and third-party administrators.


About the Author: Whitney K. Schiffer, CPA, is a director with the Audit and Attest Services practice of Berkowitz Pollack Brant, where she works with hospitals, health care providers, HMOs and third-party administrators. She can be reached in the firm’s Miami office at (305) 379-7000 or via email at