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Dome - The shifting finances of hospital readmissions

March 2011

The shifting finances of hospital readmissions

Date: March 4, 2011

The HSCRC, which regulates hospital rates in the state, is inviting hospitals to sign up for a voluntary program to reduce readmissions.

Illustration of back-to-back hospital staff pushing patients in wheelchairs

When it comes to hospital readmissions, Maryland carries one of the country’s worst track records, according to a 2009 report in the New England Journal of Medicine.

In that study of 2003–2004 discharges, roughly 22 percent of the state’s Medicare patients found themselves back in the hospital within 30 days, a number second only to Washington, D.C., with 23 percent.

And in its most recent report, the Maryland Health Services Cost Review Commission (HSCRC) found that roughly 17 percent of all hospitalized patients in the state were readmitted to the same facility. Overall readmissions for the four Maryland-based hospitals in Johns Hopkins Health System are about 16 percent, rising to roughly 18 percent at The Johns Hopkins Hospital alone.

Such high readmission rates, observers say, are due partially to the way health care’s financing system works.

“Health care in general is not paid on quality, but on volume,” notes Eric Howell, director of the hospital medicine programs at Johns Hopkins Bayview Medical Center and Howard County General Hospital. “The faster you get a patient through the hospital, the more money you make. And it doesn’t matter if the same patients are going through the hospital repeatedly.”

New federal health care legislation and a statewide incentive program intend to change that. While the federal Patient Protection and Affordable Care Act will penalize hospitals financially for Medicare readmissions deemed preventable, Maryland’s cost-regulating agency will offer rewards for reducing readmissions.

The HSCRC, which regulates hospital rates in the state, is inviting hospitals to sign up for a voluntary program to reduce readmissions. For the next three years, the agency will reimburse each participating hospital for a fixed number of readmissions based on its recent history. If a hospital has fewer annual readmissions than expected, it will be allowed to keep the revenue. Readmissions exceeding the yearly limit, however, will not be paid for at all.

Hopkins is among the first of the state’s 47 hospitals to sign up, according to Stuart Erdman, senior director of finance for Johns Hopkins Medicine who helped develop the HSCRC policy. (The agency expects 25 hospitals to join the reduction initiative.)

The agency has capped readmissions for the Hopkins health system at roughly 10,000 a year. If the health system has 9,000 readmissions, it can keep the money related to the 1,000 admissions that were avoided, resulting in significant cost savings, Erdman says. If there are 11,000 readmissions, however, it must cover the costs for 1,000 readmissions that were in excess of the base. Some types of rehospitalizations, such as follow-up treatments for kidney transplants or certain kinds of cancer, are not counted as preventable readmissions.

An eligible readmission at Hopkins is considered to be a patient who is rehospitalized inside the Hopkins system within 30 days of being discharged. If a patient is discharged from Hopkins and admitted to a non-Hopkins hospital, however, that will not count as a Hopkins readmission.

The finance director believes this incentive program will reward both Hopkins and the agency. “If we reduce our own readmissions, we will not only receive that revenue, but the HSCRC will also benefit from our ability to eliminate some readmissions that would have gone to external hospitals.”

—Linell Smith